Bank Building 10QSB 2006 Q2 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from            to            

Commission file number 33-64520

BANK BUILDING CORPORATION

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

Virginia	54-1714800
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

1300 Kings Mountain Road, Martinsville, Virginia 24112

(Address of principal executive offices)

(276) 656-1776

(Issuer’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

There are 398,244 shares of the issuer’s common stock outstanding as of August 14, 2006.

Transitional Small Business Disclosure Format (Check one):    Yes  ¨    No  x

INDEX

PART I -FINANCIAL INFORMATION	3
Item 1 -Financial Statements.	3
Consolidated Statements of Financial Condition	3
Consolidated Statements of Income	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6
Item 2 -Management’s Discussion and Analysis or Plan of Operation.	6
Item 3 -Controls and Procedures.	8
PART II -OTHER INFORMATION	9
Item 1 -Legal Proceedings.	9
Item 2 -Unregistered Sales of Equity Securities and Use of Proceeds.	9
Item 3 -Defaults Upon Senior Securities.	10
Item 4 -Submission of Matters to a Vote of Security Holders.	10
Item 5 -Other Information.	10
Item 6 –Exhibits.	10

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Part I - Financial Information

Item 1 - Financial Statements.

Consolidated Statements of Financial Condition

	June 30, 2006		December 31, 2005
	(Unaudited)
Assets
Current assets
Cash	$	68,429	$	110,119
Property – net		31,930,363		32,266,395
Other assets		210,513		194,709
Total assets	$	32,209,305	$	32,571,223
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	58,027	$	58,048
Accrued interest		197,927		195,492
Income taxes payable		249,588		184,839
Current portion of long-term debt		3,373,946		3,373,848
Notes payable		25,000		25,000
Total current liabilities	$	3,904,488	$	3,837,227
Long-term liabilities
Long-term debt - net of current portion		26,956,713		27,505,964
Deferred income taxes		66,313		66,313
Total long-term liabilities		27,023,026		27,572,277
Total liabilities		30,927,514		31,409,504
Stockholders’ equity
Common Stock, no par value, 400,000 shares authorized; 398,244 shares issued and outstanding		0		0
Retained earnings		1,281,791		1,161,719
Total stockholders’ equity		1,281,791		1,161,719
Total liabilities and stockholders’ equity	$	32,209,305	$	32,571,223

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated Statements of Income

(Unaudited)

	Six Months Ended June 30,				Three Months Ended June 30,
	2006		2005		2006		2005
Income
Lease income	$	1,937,089	$	1,925,216	$	954,966	$	926,672
Other income		0		18		0		18
Total income		1,937,089		1,925,234		954,966		926,690
Operating expenses
Interest		1,186,552		1,122,749		593,155		558,442
Depreciation		336,345		331,966		168,173		165,983
Taxes and insurance		0		24,759		0		0
Repairs		101,546		178,235		62,264		60,513
Professional fees		34,081		4,209		9,188		(219	)
Other		93,289		55,355		53,384		51,330
Total operating expenses		1,751,813		1,717,273		886,163		836,049
Income before income taxes		185,276		207,961		68,803		90,641
Income taxes		65,204		0		25,604		0
Net income	$	120,072	$	207,961	$	43,199	$	90,641
Retained earnings, beginning of period	$	1,161,719	$	864,212	$	0	$	0
Retained earnings, end of period	$	1,281,791	$	1,072,173	$	43,199	$	90,641
Basic and diluted earnings per share	$	0.30	$	0.52	$	0.11	$	0.23

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
	2006			2005
Cash flows from operating activities
Net income	$	120,072		$	207,961
Adjustments to reconcile to net cash from operating activities:
Depreciation		336,345			331,966
Deferred income taxes		0			(78,990	)
Change in:
Other assets		(15,804	)		(562,502	)
Accounts payable		(21	)		92,287
Other liabilities		0			804,059
Income taxes payable		64,749			(211,737	)
Accounts receivable		0			98,035
Accrued interest		2,435			0
Net cash from operating activities		507,776			681,079
Cash flows from investing activities
Sale (purchase) of property		(313	)		226,937
Net cash from investing activities		(313	)		226,937
Cash flows from financing activities
Repayment of long-term debt		(549,153	)		(543,306	)
Net cash from financing activities		(549,153	)		(543,306	)
Net change in cash		(41,690	)		364,710
Cash - beginning of period		110,119			0
Cash - end of period	$	68,429		$	364,710
Supplemental disclosures of cash flow information
Cash paid for interest	$	1,184,117		$	0
Cash paid for income taxes	$	455		$	0

The accompanying notes are an integral part of these consolidated financial statements.

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Notes to Consolidated Financial Statements

1. Presentation of Statements

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (all of which were normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods.

The accompanying financial statements include the Corporation’s wholly-owned subsidiary, Blackstone Properties, LLC. All intercompany transactions between the Corporation and Blackstone Properties have been eliminated in these statements. Blackstone Properties owns a shopping center in southside Virginia and an office park in Roanoke, Virginia, and leases space to a number of retail tenants.

The results of operations for the interim period ended June 30, 2006 are not necessarily indicative of the results which may be expected for the full year ending December 31, 2006. These unaudited financial statements should be read in conjunction with the financial statements and footnotes thereto and accounting policies included in the Corporation’s 2005 Form 10-KSB filed with the Securities and Exchange Commission (the SEC).

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and income and expenses during the reporting period. Actual results could differ from those estimates.

Item 2 - Management’s Discussion and Analysis or Plan of Operation.

This report contains statements concerning the Corporation’s expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements may constitute “forward-looking statements” as defined by federal securities laws. In some cases, readers can identify the forward-looking statements by the use of words such as “may,” “ will,” “should,” “could,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative or other variations of these words, or other comparable words or phrases. These statements may address issues that involve estimates and assumptions made by management, risks and uncertainties, and actual results could differ materially from historical results or those anticipated by such statements. Factors that could have a material adverse effect on the Corporation’s operations and future prospects include, but are not limited to: desired business strategies, general economic conditions, interest rates, developments in local and national markets, and other matters, which, by their nature, are subject to significant uncertainties. These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this report.

General

The primary purpose of Bank Building Corporation (the Corporation) is to acquire and develop property for lease as bank offices to the banks with which the Corporation maintains business relationships (Participating Banks). As of June 30, 2006, the Participating Banks consisted of Blue Ridge Bank, National Association, Floyd, Virginia; Central National Bank, Lynchburg, Virginia; Community National Bank, South Boston, Virginia; First National Bank, Rocky Mount, Virginia; First National Exchange Bank, Roanoke, Virginia; Mountain National Bank, Galax, Virginia; Patrick Henry National Bank, Bassett, Virginia; Patriot Bank, National Association, Fredericksburg, Virginia; Peoples National Bank, Danville, Virginia; and Shenandoah National Bank, Staunton, Virginia.

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The selection of sites and construction of the offices is done by the particular Participating Bank that will lease the particular site to insure the needs of that bank are met. There are, however, no commitments on the part of any Participating Bank to present prospective office properties to the Corporation nor are there any commitments on the part of the Corporation to accept any prospective office properties offered by any of the Participating Banks. The acquisition and development of property is financed through loans from various sources. From time to time Participating Banks make loans in connection with the acquisition of a site for another Participating Bank. The Corporation does not, however, seek loans for the acquisition of a given site from the particular Participating Bank that intends to lease that site. The Corporation also acquires funds for site acquisition and development from banks that are not Participating Banks.

Critical Accounting Policies

As of June 30, 2006, there have been no significant changes with regard to the application of critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis” in the Corporation’s annual report on Form 10-KSB for the fiscal year ended December 31, 2005. The policies disclosed included: Accounting for the Acquisition and Classification of Real Estate Assets and Accounting for Dispositions and Impairment of Real Estate.

Properties

As of June 30, 2006, the Corporation owned 46 offices that are leased to various Participating Banks under triple net operating leases. The leasing bank is responsible for all property taxes, insurance and maintenance costs on each leased office. The Corporation incurs interest and depreciation expenses related to each office as well as other, minimal operating costs.

The Corporation also owns the Westlake Corner Shopping Center near Smith Mountain Lake. This center consists of 50,000 square feet of space on 29 acres. The anchor tenants for the center are Food Lion, Revco, and Family Dollar Store. First National Bank, Rocky Mount, Virginia opened an office on a portion of this property on June 5, 1998.

The Corporation also owns Blackstone Properties, LLC, a wholly owned subsidiary. Blackstone Properties owns two properties: a shopping center in southside Virginia and Executive Office Park, an office complex located in Roanoke, Virginia. The shopping center maintains various retail tenants. Executive Office Park is an office complex consisting of six separate buildings containing approximately 54,000 square feet of space divided into 28 suites. The Corporation also owns a Golden Corral Restaurant in Raleigh, North Carolina, which is leased to a third party.

Operating Results

Net Income.For the first six months of 2006, the Corporation generated net income of $120,072 compared to $207,961 for the same period of the previous year, for a decrease of $87,889 or 42%. The decrease in net income is attributable to increases in operating expenses along with an increased accrual for income taxes in the second quarter of 2006 compared to the same period of 2005. Lease income was 100% of total income for the first six months of 2005 and 2006. Lease income has historically been the Corporation’s principal source of revenue.

Operating Expenses. Operating expenses for the first six months of 2006 were $1,751,813 as compared to $1,717,273 for the same period of 2005. This increase of $34,540, is due to increases in all expenses with the exception of taxes and repairs, which decreased. Depreciation and interest expense have historically been the Corporation’s principal operating expenses.

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Interest expense increased to $1,186,552 for the first six months of 2006 from $1,122,749 in the same period of 2005, for an increase of $63,803 or 6%. The change in interest expense was due to an increase in interest rates under certain variable rate mortgages which repriced in the first quarter of 2006.

Depreciation expense increased to $336,345 in the first six months of 2006 from $331,966 in the same period of 2005, for an increase of $4,379 or 1%.

Other operating expenses decreased to $228,916 for the first six months of 2006 from $237,799 in the same period of 2005, for a decrease of $8,883 or 4%. Repairs expense decreased, while additional other expenses increased. Other expense consists largely of maintenance and repairs and operational utilities for the shopping center owned by Blackstone Properties.

Financial Condition, Liquidity and Capital Resources

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of business operations. The Corporation’s main source of liquidity is lease income. Cash outflows consist of payments for operating expenses, interest expense, income taxes, and repayment of mortgage borrowings. The Corporation’s cash flow from operations was $507,776 for the first six months of 2006 compared to $681,079 for the same period of 2005.

As of June 30, 2006, the Corporation’s main source of liquidity consisted of $68,429 cash. In addition, the Corporation owns unencumbered real estate having an aggregate book value of approximately $31,930,363. Management believes that its cash flow from operations and these other potential sources of cash will be sufficient to finance current and projected operations.

The Corporation has not paid dividends to its shareholders.

Off-Balance Sheet Arrangements

The Corporation does not have any off-balance sheet arrangements.

Recent Accounting Pronouncements

There were no significant recent accounting pronouncements that would affect the Corporation in this period.

Item 3 - Controls and Procedures.

The Corporation maintains a system of disclosure controls and procedures that is designed to ensure that material information is accumulated and communicated to management, including the Corporation’s president (who is currently the Corporation’s principal executive officer and principal financial officer), as appropriate to allow timely decisions regarding required disclosure. As required, during the preparation of this report, management, with the participation of the Corporation’s president, evaluated the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on this evaluation, the Corporation’s president concluded that the Corporation’s disclosure controls and procedures were not operating effectively as of the end of the period covered by this report because the controls and procedures necessary to ensure the timely preparation and filing of reports required to be filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), were not in place.

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During the fourth quarter of 2005 and the first two quarters of 2006, the Corporation implemented significant changes to the Corporation’s reporting processes in an effort to ensure that relevant information is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC so that the Corporation’s future periodic and other reports required by the Exchange Act will be filed on time and accurately. Specific steps taken by the Corporation include:

• the assignment of additional staff resources to the preparation and oversight of disclosure matters, with the position descriptions of these employees having been expanded to include these additional tasks as primary job responsibilities;

• the holding of regular staff meetings to discuss disclosure issues; and

• formal planning by senior management and responsible employees for the handling of future filings, including the specific assignment of responsibility for drafting, analysis, and scheduling of disclosure and financial reporting.

With the implementation of these additional measures, management believes that the weaknesses in the Corporation’s disclosure controls and procedures are in the process of being corrected.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Corporation’s disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Corporation to disclose material information otherwise required to be set forth in the Corporation’s periodic reports.

The Corporation’s management is also responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There were no changes in the Corporation’s internal control over financial reporting during the quarter covered by this report that materially affected, or were reasonably likely to materially affect, the Corporation’s internal control over financial reporting. However, as noted above, during the fourth quarter of 2005 and the first two quarters of 2006, the Corporation implemented significant changes to the Corporation’s reporting processes in an effort to ensure that relevant information is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC so that the Corporation’s periodic and other reports required by the Exchange Act will be filed on time and accurately.

Part II - Other Information

Item 1 - Legal Proceedings.

There are no material pending legal proceedings to which the Corporation is a party or to which any of the Corporation’s property is subject.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.

The Corporation did not sell or repurchase any of its equity securities during the period covered by this report.

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Item 3 - Defaults Upon Senior Securities.

There have been no defaults on any securities.

Item 4 - Submission of Matters to a Vote of Security Holders.

There were no matters presented to a vote of security holders during the period covered by this report.

Item 5 - Other Information.

None.

Item 6 - Exhibits.

Exhibits.

3.1	Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form SB-2 filed with the SEC on June 16, 1993)
3.2	Bylaws (incorporated by reference to Exhibit 3.2 to Form SB-2 filed with the SEC on June 16, 1993)
31	Certification by principal executive officer and principal financial officer pursuant to Rule 13a-14(a)
32	Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C. § 1350

SIGNATURES

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

	BANK BUILDING CORPORATION
DATE: September 28, 2006	By:	/s/ Worth Harris Carter, Jr.
		Worth Harris Carter, Jr. Chairman of the Board, President, Chief Executive Officer and Chief Financial Officer (signing on behalf of the registrant and as principal executive and financial officer of the registrant)

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