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 MARCH 31, 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 March 31, 2002 was 2,176,676 shares.
BLUE VALLEY BAN CORP
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Independent Accountants' Report.....................................................................3
Consolidated Balance Sheets - March 31, 2002 (unaudited) and December 31, 2001.....................4
Consolidated Statements of Income (unaudited) -
three months ended March 31, 2002 and 2001........................................................6
Consolidated Statements of Stockholders' Equity (unaudited) -
three months ended March 31, 2002 and 2001 .......................................................7
Consolidated Statements of Cash Flows (unaudited) -
three months ended March 31, 2002 and 2001........................................................8
Notes to Consolidated Financial Statements (unaudited) -
three months ended March 31, 2002 and 2001........................................................9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...........................................................................14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.............................................................................23
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.....................................................23
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...............................................................23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................................23
ITEM 5. OTHER INFORMATION.............................................................................23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..............................................................23
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Blue Valley Ban Corp
Overland Park, Kansas 66225
We have reviewed the consolidated balance sheet of Blue Valley Ban Corp as of
March 31, 2002, and the related consolidated statements of income, stockholders'
equity and cash flows for the three-month periods ended March 31, 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 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, 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
April 26, 2002
3
BLUE VALLEY BAN CORP
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
(dollars in thousands, except share data)
ASSETS
MARCH 31, DECEMBER 31,
2002 2001
--------------------------------------
(Unaudited)
Cash and due from banks $ 23,610 $ 20,159
Federal funds sold 31,500 5,000
--------------- ---------------
Cash and cash equivalents 55,110 25,159
Available-for-sale securities 66,041 77,676
Mortgage loans held for sale 57,584 41,853
Loans, net of allowance for loan losses of $5,003
and $5,267 in 2002 and 2001, respectively 331,035 328,808
Premises and equipment 8,122 8,079
Foreclosed assets held for sale, net 188 49
Interest receivable 2,409 2,513
Deferred income taxes 1,205 904
Prepaid expenses and other assets 2,482 2,072
Federal Home Loan Bank stock, Federal Reserve Bank stock,
and other securities 4,352 3,477
Core deposit intangible asset, at amortized cost 1,395 1,433
---------------- ---------------
Total assets $ 529,923 $ 492,023
=============== ===============
See Accompanying Notes to Consolidated Financial Statements
and Independent Accountant's Report
4
BLUE VALLEY BAN CORP
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
(dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
2002 2001
----------------------------------------
(Unaudited)
LIABILITIES
Deposits
Demand $ 74,378 $ 74,229
Savings, NOW and money market 175,203 157,336
Time 183,645 162,680
--------------- ---------------
Total deposits 433,226 394,245
Securities sold under agreements to repurchase 12,913 17,173
Long-term debt 36,078 36,118
Guaranteed preferred beneficial interest in Company's
subordinated debt 11,500 11,500
Advances from borrowers for taxes and insurance 3,051 383
Accrued interest and other liabilities 3,813 4,079
--------------- ---------------
Total liabilities 500,581 463,498
--------------- ---------------
STOCKHOLDERS' EQUITY
Capital stock
Common stock, par value $1 per share;
authorized 15,000,000 shares; issued and outstanding
2002 -- 2,176,676 shares; 2001 -- 2,175,176 2,177 2,175
Additional paid-in capital 5,669 5,641
Retained earnings 21,038 19,878
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities,
net of income taxes of $305 in 2002 and $553 in 2001 458 831
--------------- ---------------
Total stockholders' equity 29,342 28,525
--------------- ---------------
Total liabilities and stockholders' equity $ 529,923 $ 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 ENDED MARCH 31, 2002 AND 2001
(dollars in thousands, except share data)
THREE MONTHS ENDED MARCH 31,
2002 2001
----------------------------------------
(Unaudited) (Unaudited)
INTEREST INCOME
Interest and fees on loans $ 6,586 $ 6,904
Federal funds sold 16 341
Available-for-sale securities 1,016 1,200
Held-to-maturity securities -- 40
--------------- ---------------
Total interest income 7,618 8,485
--------------- ---------------
INTEREST EXPENSE
Interest-bearing demand deposits 95 245
Savings and money market deposit accounts 803 1,507
Other time deposits 2,048 2,419
Securities sold under repurchase agreements 40 112
Long-term debt and advances 788 613
--------------- ---------------
Total interest expense 3,774 4,896
--------------- ---------------
NET INTEREST INCOME 3,844 3,589
PROVISION FOR LOAN LOSSES 600 540
--------------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,244 3,049
--------------- ---------------
NONINTEREST INCOME
Loans held for sale fee income 3,008 297
Service fees 435 326
Other income 129 275
--------------- ---------------
Total noninterest income 3,572 898
--------------- ---------------
NONINTEREST EXPENSE
Salaries and employee benefits 3,319 1,913
Net occupancy expense 450 306
Other operating expense 1,271 961
--------------- ---------------
Total noninterest expense 5,040 3,180
--------------- ---------------
INCOME BEFORE INCOME TAXES 1,776 767
PROVISION FOR INCOME TAXES 616 255
--------------- ---------------
NET INCOME $ 1,160 $ 512
=============== ===============
BASIC EARNINGS PER SHARE $ 0.53 $ 0.24
===== ======
DILUTED EARNINGS PER SHARE $ 0.52 $ 0.23
===== ======
See Accompanying Notes to Consolidated Financial Statements
and Independent Accountant's Report
6
BLUE VALLEY BAN CORP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 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 20,556 shares
of common stock 20 213 -- -- 233
Net income $ 512 -- -- 512 -- 512
Change in unrealized
appreciation on
available-for-sale
securities, net of
income taxes of $209 314 -- -- -- 314 314
----------- ----------- ----------- ----------- ----------- -----------
$ 826
BALANCE, MARCH 31, 2001 =========== $ 2,162 $ 5,490 $ 16,447 $ 775 $ 24,874
----------- ----------- ----------- ----------- -----------
Issuance of 12,900 shares
of common stock 13 151 -- -- 164
Net income $ 3,431 -- -- 3,431 -- 3,431
Change in unrealized
appreciation on
available-for-sale
securities, net of
income taxes of $37 56 -- -- -- 56 56
----------- ----------- ----------- ----------- ----------- -----------
$ 3,487
BALANCE, DECEMBER 31, 2001 =========== $ 2,175 $ 5,641 $ 19,878 $ 831 $ 28,525
----------- ----------- ----------- ----------- -----------
Issuance of 1,500 shares
of common stock 2 28 -- -- 30
Net income $ 1,160 -- -- 1,160 -- 1,160
Change in unrealized
appreciation on
available-for-sale
securities, net of
income taxes of $(248) (373) -- -- -- (373) (373)
----------- ----------- ----------- ----------- ----------- -----------
$ 787
BALANCE, MARCH 31, 2002 =========== $ 2,177 $ 5,669 $ 21,038 $ 458 $ 29,342
=========== =========== =========== =========== ===========
RECLASSIFICATION DISCLOSURE: March 31, December 31, March 31,
--------- ------------ ---------
2002 2001 2001
---- ---- ----
Unrealized appreciation (depreciation) on
available-for-sale securities, net of income taxes (credit) of $(232),
$151, and $296 for the periods ended March 31, 2002, December 31, 2001
and March 31, 2001, respectively $ (349) $ 226 $ 444
Less: reclassification adjustments for appreciation
included in net income, net of income taxes of
$(16), $(114) and $(87) for the periods ended
March 31, 2002, December 31, 2001 and March 31,
2001, respectively 24 170 130
----------- ----------- -----------
Change in unrealized appreciation on
available-for-sale
securities, net of income taxes (credit) of
$(248), $37, and $209 for the periods ended March
31, 2002, December 31, 2001 and March 31, 2001,
respectively $ (373) $ 56 $ 314
============ =========== ===========
See Accompanying Notes to Consolidated Financial Statements
and Independent Accountant's Report
7
BLUE VALLEY BAN CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(dollars in thousands, except share data)
MARCH 31, 2002 MARCH 31, 2001
----------------------------------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net income $ 1,160 $ 512
Items not requiring (providing) cash
Depreciation and amortization 224 166
Amortization of premiums and discounts on securities 14 13
Provision for loan losses 600 540
Deferred income taxes (53) (92)
Gain on sales of available-for-sale securities (40) (217)
Loss on sale of foreclosed assets 19 94
Loss on sale of premises and equipment 10 --
Changes in
Accrued interest receivable 104 279
Mortgage loans held for sale (15,731) (6,643)
Prepaid expenses and other assets (411) 536
Accrued interest payable and other liabilities (266) 454
--------------- ---------------
Net cash used in operating activities (14,370) (4,358)
--------------- ---------------
INVESTING ACTIVITIES
Net originations of loans (4,078) (11,875)
Proceeds from sales of loan participations 1,015 107
Purchase of premises and equipment (250) (326)
Proceeds from the sale of foreclosed assets 78 276
Proceeds from the sale of premises and equipment 12 --
Proceeds from sales of available-for-sale securities 5,035 5,192
Proceeds from maturities of available-for-sale securities 6,005 13,000
Purchases of available-for-sale securities -- (5,291)
Purchases of Federal Home Loan Bank stock (875) --
--------------- ---------------
Net cash provided by investing activities 6,942 1,083
--------------- ---------------
FINANCING ACTIVITIES
Net increase in demand deposits, money market, NOW
and savings accounts 18,016 10,726
Net increase in certificates of deposit 20,965 15,297
Repayments of long-term debt (40) (36)
Proceeds from sale of common stock 30 233
Net decrease in other borrowings (4,260) (353)
Net increase (decrease) in advances from borrowers for taxes
and insurance 2,668 (1,035)
--------------- ---------------
Net cash provided by financing activities 37,379 24,832
--------------- ---------------
INCREASE IN CASH AND CASH EQUIVALENTS 29,951 21,557
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 25,159 35,920
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 55,110 $ 57,477
=============== ===============
See Accompanying Notes to Consolidated Financial Statements
and Independent Accountant's Report
8
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 March 31, 2002, and
the consolidated results of its operations, changes in stockholders'
equity and cash flows for the periods ended March 31, 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 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, 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 their review accompanies the
consolidated financial statements included in Item 1 of Part I.
NOTE 2: EARNINGS PER SHARE
Basic earnings per share is computed based on the weighted average
number of shares outstanding during each year. Diluted earnings per
share is computed using the weighted average common shares and all
potential dilutive common shares outstanding during the period.
The computation of per share earnings for the three-months ended March
31, 2002 and 2001 is as follows:
2002 2001
----------------------------------------
(Unaudited) (Unaudited)
(dollars in thousands, except
share and per share data)
Net income $ 1,160 $ 512
=============== ===============
Average common shares outstanding 2,175,243 2,151,460
Average common share stock options outstanding 57,098 43,363
--------------- ---------------
Average diluted common shares 2,232,341 2,194,823
=============== ===============
Basic earnings per share $0.53 $0.24
==== ====
Diluted earnings per share $0.52 $0.23
==== ====
See Independent Accountants' Report
9
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Unaudited)
NOTE 3: LONG-TERM DEBT
Long-term debt at March 31, 2002 and December 31, 2001, consisted of the
following components:
MARCH 31, 2002 DECEMBER 31, 2001
----------------------------------------
(Unaudited)
(in thousands)
Note payable -- other (A) $ 1,578 $ 1,618
Note payable -- bank (B) 2,000 2,000
Federal Home Loan Bank advances (C) 32,500 32,500
--------------- ---------------
Total long-term debt $ 36,078 $ 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 securities, 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 March 31, 2002, approximately
$69,926,000 was available.
Aggregate annual maturities of long-term debt at March 31, 2002 are as
follows:
(in thousands)
April 1 to December 31, 2002 $ 122
2003 2,175
2004 188
2005 203
2006 219
Thereafter 33,171
---------------
$ 36,078
===============
See Independent Accountants' Report
10
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 March 31, 2002 and 2001. Net income for the quarter
ended March 31, 2002, was $1.2 million, as compared to net income of
$512,000 for the quarter ended March 31, 2001, representing an increase
of $648,000, or 126.56%. Diluted earnings per share increased 126.09% to
$0.52 during the first quarter of 2002 from $0.23 in the same period of
2001. The Company's annualized return on average assets and average
stockholders' equity for the three-month period ended March 31, 2002
were 0.92% and 16.11%, compared to 0.49% and 8.57%, respectively, for
the same period in 2001, increases of approximately 88%. The principal
contributor to our increase in net income from the prior year first
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 continued through the first quarter of 2002. The Company's
Internet Mortgage Division was expanded considerably 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 our 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 three-month period ended March 31, 2002 as compared to the
same period in 2001.
Net interest income for the three-month period ended March 31, 2002 was
$3.8 million, an increase of $255,000, or 7.11%, from $3.6 million for
the three-month period ended March 31, 2001.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Interest income for the current year first quarter was $7.6 million, a
decrease of $867,000, or 10.22%, from $8.5 million in the prior year
first quarter. This decrease was primarily a result of an overall
decrease in the yield on average earning assets of 214 basis points to
6.58% in the first quarter of 2002, as compared to 8.72% in the prior
year first quarter. Average earning asset volume increased from the
first quarter of 2001 to the current period by $76.0 million, or 19.06%,
which partially offset the decrease in yield on interest-earning assets.
The 214 basis point decrease in yield has resulted primarily from
decreases in market interest rates during 2001.
Interest expense for the current year first quarter was $3.8 million, a
decrease of $1.1 million, or 22.92%, from $4.9 million in the prior year
first quarter. The decrease is attributable to a decrease in the rates
paid on average interest-bearing liabilities during the first quarter of
2002. 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 CD's
offered during May, June and July of 2000, which bore interest rates
notably higher than current market rates, renewed, repriced or matured
during the three-month period ended March 31, 2002 at significantly
lower rates. The rate paid on total average interest-bearing liabilities
decreased to 3.72% at March 31, 2002 as compared to 5.59% at March 31,
2001, a decrease of 187 basis points. Average interest-bearing deposits
increased by $32.4 million, or 10.55% from the prior year and other
interest-bearing liabilities increased by $24.3 million or 50.29% from
the prior year, mainly in the form of long-term FHLB borrowings. The
increase in 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
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.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
AVERAGE BALANCES, YIELDS AND RATES
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------------
2002 2001
---------------------------------- ------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- --------- --------- ---------- --------- ---------
(Dollars in thousands)
ASSETS
Federal funds sold........................ $ 5,422 $ 16 1.20% $ 25,152 $ 341 5.50%
Investment securities -- taxable.......... 58,239 841 5.86 62,509 1,058 6.86
Investment securities -- non-taxable (1).. 15,224 265 7.06 15,613 275 7.14
Mortgage loans held for sale.............. 60,356 948 6.37 3,215 59 7.44
Loans, net of unearned discount and fees.. 335,520 5,638 6.81 292,277 6,845 9.50
-------- -------- --------- --------
Total earning assets.................... 474,761 7,708 6.58 398,766 8,578 8.72
-------- -------- --------- --------
Cash and due from banks -- non-interest
bearing................................. 20,985 13,718
Allowance for possible loan losses........ (4,908) (4,463)
Premises and equipment, net............... 8,101 6,671
Other assets.............................. 11,144 8,707
-------- ---------
Total assets............................ $ 510,083 $ 423,399
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits-interest bearing:
Interest-bearing demand accounts.......... $ 28,083 $ 95 1.37% $ 29,373 $ 245 3.38%
Savings and money market deposits......... 139,315 803 2.34 127,774 1,507 4.78
Time deposits............................. 171,708 2,048 4.84 149,592 2,419 6.56
-------- -------- --------- --------
Total interest-bearing deposits......... 339,106 2,946 3.52 306,739 4,171 5.51
-------- -------- --------- --------
Short-term borrowings..................... 24,906 87 1.42 19,996 218 4.42
Long-term debt ........................... 47,592 741 6.31 28,244 507 7.28
-------- -------- --------- --------
Total interest-bearing liabilities ..... 411,604 3,774 3.72 354,979 4,896 5.59
-------- -------- --------- --------
Non-interest bearing deposits............. 65,748 41,354
Other liabilities ........................ 3,532 2,832
Stockholders' equity...................... 29,199 24,234
-------- ---------
Total liabilities and stockholders'
equity.............................. $ 510,083 $ 423,399
======== ==========
Net interest income/spread ............... $ 3,934 2.86% $ 3,682 3.13%
======== ======== ======== ========
Net interest margin....................... 3.36% 3.74%
======== ========
- ---------------
(1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%.
14
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:
- changes in volume, reflecting changes in volume multiplied
by the current period rate; and
- changes in rate, reflecting changes in rate multiplied by
the prior period volume.
For purposes of this table, changes attributable to both rate and
volume, which cannot be segregated, have been allocated proportionately
to the change due to volume and the change due to rate.
CHANGES IN INTEREST INCOME AND
EXPENSE VOLUME AND RATE VARIANCES
THREE MONTHS ENDED MARCH 31,
2002 COMPARED TO 2001
---------------------------------
CHANGE CHANGE
DUE TO DUE TO TOTAL
RATE VOLUME CHANGE
------- ------- -------
(Dollars in thousands)
Federal funds sold ............................ $ (267) $ (58) $ (325)
Investment securities -- taxable .............. (155) (62) (217)
Investment securities -- non-taxable (1) ...... (3) (7) (10)
Mortgage loans held for sale .................. (8) 897 889
Loans, net of unearned discount ............... (1,930) 723 (1,207)
------- ------- -------
Total interest income .............. (2,363) 1,493 (870)
------- ------- -------
Interest-bearing demand accounts .............. (140) (10) (150)
Savings and money market deposits ............. (855) 151 (704)
Time deposits ................................. (851) 480 (371)
Short-term borrowings ......................... (205) 74 (131)
Long-term debt ................................ (56) 290 234
------- ------- -------
Total interest expense ............. (2,107) 985 (1,122)
------- ------- -------
Net interest income ........................... $ (256) $ 508 $ 252
======= ======= =======
---------------
(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
PROVISION FOR LOAN LOSSES
The provision for loan losses for the first quarter of 2002 was
$600,000, compared to $540,000 for the same period of 2001, a $60,000,
or 11.11%, increase. The increase in the provision resulted from growth
in the loan portfolio to $336.0 million at March 31, 2002, an increase
of $37.2 million, or 12.44%, from $298.9 million at March 31, 2001. 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
MARCH 31,
-------------------------
2002 2001
----------- ----------
(In thousands)
Loans held for sale fee income................. $3,008 $ 297
NSF charges and service fees.................... 252 160
Other service charges........................... 183 166
Realized gain on sales of investment securities. 40 217
Other income ................................... 89 58
-------- ---------
Total non-interest income................. $3,572 $ 898
======== =========
Non-interest income increased to $3.6 million, or 297.77%, during the
three-month period ended March 31, 2002, from $898,000 during the
three-month period ended March 31, 2001. This increase is attributable
to increases in loans held for sale fee income of $2.7 million and NSF
charges and service fees of $92,000. We 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 first quarter of 2002. This increase was partially
offset by a decrease in the realized gain on sales of investment
securities of $177,000. Due to the declining interest rate environment
during 2001, many of our investment securities had appreciated
significantly during the year and 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. Two
investment securities with a total book value of $5.0 million were sold
during the first quarter of 2002 resulting in a gain of $40,000 and four
investment securities with a total book value of $5.0 million were sold
during the first quarter of 2001 resulting in a gain of $217,000.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NON-INTEREST EXPENSE
THREE MONTHS ENDED
MARCH 31,
-------------------------
2002 2001
----------- ----------
(In thousands)
Salaries and employee benefits................. $ 3,319 $ 1,913
Occupancy....................................... 450 306
FDIC and other insurance expense................ 69 40
General and administrative ..................... 1,202 921
-------- ---------
Total non-interest expense................ $ 5,040 $ 3,180
======== =========
Non-interest expense increased to $5.0 million, or 58.49%, during the
three-month period ended March 31, 2002, from $3.2 million in the prior
year period. This increase is attributable to an increase in salaries
and employee benefits expense of $1.4 million, occupancy expense of
$144,000 and general and administrative expense of $281,000. Our
salaries and employee benefits expense increased to $3.3 million during
the first quarter of 2002 from $1.9 million during the prior year first
quarter, an increase of 73.50%, as we hired additional staff to
facilitate our growth. We had 226 full-time employees at March 31, 2002
as compared to 158 at March 31, 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.
FINANCIAL CONDITION
Total assets for the Company at March 31, 2002, were $529.9 million, an
increase of $37.9 million, or 7.70%, compared to $492.0 million at
December 31, 2001. Deposits and stockholders' equity at March 31, 2002,
were $433.2 million and $29.3 million, respectively, compared with
$394.2 million and $28.5 million, respectively, at December 31, 2001,
increases of $39.0 million, or 9.89%, and $817,000, or 2.86%,
respectively.
Loans at March 31, 2002 totaled $336.0 million, reflecting a slight
increase of $2.0 million, or 0.59%, compared to December 31, 2001.
Deposit volume grew $39.0 million, or 9.89%, to $433.2 million at March
31, 2002 as compared to $394.2 million at December 31, 2001. The
majority of the increase in volume was due to an increase in
interest-bearing deposits. The loan to deposit ratio at March 31, 2002
was 77.57% compared to 84.74% at December 31, 2001. The recent deposit
growth provides significant funding availability to facilitate our loan
growth.
Mortgage loans held for sale at March 31, 2002 totaled $57.6 million, an
increase of $15.7 million, or 37.59%, compared to December 31, 2001. The
mortgage origination and refinancing boom experienced during 2001
continued into the first quarter of 2002. Deposit growth has provided
the funding necessary to facilitate the mortgage loan origination growth
during the first quarter of 2002. 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 March 31,
2002, approximately $69,926,000 million was available.
17
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
---------------------------------------------------
MARCH 31, MARCH 31, DECEMBER 31,
2002 2001 2001
---------------------------------------------------
(Dollars in thousands)
REAL ESTATE LOANS:
Past due 90 days or more $ -- $ 205 $ --
Nonaccrual 585 486 824
INSTALLMENT LOANS:
Past due 90 days or more 63 23 33
Nonaccrual -- 16 13
CREDIT CARDS AND RELATED PLANS:
Past due 90 days or more -- -- --
Nonaccrual -- -- --
COMMERCIAL (TIME AND DEMAND) AND ALL OTHER LOANS:
Past due 90 days or more -- 22 76
Nonaccrual 211 960 752
LEASE FINANCING RECEIVABLES:
Past due 90 days or more -- -- --
Nonaccrual 280 574 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 1,139 2,286 3,063
FORECLOSED ASSETS HELD FOR SALE 188 115 49
--------- --------- ---------
Total non-performing assets $ 1,327 $ 2,401 $ 3,112
========= ========= =========
Total nonperforming loans to total loans 0.34% 0.76% 0.92%
Total nonperforming loans to total assets 0.21% 0.52% 0.62%
Allowance for loan losses to nonperforming loans 439.24% 198.95% 171.96%
Nonperforming assets to loans and foreclosed
assets held for sale 0.39% 0.80% 0.93%
As of March 31, 2002, non-performing loans equaled 0.34% of total loans,
representing a substantial decline in non-performing loans from December
31, 2001. The level of loans charged-off increased during the first
quarter of 2002, as evidenced by the increase in our ratio of net
charge-offs to average loans to 1.04% for the period ending March 31,
2002 as compared to 0.51% for the period ending December 31, 2001. 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 Bank
maintains its allowance for loan losses in excess of its non-performing
loans. As of March 31, 2002, our ratio of allowance for loan losses to
non-performing loans was 439.24%.
18
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
-------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED
MARCH 31, MARCH 31, 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 192 362 1,015
Personal 15 9 80
Home Equity -- -- --
Construction -- -- --
Leases 681 111 836
----------- ------------ ------------
Total loans charged-off 958 482 1,936
----------- ------------ ------------
RECOVERIES
Commercial real estate -- -- --
Residential real estate -- -- 5
Commercial 32 2 119
Personal 10 16 41
Home Equity -- -- --
Construction -- -- --
Leases 52 32 198
----------- ------------ ------------
Total recoveries 94 50 363
----------- ------------ ------------
NET LOANS CHARGED OFF 864 432 1,573
PROVISION FOR LOAN LOSSES 600 540 2,400
----------- ------------ ------------
BALANCE AT END OF PERIOD $ 5,003 $ 4,548 $ 5,267
=========== ============ ============
LOANS OUTSTANDING
Average $ 335,520 $ 292,277 $ 310,727
End of period 336,038 298,854 334,075
RATIO OF ALLOWANCE FOR LOAN LOSSES TO
LOANS OUTSTANDING
Average 1.49% 1.56% 1.70%
End of period 1.49% 1.52% 1.58%
RATIO OF NET CHARGE-OFFS TO
Average loans 1.04% 0.60% 0.51%
End of period loans 1.04% 0.59% 0.47%
19
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 decreased
slightly to 1.49% as of March 31, 2002, compared to 1.58% as of December
31, 2001. As of March 31, 2002, net charge-offs equaled 1.04% of average
total loans on an annualized basis. This ratio is above historical
averages due in part to the charge-off of non-accruing leases during the
first quarter of 2002.
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 by prudent management of
levels of 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 at March 31, 2002 and December 31, 2001 were
66.88% and 68.70% of our total assets, respectively. 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 March 31, 2002, the
Bank was within the established guidelines.
At March 31, 2002, our total stockholders' equity was $29.3 million and
our equity to asset ratio was 5.54%. At March 31, 2002, our Tier 1
capital ratio was 8.96% compared to 8.87% at December 31, 2001, while
our total risk-based capital ratio was 10.62% compared to 10.69% at
December 31, 2001. Both exceed the capital minimums established in the
risk-based capital requirements.
20
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 March 31, 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 22.95% (7.37%)
200 basis point rise 16.10% (5.82%)
100 basis point rise 8.75% (3.94%)
Base Rate Scenario - -
50 basis point decline (3.92%) (0.85%)
100 basis point decline (8.78%) (1.66%)
150 basis point decline (13.25%) (2.80%)
21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The above table indicates that, at March 31, 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 March 31, 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 March 31, 2002.
22
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
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
11. Computation of Earnings Per Share. Please see p. 9.
15. Letter regarding Unaudited Interim Financial Information
REPORTS ON FORM 8-K
Blue Valley filed no reports on Form 8-K during the quarter ended
March 31, 2002.
23
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: May 14, 2002 By: /s/ Robert D. Regnier
---------------------------------------
Robert D. Regnier, President and
Chief Executive Officer
Date: May 14, 2002 By: /s/ Mark A. Fortino
---------------------------------------
Mark A. Fortino, Treasurer
24