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, 2005
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 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 checkmark whether the registrant is an accelerated filer.
Yes [ ] No [X]
As of March 31, 2005 the registrant had 2,334,871 shares of Common Stock
($1.00 par value) outstanding.
BLUE VALLEY BAN CORP
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm................. 3
Consolidated Balance Sheets - March 31, 2005 (unaudited) and
December 31, 2004..................................................... 4
Consolidated Statements of Income (unaudited) -
three months ended March 31, 2005 and 2004............................ 6
Consolidated Statements of Stockholders' Equity (unaudited) -
three months ended March 31, 2005 and 2004 ........................... 7
Consolidated Statements of Cash Flows (unaudited) -
three months ended March 31, 2005 and 2004............................ 8
Notes to Consolidated Financial Statements (unaudited) -
three months ended March 31, 2005 and 2004............................ 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................... 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......... 22
ITEM 4. CONTROLS AND PROCEDURES............................................. 24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................... 25
ITEM 2. UNREGISTERED SALES OF EQUITY 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............................................................ 25
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 March 31, 2005, and the related consolidated statements of income,
stockholders' equity and cash flows for the three-month periods ended March 31,
2005 and 2004. These interim financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 the standards of the Public Company Accounting Oversight Board (United
States), 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 the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet as of December 31, 2004 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 18, 2005 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, 2004 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 20, 2005
3
BLUE VALLEY BAN CORP
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2005 AND DECEMBER 31, 2004
(dollars in thousands, except share data)
ASSETS
MARCH 31, DECEMBER 31,
2005 2004
----------- ------------
(Unaudited)
Cash and due from banks $ 25,206 $ 19,994
Federal funds sold - 2,500
--------- ---------
Cash and cash equivalents 25,206 22,494
Available-for-sale securities 60,558 66,350
Mortgage loans held for sale 44,745 44,144
Loans, net of allowance for loan losses of $7,337
and $7,333 in 2005 and 2004, respectively 513,616 499,837
Premises and equipment, net 19,757 19,988
Foreclosed assets held for sale, net 2,650 2,645
Interest receivable 2,817 2,375
Deferred income taxes 2,523 2,383
Prepaid expenses and other assets 3,711 3,538
Federal Home Loan Bank stock, Federal Reserve Bank stock,
and other securities 8,122 7,987
Core deposit intangible asset, at amortized cost 938 976
--------- ---------
Total assets $ 684,643 $ 672,717
========= =========
See Accompanying Notes to Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm
4
BLUE VALLEY BAN CORP
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2005 AND DECEMBER 31, 2004
(dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
2005 2004
----------- ------------
(Unaudited)
LIABILITIES
Deposits
Demand $ 87,254 $ 84,764
Savings, NOW and money market 206,098 220,104
Time 239,963 217,778
---------- ----------
Total deposits 533,315 522,646
Other interest-bearing liabilities 23,034 22,381
Long-term debt 79,862 80,088
Interest payable and other liabilities 6,253 6,218
---------- ----------
Total liabilities 642,464 631,333
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock
Common stock, par value $1 per share;
authorized 15,000,000 shares; issued
and outstanding 2005 - 2,334,871 shares;
2004 - 2,327,086 2,335 2,327
Additional paid-in capital 8,225 8,099
Retained earnings 32,605 31,809
Unearned compensation (518) (594)
Accumulated other comprehensive income
Unrealized depreciation on available-for-sale
securities, net of income tax credits of $(312)
in 2005 and $(171) in 2004 (468) (257)
---------- ----------
Total stockholders' equity 42,179 41,384
---------- ----------
Total liabilities and stockholders' equity $ 684,643 $ 672,717
========== ==========
See Accompanying Notes to Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm
5
BLUE VALLEY BAN CORP
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(dollars in thousands, except share data)
THREE MONTHS ENDED MARCH 31,
2005 2004
----------- -----------
(Unaudited) (Unaudited)
INTEREST INCOME
Interest and fees on loans $ 8,717 $ 6,845
Federal funds sold 21 43
Available-for-sale securities 416 655
-------- --------
Total interest income 9,154 7,543
-------- --------
INTEREST EXPENSE
Interest-bearing demand deposits 33 29
Savings and money market deposit accounts 897 649
Other time deposits 2,064 1,682
Federal funds purchased and other interest-bearing liabilities 91 30
Short-term debt 17 -
Long-term debt 1,057 1,000
-------- --------
Total interest expense 4,159 3,390
-------- --------
NET INTEREST INCOME 4,995 4,153
PROVISION FOR LOAN LOSSES 155 350
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,840 3,803
-------- --------
NONINTEREST INCOME
Loans held for sale fee income 2,041 2,496
Service fees 494 565
Realized gain on sales of available-for-sale securities - 215
Other income 272 136
-------- --------
Total noninterest income 2,807 3,412
-------- --------
NONINTEREST EXPENSE
Salaries and employee benefits 3,947 3,898
Net occupancy expense 820 767
Other operating expense 1,594 1,497
-------- --------
Total noninterest expense 6,361 6,162
-------- --------
INCOME BEFORE INCOME TAXES 1,286 1,053
PROVISION FOR INCOME TAXES 490 343
-------- --------
NET INCOME $ 796 $ 710
======== ========
BASIC EARNINGS PER SHARE $ 0.34 $ 0.31
======== ========
DILUTED EARNINGS PER SHARE $ 0.34 $ 0.30
======== ========
See Accompanying Notes to Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm
6
BLUE VALLEY BAN CORP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(dollars in thousands, except share data)
ACCUMULATED
ADDITIONAL OTHER
COMPREHENSIVE COMMON PAID-IN RETAINED UNEARNED COMPREHENSIVE
INCOME STOCK CAPITAL EARNINGS COMPENSATION INCOME TOTAL
------------- -------- ---------- -------- ------------ ------------- --------
BALANCE, DECEMBER 31, 2003 $ 2,279 $ 7,404 $ 30,344 $ (399) $ 570 $ 40,198
Issuance of 17,750 shares of
common stock 18 258 - - - 276
Net income $ 710 - - 710 - - 710
Restricted stock earned, net of
forfeitures - - - - 33 - 33
Change in unrealized
appreciation on
available-for-sale
securities, net of income
taxes (credit) of $(45) (67) - - - - (67) (67)
-------- -------- -------- -------- -------- -------- --------
$ 643
========
BALANCE, MARCH 31, 2004 $ 2,297 $ 7,662 $ 31,054 $ (366) $ 503 $ 41,150
======== ======== ======== ======== ======== ========
BALANCE, DECEMBER 31, 2004 $ 2,327 $ 8,099 $ 31,809 $ (594) $ (257) $ 41,384
-------- -------- -------- -------- -------- --------
Issuance of 7,785 shares of
common stock 8 126 - - - 134
Net income $ 796 - - 796 - - 796
Restricted stock earned, net of
forfeitures - - - - 76 - 76
Change in unrealized
appreciation on
available-for-sale
securities, net of income
taxes credit of $(140) (211) - - - - (211) (211)
-------- -------- -------- -------- -------- -------- --------
$ 585
========
BALANCE, MARCH 31, 2005 $ 2,335 $ 8,225 $ 32,605 $ (518) $ (468) $ 42,179
======== ======== ======== ======== ======== ========
March 31, March 31,
--------- ---------
2005 2004
--------- ---------
RECLASSIFICATION DISCLOSURE:
Unrealized appreciation (depreciation) on available-for-sale securities,
net of income taxes (credit) of $(140) and $41 for the periods ended
March 31, 2005 and 2004, respectively $ (211) $ 62
Less: reclassification adjustments for appreciation
included in net income, net of income taxes of $0 and
$86 for the periods ended March 31, 2005 and 2004,
respectively - 129
------ ------
Change in unrealized appreciation (depreciation) on
available-for-sale securities, net of income taxes
(credit) of $(140) and $(45) for the periods ended
March 31, 2005 and 2004, respectively $ (211) $ (67)
====== ======
See Accompanying Notes to Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm
7
BLUE VALLEY BAN CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(dollars in thousands, except share data)
MARCH 31, 2005 MARCH 31, 2004
-------------- --------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 796 $ 710
Adjustments to reconcile net income to net cash flow from
operating activities:
Depreciation and amortization 488 441
Amortization (accretion) of premiums and discounts on securities (9) (5)
Provision for loan losses 155 350
Net gain on sales of available-for-sale securities - (215)
Net loss on sale of foreclosed assets - 61
Net loss on sale of premises and equipment - 5
Restricted stock earned and forfeited 76 33
Originations of loans held for sale (162,449) (214,138)
Proceeds from the sale of loans held for sale 161,848 200,395
Changes in
Interest receivable (442) (388)
Prepaid expenses and other assets (286) (335)
Interest payable and other liabilities 35 (688)
---------- ----------
Net cash provided by (used in) operating activities 212 (13,774)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net originations of loans (13,966) (30,123)
Proceeds from sales of loan participations - 3,053
Purchase of premises and equipment (106) (1,287)
Proceeds from the sale of foreclosed assets 27 354
Proceeds from sales of available-for-sale securities - 6,210
Proceeds from maturities of available-for-sale securities 5,450 21,967
Purchases of Federal Home Loan Bank stock, Federal Reserve Bank
stock, and other securities (135) (58)
---------- ----------
Net cash provided by (used in) investing activities (8,730) 116
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, money market, NOW
and savings accounts (11,516) 21,079
Net increase (decrease) in time deposits 22,185 (21,029)
Repayments of long-term debt (226) (1,388)
Proceeds from sale of common stock 134 276
Net increase in other borrowings 653 36
---------- ----------
Net cash provided by (used in) financing activities 11,230 (1,026)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,712 (14,684)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 22,494 50,717
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 25,206 $ 36,033
========== ==========
See Accompanying Notes to Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm
8
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(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, 2005, and
the consolidated results of its operations, changes in stockholders'
equity and cash flows for the periods ended March 31, 2005 and 2004, 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, 2004 Form 10-K filed with
the Securities and Exchange Commission. Certain reclassifications to prior
year amounts have been made to conform to current year presentation.
The results of operations for the period are not necessarily indicative of
the results to be expected for the full year.
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 period ended March 31, 2005, the Company issued no stock
options; consequently, reported and pro forma net income were identical.
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,
2005 and 2004 is as follows:
9
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
MARCH 31, 2005 MARCH 31, 2004
-------------- --------------
(Unaudited) (Unaudited)
(dollars in thousands, except
share and per share data)
Net income, as reported $ 796 $ 710
=========== ===========
Add: Total stock-based employee compensation recognized in
net income, net of income taxes of $24 and $10 for the
periods ended March 31, 2005 and 2004, respectively 37 20
Less: Total stock-based compensation cost determined under
the fair value based method, net of income tax credits of
$(24) and $(10) for the periods ended March 31, 2005 and
2004, respectively. (37) (20)
----------- -----------
Pro forma net income $ 796 $ 710
=========== ===========
Average common shares outstanding 2,331,546 2,284,577
Average common share stock options outstanding 39,866 67,950
----------- -----------
Average diluted common shares 2,371,412 2,352,527
=========== ===========
Basic earnings per share $ 0.34 $ 0.31
=========== ===========
Diluted earnings per share $ 0.34 $ 0.30
=========== ===========
NOTE 3: LONG-TERM DEBT
Long-term debt at March 31, 2005 and December 31, 2004, consisted of the
following components:
MARCH 31, DECEMBER 31,
2004 2005
---------- ------------
(Unaudited)
(in thousands)
Note payable - Ban Corp (A) $ 4,387 $ 4,500
Note payable - Blue Valley Building Corp. (B) 7,387 7,500
Federal Home Loan Bank advances (C) 48,500 48,500
Subordinated Debentures - BVBC Capital Trust I (D) 11,856 11,856
Subordinated Debentures - BVBC Capital Trust II (E) 7,732 7,732
---------- ----------
Total long-term debt $ 79,862 $ 80,088
========== ==========
10
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
(A) Due in December 2012, payable in quarterly installments of principal
plus interest at the Federal Funds Rate plus 1.68%; collateralized
by common stock of the Company's subsidiary bank. The interest rate
on this note has been fixed at 5.45% by the use of a swap agreement
(see Note 4).
(B) Two notes due in 2017; payable in monthly installments totaling
$70,084 including interest at 5.19%; collateralized by land,
buildings, and assignment of future rents. This debt is guaranteed
by the Company.
(C) Due in 2008, 2009, 2010, 2011 and 2013; collateralized by various
assets including mortgage-backed loans. The interest rates on the
advances range from 1.84% to 5.682%. Federal Home Loan Bank advance
availability is determined quarterly and at March 31, 2005,
approximately $69,813,000 was available.
(D) Due in 2030; interest only at 10.375% due quarterly; fully and
unconditionally guaranteed by the Company on a subordinated basis to
the extent that the funds are held by the Trust. The Company may
prepay the subordinated debentures beginning in 2005, in whole or in
part, at their face value plus accrued interest.
(E) Due in 2033; interest only at LIBOR + 3.25% due quarterly; fully and
unconditionally guaranteed by the Company on a subordinated basis to
the extent that the funds are held by the Trust. Subordinated to the
subordinated debentures (D) due in 2030. The Company may prepay the
subordinated debentures beginning in 2008, in whole or in part, at
their face value plus accrued interest.
Aggregate annual maturities of long-term debt at March 31, 2005 are as follows:
(in thousands)
April 1 to December 31, 2005 $ 647
2006 960
2007 1,011
2008 11,068
2009 7,127
Thereafter 59,049
---------
$ 79,862
=========
11
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
NOTE 4: DERIVATIVE FINANCIAL INSTRUMENTS
As a strategy to reduce the exposure to the risk of changes in future cash
flows due to interest rate fluctuations, the Company entered into an
interest rate swap agreement for a portion of its floating rate debt (see
Note 3). The agreement provides for the Company to receive interest from
the counterparty at the note's variable rate and to pay interest to the
counterparty at a fixed rate of 5.45% on the notional amount over the term
of the note. Under the agreement, the Company pays or receives the net
interest amount quarterly, with the quarterly settlements included in
interest expense.
Management has designated the interest rate swap agreement as a cash flow
hedging instrument. The hedge was fully effective through March 31, 2005.
Under the cash flow hedging method, the effective portion of the gain or
loss related to the derivative is recognized as a component of other
comprehensive income. The ineffective portion, if any, is recognized in
current earnings.
NOTE 5: LEGAL PROCEEDINGS
On October 13th, 2004, we became a defendant in a lawsuit filed in the
United States District Court, Kansas District by one current mortgage loan
originator and twenty three former mortgage loan originators. The
plaintiffs are claiming that the Bank did not compensate them
appropriately for overtime hours worked in accordance with the Fair Labor
Standards Act. While the plaintiffs' claims total $5.6 million, we believe
the Company has meritorious defenses to the claims made and we intend to
vigorously defend against these claims. In fourth quarter of 2004, the
Company had recorded a $550,000 liability for the estimated potential cost
of this litigation. We currently do not anticipate any significant
additional financial impact from this litigation. Other than this claim,
there are no other pending legal proceedings that are likely to have a
material adverse effect on our consolidated financial condition, results
of operations or cash flows.
NOTE 6: NEW ACCOUNTING STANDARDS
In December 2004, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 123 (revised 2004), Share Based Payment, which
establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services, and focuses
primarily on accounting for transactions in which an entity obtains
employee services. The SFAS requires a public entity to measure the cost
of employee services received in exchange for its equity instruments based
on the fair value at the grant date (with limited exceptions) and
recognize that cost over the service period. SFAS 123 (revised 2004)
revises SFAS No. 123, "Accounting for Stock-Based Compensation," and
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees."
The provisions of SFAS 123 (revised 2004) will be effective for the
Company's financial statements issued after June 15, 2005. The Company
does not believe that the adoption of SFAS 123 (revised 2004) will have a
material impact on the consolidated financial statements.
12
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, 2004. Further description
of our critical accounting policies can be found in our Annual Report on
Form 10-K for the year ended December 31, 2004.
RESULTS OF OPERATIONS
Three months ended March 31, 2005 and 2004. Net income for the quarter
ended March 31, 2005, was $796,000, compared to net income of $710,000 for
the quarter ended March 31, 2004, representing an increase of $86,000, or
12.11%. Diluted earnings per share increased 13.33% to $0.34 during the
first quarter of 2005 from $0.30 in the same period of 2004. The Company's
annualized return on average assets and average stockholders' equity for
the three-month period ended March 31, 2005 were 0.48% and 7.70%, compared
to 0.46% and 6.92%, respectively, for the same period in 2004, increases
of 4.34% and 11.27%, respectively.
The principal contributing factor to our increase in net income in the
current year first quarter from the prior year was an increase in net
interest income resulting from a higher level of average earning assets.
However, the increase in net interest income was partially offset by lower
noninterest income, specifically mortgage loans held for sale fee income.
Lower mortgage
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
origination volume, resulting from higher interest rates, led to a decline
in mortgage loans held for sale fee income.
NET INTEREST INCOME
Fully tax equivalent (FTE) net interest income for the three-month period
ended March 31, 2005 was $5.0 million, an increase of $788,000, or 18.68%,
from $4.2 million for the three-month period ended March 31, 2004.
FTE interest income for the current year first quarter was $9.2 million,
an increase of $1.6 million, or 20.46%, from $7.6 million in the prior
year first quarter. FTE interest income increased due to an increase in
average earning assets, particularly loans, as well as an increase in the
rate earned thereon. Average earning asset volume increased from the first
quarter of 2004 to the current period by $54.9 million, or 9.65%. The
overall yield on average earning assets increased by 58 basis points to
5.96% in the first quarter of 2005 compared to 5.38% in the prior year
first quarter. The 58 basis point increase in yield resulted primarily
from increases in market interest rates beginning in the second half of
2004.
Interest expense for the current year first quarter was $4.2 million, an
increase of $769,000, or 22.68%, from $3.4 million in the prior year first
quarter. This increase was primarily a result of an increase in the rate
paid on average interest-bearing liabilities resulting from promotional
rates offered on our time deposits as well as the impact of rising market
interest rates on our savings and money market deposits and short- and
long-term borrowings. The rate paid on total average interest-bearing
liabilities increased 42 basis points to 3.13% during the three month
period ending March 31, 2005 compared to 2.71% during the same period in
2004. In addition, average interest-bearing liabilities increased $35.9
million or 7.13% to $538.8 million during the first quarter of 2005
compared to $502.9 million during the prior year period. This increase was
primarily the result of higher interest-bearing deposit average balances.
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
Three Months Ended March 31,
-------------------------------------------------------------------
2005 2004
------------------------------ --------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
--------- --------- -------- ----------- --------- --------
(Dollars in thousands)
ASSETS
Federal funds sold......................... $ 3,628 $ 21 2.38% $ 18,722 $ 43 0.91%
Investment securities - taxable............ 61,854 394 2.58 83,198 529 2.56
Investment securities - non-taxable (1).... 1,873 33 7.05 11,129 191 6.90
Mortgage loans held for sale............... 39,072 526 5.46 24,302 305 5.05
Loans, net of unearned discount and fees... 516,990 8,191 6.43 431,175 6,540 6.10
--------- --------- ----------- ---------
Total earning assets..................... 623,417 9,165 5.96 568,526 7,608 5.38
--------- --------- ----------- ---------
Cash and due from banks - non-interest
bearing.................................. 20,442 20,064
Allowance for possible loan losses......... (7,285) (7,068)
Premises and equipment, net................ 19,854 18,925
Other assets............................... 18,197 20,574
--------- -----------
Total assets............................. $ 674,625 $ 621,022
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits-interest bearing:
Interest-bearing demand accounts........... $ 25,920 $ 33 0.52% $ 24,244 $ 29 0.48%
Savings and money market deposits.......... 186,098 897 1.95 168,663 649 1.55
Time deposits.............................. 222,498 2,064 3.76 198,853 1,682 3.40
--------- --------- ----------- ---------
Total interest-bearing deposits.......... 434,516 2,994 2.79 391,761 2,360 2.42
--------- --------- ----------- ---------
Short-term borrowings...................... 24,897 108 1.76 24,349 30 0.49
Long-term debt............................. 79,387 1,057 5.40 86,811 1,000 4.63
--------- --------- ----------- ---------
Total interest-bearing liabilities ...... 538,800 4,159 3.13 502,921 3,390 2.71
--------- --------- ----------- ---------
Non-interest bearing deposits.............. 87,509 72,816
Other liabilities ......................... 6,401 4,032
Stockholders' equity....................... 41,915 41,252
--------- -----------
Total liabilities and stockholders'
equity.................................. $ 674,625 $ 621,022
========= ===========
Net interest income/spread................. $ 5,006 2.83% $ 4,218 2.67%
========= ==== ========= ====
Net interest margin........................ 3.26% 2.98%
==== ====
- ---------------
(1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%. For
the quarters ending March 31, 2005 and 2004, the tax equivalency adjustment
amounted to $11,000 and $65,000 respectively.
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:
- 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.
CHANGES IN INTEREST INCOME AND
EXPENSE VOLUME AND RATE VARIANCES
THREE MONTHS ENDED MARCH 31,
2005 COMPARED TO 2004
------------------------------
CHANGE CHANGE
DUE TO DUE TO TOTAL
RATE VOLUME CHANGE
-------- -------- --------
(Dollars in thousands)
Federal funds sold................................................ $ 67 $ (89) $ (22)
Investment securities - taxable................................... 5 (140) (135)
Investment securities - non-taxable (1)........................... 4 (162) (158)
Mortgage loans held for sale...................................... 25 196 221
Loans, net of unearned discount .................................. 334 1,317 1,651
-------- -------- --------
Total interest income.................................. 435 1,122 1,557
-------- -------- --------
Interest-bearing demand accounts.................................. 2 2 4
Savings and money market deposits................................. 165 83 248
Time deposits..................................................... 171 211 382
Short-term borrowings............................................. 76 2 78
Long-term debt.................................................... 158 (101) 57
-------- -------- --------
Total interest expense................................. 572 197 769
-------- -------- --------
Net interest income............................................... $ (137) $ 925 $ 788
======== ======== ========
- ---------------
(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 first quarter of 2005 was $155,000,
compared to $350,000 for the same period of 2004. As discussed further in
the Financial Condition section, the decrease in the provision for loan
losses recorded in the three-month period ended March 31, 2005 compared to
the same period in the prior year was the result of improvements in the
overall credit exposure in the loan portfolio. The Company's credit
administration function performs monthly analyses on the loan portfolio to
assess and report on risk levels, delinquencies, an internal ranking
system and overall credit exposure. Management and the Board of Directors
reviews the allowance for loan losses 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. We
make provisions for loan losses in amounts that management deems necessary
to maintain the allowance for loan losses at an appropriate level.
NON-INTEREST INCOME
THREE MONTHS ENDED
MARCH 31,
--------------------
2005 2004
-------- --------
(In thousands)
Loans held for sale fee income .............. $ 2,041 $ 2,496
NSF charges and service fees ................ 255 330
Other service charges ....................... 239 235
Net realized gain on investment securities... - 215
Other income ................................ 272 136
-------- --------
Total non-interest income ............. $ 2,807 $ 3,412
======== ========
Non-interest income decreased $605,000 or 17.74%, to $2.8 million during
the three-month period ended March 31, 2005, from $3.4 million during the
three-month period ended March 31, 2004. This decrease is primarily
attributable to a decrease in loans held for sale fee income of $455,000
or 18.23%. We experienced a decline in our mortgage loans held for sale
fee income due to a decline in residential mortgage origination and
refinancing resulting from higher interest rates. During the first quarter
of 2004 we realized $215,000 of gains on available-for-sale securities. We
took advantage of opportunities to mitigate the risk of long-term rate
volatility in our available-for-sale investment portfolio and also provide
a funding source for loan growth by selling some of our longer-term bonds.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NON-INTEREST EXPENSE
THREE MONTHS ENDED
MARCH 31,
--------------------
2005 2004
-------- --------
(In thousands)
Salaries and employee benefits .. $ 3,947 $ 3,898
Occupancy ....................... 820 767
FDIC and other insurance expense. 70 61
General and administrative ...... 1,524 1,436
-------- --------
Total non-interest expense. $ 6,361 $ 6,162
======== ========
Non-interest expense increased $199,000, or 3.22%, to $6.4 million during
the three-month period ended March 31, 2005, from $6.2 million in the
prior year period. This increase is primarily attributable to an increase
in general and administrative expenses, specifically mortgage promotional
expenses, incurred by the Company in its efforts to broaden the sources
for potential mortgage customers. Occupancy expense increased primarily
due to the incremental costs associated with the operation of our Leawood
Banking Center which opened during the second quarter of 2004.
FINANCIAL CONDITION
Total assets for the Company at March 31, 2005, were $684.6 million, an
increase of $11.9 million, or 1.77%, compared to $672.7 million at
December 31, 2004. Deposits and stockholders' equity at March 31, 2005,
were $533.3 million and $42.2 million, respectively, compared with $522.6
million and $41.4 million, respectively, at December 31, 2004, increases
of $10.7 million or 2.04%, and $795,000 or 1.92%, respectively.
Loans at March 31, 2005 totaled $521.0 million, reflecting an increase of
$13.8 million, or 2.71%, compared to December 31, 2004. The loan to
deposit ratio at March 31, 2005 was 97.68% compared to 97.03% at December
31, 2004.
Available-for-sale securities at March 31, 2005 totaled $60.6 million,
reflecting a decrease of $5.8 million or 8.73% compared to December 31,
2004. This decrease was the result of maturities and calls of securities
with the proceeds used to fund the growth in our loan portfolio.
Mortgage loans held for sale at March 31, 2005 totaled $44.7 million, an
increase of $601,000, or 1.36%, compared to December 31, 2004. The
Company's principal funding source for mortgage loans held for sale is
short and long-term advances from the Federal Home Loan Bank. Advance
availability with the Federal Home Loan Bank is determined quarterly and
at March 31, 2005, approximately $69,813,000 was available.
Non-performing assets consist primarily of loans past due 90 days or more
and nonaccrual loans and foreclosed real estate. The following table sets
forth our non-performing assets as of the dates indicated:
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NON-PERFORMING ASSETS
AS OF
--------------------------------------
MARCH 31, MARCH 31, DECEMBER 31,
2005 2004 2004
--------- --------- ------------
(Dollars in thousands)
COMMERCIAL AND ALL OTHER LOANS:
Past due 90 days or more $ 870 $ 317 $ 2,008
Nonaccrual 446 359 543
COMMERCIAL REAL ESTATE LOANS:
Past due 90 days or more 175 -- --
Nonaccrual -- -- 158
CONSTRUCTION LOANS:
Past due 90 days or more 3,188 -- --
Nonaccrual -- -- --
LEASE FINANCING:
Past due 90 days or more 33 -- 1
Nonaccrual 78 245 80
RESIDENTIAL REAL ESTATE LOANS:
Past due 90 days or more 153 146 153
Nonaccrual 185 1,391 1,315
CONSUMER LOANS:
Past due 90 days or more 12 13 17
Nonaccrual -- -- --
HOME EQUITY LOANS:
Past due 90 days or more -- -- --
Nonaccrual 75 1,068 75
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 5,215 3,539 4,350
-------- -------- --------
FORECLOSED ASSETS HELD FOR SALE 2650 12 2,645
-------- -------- --------
Total non-performing assets $ 7,865 $ 3,551 $ 6,995
======== ======== ========
Total nonperforming loans to total loans 0.97% 0.78% 0.86%
Total nonperforming loans to total assets 0.73% 0.57% 0.65%
Allowance for loan losses to nonperforming loans 145.90% 209.96% 168.60%
Nonperforming assets to loans and foreclosed
assets held for sale 1.47% 0.79% 1.37%
As of March 31, 2005, non-performing loans equaled 0.97% of total loans,
representing an increase in non-performing loans from December 31, 2004. The
balance of Construction loans at March 31, 2005 and Commercial and all other
loans at December 31, 2004, respectively, includes $2.8 million and $1.7 million
which related to loans, to unrelated borrowers, in the process of renegotiation
as of those dates. Although total nonperforming loans at March 31, 2005
increased compared to December 31, 2004, the overall credit exposure in the
Company's total loan portfolio continued to improve. Consequently, management
lowered the general reserve factors based upon an assessment of the Company's
historical charge-off experience for certain loan categories as well as
improvements in the ability of the Company's loan review process to identify
credit quality deterioration on a timely basis. As such, the Company recorded a
lower provision for loan losses during the three month period ending March 31,
2005 compared to the three month period ending March 31, 2004. The level of
loans charged-off decreased during the first quarter of 2005. Consequently, the
Company experienced an annualized ratio of net charge-offs to average loans of
0.12% for the quarter ending
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
March 31, 2005 compared to a ratio of net charge-offs to average loans of
0.36% for the year ending December 31, 2004. 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, 2005, our ratio
of allowance for loan losses to non-performing loans was 145.90%.
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,
2005 2004 2004
------------ ------------ ------------
(Dollars in thousands)
BALANCE AT BEGINNING OF PERIOD $ 7,333 $ 7,051 $ 7,051
LOANS CHARGED OFF
Commercial loans 197 13 1,665
Commercial real estate loans -- -- --
Construction loans -- -- --
Lease financing -- 50 220
Residential real estate loans -- -- 18
Consumer loans 28 37 80
Home equity loans -- -- --
---------- ---------- ----------
Total loans charged-off 225 100 1,983
---------- ---------- ----------
RECOVERIES
Commercial loans 4 9 41
Commercial real estate loans -- 7 7
Construction loans -- -- --
Lease financing 58 60 166
Residential real estate loans -- 48 48
Consumer loans 12 6 38
Home equity loans -- -- --
---------- ---------- ----------
Total recoveries 74 130 300
---------- ---------- ----------
NET LOANS CHARGED OFF (RECOVERED) 151 (30) 1,683
PROVISION FOR LOAN LOSSES 155 350 1,965
---------- ---------- ----------
BALANCE AT END OF PERIOD $ 7,337 $ 7,431 $ 7,333
========== ========== ==========
LOANS OUTSTANDING
Average $ 516,990 $ 431,175 $ 463,833
End of period 520,953 451,708 507,170
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RATIO OF ALLOWANCE FOR LOAN LOSSES TO
LOANS OUTSTANDING
Average 1.42% 1.72% 1.58%
End of period 1.41% 1.65% 1.45%
RATIO OF NET CHARGE-OFFS (RECOVERIES) TO
Average loans 0.12% (0.03%) 0.36%
End of period loans 0.12% (0.03%) 0.33%
The allowance for loan losses as a percent of total loans decreased slightly
to 1.41% as of March 31, 2005, compared to 1.45% as of December 31, 2004.
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 77.16% and 81.56% of our total deposits
at March 31, 2005, and December 31, 2004, respectively. The change in the
percentage of core deposits to total deposits during the first quarter of
2005 was the resulted of the Company raising $23.0 million of additional
funding through the brokered deposit market. Generally, the Company's funding
strategy is to utilize Federal Home Loan Bank borrowings to fund originations
of mortgage loans held for sale and fund balances generated by other lines of
business with deposits. In addition, the Company uses other forms of
short-term borrowings for cash management and liquidity management purposes
on a limited basis. These forms of borrowings include federal funds purchased
and revolving lines of credit. The Company's Asset-Liability Management
Committee utilizes a variety of liquidity monitoring tools, including an
asset/liability modeling service, to analyze and manage the Company's
liquidity.
Management has established internal guidelines and analytical tools to
measure liquid assets, alternative sources of liquidity, as well as relevant
ratios concerning asset levels and purchased funds.
At March 31, 2005, our total stockholders' equity was $42.2 million and our
equity to asset ratio was 6.16%. At March 31, 2005, our Tier 1 capital ratio
was 8.94% compared to 9.00% at December 31, 2004, while our total risk-based
capital ratio was 10.97% compared to 11.15% at December 31, 2004. As of March
31, 2005, 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 continuing 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 Bank 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 our Bank 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 Company's current
sensitivity to instantaneous and permanent changes in interest rates. The
system simulates the Company'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, 2005 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 30.73% 3.05%
200 basis point rise 19.99% 2.06%
100 basis point rise 10.22% 1.14%
Base Rate Scenario - -
50 basis point decline (4.95%) (2.50%)
100 basis point decline (9.34%) (1.98%)
200 basis point decline (22.33%) (3.42%)
The above table indicates that, at March 31, 2005, 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
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(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 above table also indicates that, at March 31, 2005, in the event of a
sudden decrease in prevailing market rates, the economic value of our equity
would decrease. Given our current asset/liability position, a 50, 100 or 200
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, as 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. UNREGISTERED SALES OF EQUITY 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
EXHIBITS
11. Computation of Earnings Per Share. Please see p. 9.
15. Letter regarding Unaudited Interim Financial Information
31.1 Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a)
31.2 Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a)
32.1 Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
25
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 12, 2005 By: /s/ Robert D. Regnier
----------------------------------------
Robert D. Regnier, President and
Chief Executive Officer
Date: May 12, 2005 By: /s/ Mark A. Fortino
----------------------------------------
Mark A. Fortino, Chief Financial Officer
26