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, 2006
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 (Zip Code)
(Address of principal executive
offices)
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
- ------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See the definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check One):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company as defined
in Rule 12b-2 of the Securities Act Yes [ ] No [X]
As of March 31, 2006 the registrant had 2,389,969 shares of Common Stock
($1.00 par value) outstanding.
BLUE VALLEY BAN CORP
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm.............. 3
Condensed Consolidated Balance Sheets -
March 31, 2006 (unaudited) and December 31, 2005.................. 4
Condensed Consolidated Statements of Income (unaudited) -
three months ended March 31, 2006 and 2005........................ 6
Condensed Consolidated Statements of Stockholders' Equity
(unaudited) - three months ended March 31, 2006 and 2005.......... 7
Condensed Consolidated Statements of Cash Flows (unaudited) -
three months ended March 31, 2006 and 2005........................ 8
Notes to Condensed Consolidated Financial Statements (unaudited) -
three months ended March 31, 2006 and 2005........................ 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................... 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...... 24
ITEM 4. CONTROLS AND PROCEDURES......................................... 26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................... 27
ITEM 1A. RISK FACTORS................................................... 27
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS..... 27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................. 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 27
ITEM 5. OTHER INFORMATION............................................... 27
ITEM 6. EXHIBITS........................................................ 27
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 condensed consolidated balance sheet of Blue
Valley Ban Corp as of March 31, 2006, and the related condensed consolidated
statements of income, stockholders' equity and cash flows for the three-month
periods ended March 31, 2006 and 2005. 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 condensed 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, 2005 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 17, 2006 we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 2005 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 27, 2006
3
BLUE VALLEY BAN CORP
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2006 AND DECEMBER 31, 2005
(dollars in thousands, except share data)
ASSETS
MARCH 31, DECEMBER 31,
2006 2005
----------- ------------
(Unaudited)
Cash and due from banks $ 24,403 $ 16,493
Interest-bearing deposits in other financial institutions 255 12,163
Federal funds sold -- 11,401
-------- --------
Cash and cash equivalents 24,658 40,057
Available-for-sale securities 99,574 99,987
Mortgage loans held for sale 20,598 13,906
Loans, net of allowance for loan losses of $6,512
and $6,704 in 2006 and 2005, respectively 522,492 496,439
Premises and equipment, net 18,490 18,593
Foreclosed assets held for sale, net 306 711
Interest receivable 3,932 3,372
Deferred income taxes 2,541 2,564
Prepaid expenses and other assets 3,739 4,647
Federal Home Loan Bank stock, Federal Reserve Bank stock,
and other securities 8,567 8,490
Core deposit intangible asset, at amortized cost 785 823
-------- --------
Total assets $705,682 $689,589
======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm
4
BLUE VALLEY BAN CORP
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2006 AND DECEMBER 31, 2005
(dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
2006 2005
----------- ------------
(Unaudited)
LIABILITIES
Deposits
Demand $ 98,145 $ 94,452
Savings, NOW and money market 187,156 185,234
Time 246,751 249,655
-------- --------
Total deposits 532,052 529,341
Other interest-bearing liabilities 24,922 26,288
Short-term debt 19,000 --
Long-term debt 77,837 78,106
Interest payable and other liabilities 4,129 9,599
-------- --------
Total liabilities 657,940 643,334
-------- --------
STOCKHOLDERS' EQUITY
Capital stock
Common stock, par value $1 per share;
authorized 15,000,000 shares; issued and outstanding
2006 - 2,389,969 shares; 2005 - 2,382,046 shares 2,390 2,382
Additional paid-in capital 8,825 9,212
Retained earnings 37,099 35,782
Unearned compensation -- (648)
Accumulated other comprehensive loss, net of income taxes
(credit) of $(381) in 2006 and $(315) in 2005 (572) (473)
-------- --------
Total stockholders' equity 47,742 46,255
-------- --------
Total liabilities and stockholders' equity $705,682 $689,589
======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm
5
BLUE VALLEY BAN CORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(dollars in thousands, except share data)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2006 2005
----------- -----------
(Unaudited) (Unaudited)
INTEREST INCOME
Interest and fees on loans $10,197 $8,717
Federal funds sold and other short-term investments 82 23
Available-for-sale securities 1,048 414
------- ------
Total interest income 11,327 9,154
------- ------
INTEREST EXPENSE
Interest-bearing demand deposits 23 33
Savings and money market deposit accounts 960 897
Other time deposits 2,487 2,064
Federal funds purchased and other interest-bearing liabilities 217 91
Short-term debt 71 17
Long-term debt, net 969 1,057
------- ------
Total interest expense 4,727 4,159
------- ------
NET INTEREST INCOME 6,600 4,995
PROVISION FOR LOAN LOSSES 75 155
------- ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,525 4,840
------- ------
NONINTEREST INCOME
Loans held for sale fee income 1,136 2,041
Service fees 583 488
Other income 313 278
------- ------
Total noninterest income 2,032 2,807
------- ------
NONINTEREST EXPENSE
Salaries and employee benefits 4,036 3,947
Net occupancy expense 759 820
Other operating expense 1,651 1,594
------- ------
Total noninterest expense 6,446 6,361
------- ------
INCOME BEFORE INCOME TAXES 2,111 1,286
PROVISION FOR INCOME TAXES 794 490
------- ------
NET INCOME $ 1,317 $ 796
======= ======
BASIC EARNINGS PER SHARE $ 0.56 $ 0.34
======= ======
DILUTED EARNINGS PER SHARE $ 0.55 $ 0.34
======= ======
See Accompanying Notes to Condensed Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm
6
BLUE VALLEY BAN CORP
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(dollars in thousands, except share data)
ACCUMULATED
ADDITIONAL OTHER
COMPREHENSIVE COMMON PAID-IN RETAINED UNEARNED COMPREHENSIVE
INCOME (LOSS) STOCK CAPITAL EARNINGS COMPENSATION LOSS TOTAL
------------- ------ ---------- -------- ------------ ------------- -------
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
depreciation, 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
====== ======= ======= ===== ===== =======
BALANCE, DECEMBER 31, 2005 $2,382 $ 9,212 $35,782 $(648) $(473) $46,255
------ ------- ------- ----- ----- -------
Issuance of 7,923 shares of
common stock 8 144 -- -- -- 152
Net income $1,317 -- -- 1,317 -- -- 1,317
Restricted stock earned, net of
forfeitures -- -- 117 -- -- -- 117
Reclassification of unearned
compensation in accordance
with adoption of SFAS No. 123R -- -- (648) -- 648 -- --
Change in derivative financial
instrument, net of income
taxes of $65 97 -- -- -- -- 97 97
Change in unrealized
depreciation on
available-for-sale
securities, net of income
taxes (credit) of $(131) (196) -- -- -- -- (196) (196)
------ ------ ------- ------- ----- ----- -------
$1,218
======
BALANCE, MARCH 31, 2006 $2,390 $ 8,825 $37,099 $ -- $(572) $47,742
====== ======= ======= ===== ===== =======
See Accompanying Notes to Condensed Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm
7
BLUE VALLEY BAN CORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(dollars in thousands, except share data)
MARCH 31, MARCH 31,
2006 2005
----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,317 $ 796
Adjustments to reconcile net income to net cash flow
From operating activities:
Depreciation and amortization 359 488
Amortization (accretion) of premiums and discounts on securities (26) (9)
Provision for loan losses 75 155
Deferred income taxes 154 --
Stock dividends on FHLB securities (77) --
Net gain on sale of foreclosed assets (31) --
Restricted stock earned and forfeited 117 76
Originations of loans held for sale (85,433) (162,449)
Proceeds from the sale of loans held for sale 78,740 161,848
Changes in
Interest receivable (560) (442)
Prepaid expenses and other assets 1,067 (286)
Interest payable and other liabilities (4,939) 35
-------- ---------
Net cash provided by (used in) operating activities (9,237) 212
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net originations of loans (26,210) (13,966)
Purchase of premises and equipment (215) (106)
Proceeds from the sale of foreclosed assets, net of expenses 519 27
Proceeds from maturities of available-for-sale securities 6,110 5,450
Purchases of available-for-sale securities (5,998) --
Purchases of Federal Home Loan Bank stock, Federal Reserve Bank
stock, and other securities -- (135)
-------- ---------
Net cash used in investing activities (25,794) (8,730)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, money market, NOW
and savings accounts 5,615 (11,516)
Net increase (decrease) in time deposits (2,904) 22,185
Net proceeds from short-term debt 19,000 --
Repayments of long-term debt (269) (226)
Net proceeds (payments) from other financing activities (444) 134
Net increase (decrease) in other borrowings (1,366) 653
-------- ---------
Net cash provided by financing activities 19,632 11,230
-------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (15,399) 2,712
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 40,057 22,494
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 24,658 $ 25,206
======== =========
See Accompanying Notes to Condensed Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm
8
BLUE VALLEY BAN CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(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, 2006, and the
consolidated results of its operations, changes in stockholders' equity and
cash flows for the periods ended March 31, 2006 and 2005, 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, 2005 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 report of BKD, LLP commenting upon their review accompanies the
consolidated financial statements included in Item 1 of Part I.
NOTE 2: STOCK BASED COMPENSATION
The Company's Equity Incentive Plan (the "Plan") allows the Company to
issue equity incentive compensation awards to its employees and directors
in the forms of stock options, restricted shares or deferred share units.
Under the fixed option provisions of the Plan, the Company may grant
options that vest two years from the date of grant to its employees for
shares of common stock. The option price of each option is intended to
equal the fair value of the Company's stock on the date of grant, and
maximum terms are 10 years. No stock options were granted during 2005, 2004
and 2003, and all stock options previously granted were fully vested at
December 31, 2005. The Company issued restricted shares in 2005, 2004, and
2003.
Prior to January 1, 2006 the Company accounted for the Plan under the
recognition and measurement provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations and no compensation cost had been recognized. Compensation
expense has always been recognized for restricted shares awards ratably
over the period of service, usually the restricted period, based on the
fair value of the stock on the date of grant. Compensation cost charged
against income related to restricted share awards was $117,000 ($70,200 net
of tax) in the first quarter of 2006.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (revised
2004), "Share Based Payment," which established standards for the
accounting for transactions in which an entity exchanges its equity
9
BLUE VALLEY BAN CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
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. This statement revises SFAS No. 123, "Accounting for Stock-Based
Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees."
Effective January 1, 2006, the Company adopted the provisions of SFAS No.
123 (revised 2004). As a result of adopting SFAS No. 123R on January 1,
2006, the Company did not record any additional compensation expense, as no
stock options had been granted in recent years and options granted were
fully vested prior to adoption. However, on January 1, 2006, the Company
reclassified $648,000 of unearned compensation related to previously
recognized compensation for restricted share awards that had not been
vested as of that date to additional paid-in capital as these awards
represent equity awards as defined in SFAS No. 123R. The following table
illustrates the effect on net income earnings per share if the Company had
applied the fair value recognition provisions of SFAS No. 123 on
stock-based employee compensation for the three months ended March 31,
2005.
MARCH 31,
2005
-----------
(Unaudited)
(dollars in
thousands)
Net income, as reported $796
====
Add: Total stock-based employee compensation recognized in
net income, net of income taxes of $25 for the period
ended March 31, 2005 38
Less: Total stock-based compensation cost determined under
the fair value based method, net of income tax credits of
$(25) for the period ended March 31, 2005 (38)
----
Pro forma net income $796
====
10
BLUE VALLEY BAN CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
A summary of option activity under the Plan as of March 31, 2006 and
changes during the quarter then ended is presented below:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Shares Price Term Value
- -------------------------------- ------- -------- ---------- ----------
Outstanding, beginning of year 111,400 $18.38
Exercised (4,050) 13.46
Forfeited -- --
-------
Outstanding, end of year 107,350 $18.56 5.11 $1,321,544
======= ==== ==========
Options exercisable, end of year 107,350 $18.56 5.11 $1,321,544
======= ==== ==========
A summary of restricted stock activity under the Plan as of March 31, 2006
and changes during the quarter then ended is presented below:
Weighted
Average
Grant Date
Restricted Stock Shares Fair Value
- ------------------------------ ------ ----------
Outstanding, beginning of year 36,350 $27.45
Vested -- --
Forfeited (200) $27.00
------
Outstanding, end of year 36,150 $27.45
======
As of March 31, 2006, there was $531,397 of total unrecognized compensation
cost related to nonvested restricted stock compensation granted under the
Plan. That cost is expected to be recognized over a weighted average period
of 1.29 years. The total fair value of shares vested during the quarter
ended March 31, 2006 was $0.
NOTE 3: 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.
11
BLUE VALLEY BAN CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
The computation of per share earnings for the three months ended March 31,
2006 and 2005 is as follows:
MARCH 31, MARCH 31,
2006 2005
----------- -----------
(Unaudited) (Unaudited)
(dollars in thousands,
except
share and per share data)
Net income, as reported $ 1,317 $ 796
========== ==========
Average common shares outstanding 2,349,009 2,331,546
Average common share stock options outstanding 44,637 39,866
---------- ----------
Average diluted common shares 2,393,646 2,371,412
========== ==========
Basic earnings per share $ 0.56 $ 0.34
========= ==========
Diluted earnings per share $ 0.55 $ 0.34
========= ==========
NOTE 4: LONG-TERM DEBT
Long-term debt at March 31, 2006 and December 31, 2005, consisted of the
following components:
MARCH 31, DECEMBER
2006 31, 2005
----------- --------
(Unaudited)
(in thousands)
Note payable - Blue Valley Ban Corp (A) $ 3,831 $ 3,981
Note payable - Blue Valley Building Corp. (B) 6,918 7,037
Federal Home Loan Bank advances (C) 47,500 47,500
Subordinated Debentures - BVBC Capital Trust II (D) 7,732 7,732
Subordinated Debentures - BVBC Capital Trust III (E) 11,856 11,856
------- -------
Total long-term debt $77,837 $78,106
======= =======
12
BLUE VALLEY BAN CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
(A) Due in December 2012, payable in quarterly installments of principal plus
interest at the Federal Funds rate plus 1.63%; 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, 2010, 2011, 2013 and 2015; 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, 2006, approximately $59,767,000 was
available.
(D) 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. The Company may prepay the
subordinated debentures beginning in 2008, in whole or in part, at their
face value plus accrued interest.
(E) Due in 2035; interest only at LIBOR + 1.60% 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 trust
preferred securities (D) due in 2033. The Company may prepay the
subordinated debentures beginning in 2010, in whole or in part, at their
face value plus accrued interest.
Aggregate annual maturities of long-term debt at March 31, 2006 are as follows:
(in thousands)
April 1 to December 31, 2006 $ 818
2007 1,113
2008 11,140
2009 1,169
2010 6,199
Thereafter 57,398
-------
$77,837
=======
13
BLUE VALLEY BAN CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
NOTE 5: 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, 2006. A
$97,000 unrealized gain has been recognized as a component of other
comprehensive loss.
14
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, 2005. Further description of our critical
accounting policies can be found in our Annual Report on Form 10-K for
the year ended December 31, 2005.
RESULTS OF OPERATIONS
Three months ended March 31, 2006 and 2005. Net income for the quarter
ended March 31, 2006, was $1.3 million, compared to net income of
$796,000 for the quarter ended March 31, 2005, representing an
increase of $521,000, or 65.45%. Diluted earnings per share increased
61.76% to $0.55 during the first quarter of 2006 from $0.34 in the
same period of 2005. The Company's annualized return on average assets
and average stockholders' equity for the three-month period ended
March 31, 2006 were 0.77% and 11.40%, compared to 0.48% and 7.70%,
respectively, for the same period in 2005, increases of 60.41% and
48.05%, 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 higher yields on average earning assets
and 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
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
fee income. Lower mortgage 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, 2006 was $6.6 million, an increase of $1.6
million, or 31.89%, from $5.0 million for the three-month period ended
March 31, 2005.
FTE interest income for the current year first quarter was $11.3
million, an increase of $2.2 million, or 23.63%, from $9.2 million in
the prior year first quarter. This increase was primarily a result of
an overall increase in yields on earning assets. The overall yield on
average earning assets increased by 122 basis points to 7.18% in the
first quarter of 2006 compared to 5.96% in the prior year first
quarter. The 122 basis point increase in yield resulted from increases
in market interest rates. In addition, FTE interest income also
increased due to an increase in average earning assets, particularly
investment securities. The average balance of investment securities
increased approximately $38 million, or 59.21%, from prior year first
quarter. Average earning asset volume increased from the first quarter
of 2005 to the current period by $16.6 million, or 2.65%.
Interest expense for the current year first quarter was $4.7 million,
an increase of $569,000, or 13.68%, from $4.2 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-term borrowings. The rate paid on total
average interest-bearing liabilities increased 41 basis points to
3.54% during the three month period ending March 31, 2006 compared to
3.13% during the same period in 2005. In addition, average
interest-bearing liabilities increased $3.1 million or 0.57% to $541.9
million during the first quarter of 2006 compared to $538.8 million
during the prior year period. This increase was primarily the result
of higher short-term borrowing 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.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
AVERAGE BALANCES, YIELDS AND RATES
Three Months Ended March 31,
-------------------------------------------------------------
2006 2005
----------------------------- -----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ------- -------- -------- -------
(Dollars in thousands)
ASSETS
Federal funds sold .......................... $ 6,705 $ 82 5.00% $ 3,628 $ 23 2.38%
Investment securities - taxable ............. 100,824 1,041 4.19 61,854 392 2.58
Investment securities - non-taxable (1) ..... 636 11 7.17 1,873 33 7.05
Mortgage loans held for sale ................ 17,909 281 6.37 39,072 526 5.46
Loans, net of unearned discount and fees .... 513,922 9,916 7.82 516,990 8,191 6.43
-------- ------- -------- ------
Total earning assets ..................... 639,996 11,331 7.18 623,417 9,165 5.96
-------- ------- -------- ------
Cash and due from banks - non-interest
bearing .................................. 18,656 20,442
Allowance for possible loan losses .......... (6,623) (7,285)
Premises and equipment, net ................. 18,574 19,854
Other assets ................................ 18,925 18,197
-------- --------
Total assets ............................. $689,528 $674,625
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits-interest bearing:
Interest-bearing demand accounts ............ $ 24,748 $ 23 0.37% $ 25,920 $ 33 0.52%
Savings and money market deposits ........... 160,600 960 2.42 186,098 897 1.95
Time deposits ............................... 248,499 2,487 4.06 222,498 2,064 3.76
-------- ------- -------- ------
Total interest-bearing deposits .......... 433,847 3,470 3.24 434,516 2,994 2.79
-------- ------- -------- ------
Short-term borrowings ....................... 30,682 288 3.80 24,897 108 1.76
Long-term debt .............................. 77,389 969 5.08 79,387 1,057 5.40
-------- ------- -------- ------
Total interest-bearing liabilities ....... 541,918 4,727 3.54 538,800 4,159 3.13
-------- ------- -------- ------
Non-interest bearing deposits ............... 92,937 87,509
Other liabilities ........................... 7,792 6,401
Stockholders' equity ........................ 46,881 41,915
-------- --------
Total liabilities and stockholders'
equity ................................ $689,528 $674,625
======== ========
Net interest income/spread .................. $ 6,604 3.64% $5,006 2.83%
======= ==== ====== ====
Net interest margin ......................... 4.18% 3.26%
==== ====
- ----------
(1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%. For
the quarters ending March 31, 2006 and 2005, the tax equivalency adjustment
amounted to $4,000 and $11,000 respectively.
17
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 rate, reflecting changes in rate multiplied by the
prior period volume; and
- changes in volume, reflecting changes in volume multiplied by the
current period rate.
CHANGES IN INTEREST INCOME AND
EXPENSE VOLUME AND RATE VARIANCES
THREE MONTHS ENDED MARCH 31,
2006 COMPARED TO 2005
----------------------------
CHANGE CHANGE
DUE TO DUE TO TOTAL
RATE VOLUME CHANGE
------ -------- ------
(Dollars in thousands)
Federal funds sold and other short-term investments .. $ 22 $ 37 $ 59
Investment securities - taxable ...................... 245 404 649
Investment securities - non-taxable (1) .............. 1 (23) (22)
Mortgage loans held for sale ......................... 93 (332) (239)
Loans, net of unearned discount ...................... 1,778 (59) 1,719
------ ----- ------
Total interest income ............................. 2,139 27 2,166
------ ----- ------
Interest-bearing demand accounts ..................... (9) (1) (10)
Savings and money market deposits .................... 214 (151) 63
Time deposits ........................................ 163 260 423
Short-term borrowings ................................ 126 54 180
Long-term debt ....................................... (63) (25) (88)
------ ----- ------
Total interest expense ............................ 431 137 568
------ ----- ------
Net interest income .................................. $1,708 $(110) $1,598
====== ===== ======
- ----------
(1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%.
18
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 2006 was $75,000,
compared to $155,000 for the same period of 2005. 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, 2006 compared to
the same period in the prior year was the result of improvements in the
overall credit quality 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. The Company
makes 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,
---------------
2006 2005
------ ------
(In thousands)
Loans held for sale fee income... $1,136 $2,041
NSF charges and service fees..... 285 255
Other service charges............ 298 233
Other income .................... 313 278
------ ------
Total non-interest income..... $2,032 $2,807
====== ======
Non-interest income decreased $775,000 or 27.61%, to $2.0 million during
the three-month period ended March 31, 2006, from $2.8 million during the
three-month period ended March 31, 2005. This decrease is primarily
attributable to a decrease in loans held for sale fee income of $905,000 or
44.35%. 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.
NON-INTEREST EXPENSE
THREE MONTHS
ENDED
MARCH 31,
---------------
2006 2005
------ ------
(In thousands)
Salaries and employee benefits .. $4,036 $3,947
Occupancy ....................... 759 820
General and administrative ...... 1,651 1,594
------ ------
Total non-interest expense ... $6,446 $6,361
====== ======
Non-interest expense remained virtually unchanged from the prior period at
$6.4 million during the three-month period ended March 31, 2006.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Total assets for the Company at March 31, 2006, were $705.7 million, an
increase of $16.1 million, or 2.33%, compared to $689.6 million at December
31, 2005. Deposits and stockholders' equity at March 31, 2006, were $532.1
million and $47.7 million, respectively, compared with $529.3 million and
$46.3 million, respectively, at December 31, 2005, increases of $2.7
million or 0.51%, and $1.5 million or 3.21%, respectively.
Loans at March 31, 2006 totaled $529.0 million, reflecting an increase of
$25.9 million, or 5.13%, compared to December 31, 2005. The loan to deposit
ratio at March 31, 2006 was 99.42% compared to 95.05% at December 31, 2005.
Available-for-sale securities at March 31, 2006 totaled $99.6 million,
reflecting only a slight decrease from December 31, 2005.
Mortgage loans held for sale at March 31, 2006 totaled $20.6 million, an
increase of $6.7 million, or 48.12%, compared to $13.9 million at December
31, 2005. 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 $59,767,000 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:
20
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,
2006 2005 2005
--------- --------- ------------
(Dollars in thousands)
COMMERCIAL AND ALL OTHER LOANS:
Past due 90 days or more $ 2 $ 870 $ 781
Nonaccrual 265 446 769
COMMERCIAL REAL ESTATE LOANS:
Past due 90 days or more -- 175 598
Nonaccrual -- -- --
CONSTRUCTION LOANS:
Past due 90 days or more -- 3,188 585
Nonaccrual 143 -- 452
LEASE FINANCING:
Past due 90 days or more -- 33 5
Nonaccrual 6 78 119
RESIDENTIAL REAL ESTATE LOANS:
Past due 90 days or more -- 153 --
Nonaccrual 965 185 1,016
CONSUMER LOANS:
Past due 90 days or more 14 12 49
Nonaccrual 6 -- --
HOME EQUITY LOANS:
Past due 90 days or more 35 -- --
Nonaccrual 8 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 1,444 5,215 4,374
------- ------- -------
FORECLOSED ASSETS HELD FOR SALE 306 2,650 711
------- ------- -------
Total non-performing assets $ 1,750 $ 7,865 $ 5,085
======= ======= =======
Total nonperforming loans to total loans 0.27% 0.97% 0.87%
Total nonperforming loans to total assets 0.20% 0.73% 0.63%
Allowance for loan losses to nonperforming loans 450.92% 145.90% 153.27%
Nonperforming assets to loans and foreclosed
assets held for sale 0.33% 1.47% 1.01%
As of March 31, 2006, non-performing loans equaled 0.27% of total loans,
representing a substantial decrease in non-performing loans from December
31, 2005. As such, the Company recorded a lower provision for loan losses
during the three month period ending March 31, 2006 compared to the three
month period ending March 31, 2005. However, the level of loans charged-off
increased slightly during the first quarter of 2006. Consequently, the
Company experienced an annualized ratio of net charge-offs to average loans
of 0.21% for the quarter ending March 31, 2006 compared to a ratio of net
charge-offs to average loans of 0.17% for the year ended December 31, 2005.
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 450.92%.
21
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,
2006 2005 2005
------------ ------------ ------------
(Dollars in thousands)
BALANCE AT BEGINNING OF PERIOD $ 6,704 $ 7,333 $ 7,333
LOANS CHARGED OFF
Commercial loans 105 197 949
Commercial real estate loans -- -- --
Construction loans -- -- --
Lease financing 98 -- 86
Residential real estate loans 109 -- --
Consumer loans 16 28 77
Home equity loans -- -- 16
-------- -------- --------
Total loans charged-off 328 225 1,128
-------- -------- --------
RECOVERIES
Commercial loans 25 4 154
Commercial real estate loans -- -- 3
Construction loans -- -- --
Lease financing 30 58 76
Residential real estate loans -- -- 1
Consumer loans 6 12 35
Home equity loans -- -- --
-------- -------- --------
Total recoveries 61 74 269
-------- -------- --------
NET LOANS CHARGED OFF 267 151 859
PROVISION FOR LOAN LOSSES 75 155 230
-------- -------- --------
BALANCE AT END OF PERIOD $ 6,512 $ 7,337 $ 6,704
======== ======== ========
LOANS OUTSTANDING
Average $513,922 $516,990 $516,643
End of period 529,004 520,953 503,143
RATIO OF ALLOWANCE FOR LOAN LOSSES TO
LOANS OUTSTANDING
Average 1.27% 1.42% 1.30%
End of period 1.23% 1.41% 1.33%
RATIO OF NET CHARGE-OFFS (RECOVERIES) TO
Average loans 0.21% 0.12% 0.17%
End of period loans 0.20% 0.12% 0.17%
The allowance for loan losses as a percent of total loans decreased to
1.23% as of March 31, 2006, compared to 1.33% as of December 31, 2005.
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 74.53% and
74.26% of our total deposits at March 31, 2006, and December 31, 2005,
respectively. Generally, the Company's funding strategy is to utilize
Federal Home Loan Bank of Topeka 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, 2006, our total stockholders' equity was $47.7 million and our
equity to asset ratio was 6.76%. At March 31, 2006, our Tier 1 capital
ratio was 9.23% compared to 8.86% at December 31, 2005, while our total
risk-based capital ratio was 11.72% compared to 12.04% at December 31,
2005. As of March 31, 2006, we had capital in excess of the requirements
for a "well-capitalized" institution.
23
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, 2006 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
- ------------------------- ---------------- --------------
200 basis point rise 14.93% 3.71%
Base Rate Scenario -- --
200 basis point decline (16.14%) (8.74%)
The above table indicates that, at March 31, 2006, in the event of a sudden
and sustained increase in prevailing market rates, our net interest income
would be expected to increase as our assets would be expected to reprice
quicker than our liabilities, while a decrease in rates would indicate just
the opposite. Generally, in the decreasing rate scenarios, not only would
adjustable rate assets (loans) reprice to lower rates faster than our
liabilities, but our liabilities - long-term Federal Home Loan Bank of
Topeka (FHLB) advances and existing time deposits - would not decrease in
rate as much as market rates. In addition, fixed rate loans might
experience an increase in prepayments, further decreasing yields on earning
assets and causing net interest income to decrease. Another
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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, 2006, 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 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.
25
ITEM 4. CONTROLS AND PROCEDURES
In accordance with Item 307 of Regulation S-K promulgated under the
Securities Act of 1933, as amended, and within 90 days of the date of this
Quarterly Report on Form 10-Q, the Chief Executive Officer and Chief
Financial Officer of the Company (the "Certifying Officers") have conducted
evaluations of the Company's disclosure controls and procedures. As defined
under Sections 13a-14(c) and 15d-14(c) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the term "disclosure controls and
procedures" means controls and other procedures of an issuer that are
designed to ensure that information required to be disclosed by the issuer
in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in
the Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure
that information required to be disclosed by an issuer in the reports that
it files or submits under the Exchange Act is accumulated and communicated
to the issuer's management, including its principal executive officer or
officers and principal financial officer or officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding
required disclosure. The Certifying Officers have reviewed the Company's
disclosure controls and procedures and have concluded that those disclosure
controls and procedures are effective as of the date of this Quarterly
Report on Form 10-Q. In compliance with Section 302 of the Sarbanes-Oxley
Act of 2002, (18 U.S.C. 1350), each of the Certifying Officers executed an
Officer's Certification included in this Quarterly Report on 10-Q.
At December 31, 2005, two deficiencies were noted in controls. The
deficiencies noted were accounting for tax benefit upon exercise of stock
options and computation of earnings per share. Both items have been
corrected.
As of the date of this Quarterly Report on Form 10-Q, there have not been
any other 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.
26
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 1A. RISK FACTORS
No changes
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
On April 14, 2006, the Company's Board of Directors elected Robert D.
Taylor as a Class II Director. Mr. Taylor was also elected to serve on
the Company's Audit Committee effective April 14, 2006.
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 Treasurer pursuant to Rule
13a-14(a)/15d-14(a)
32.1 Certification of the Chief Executive Officer and Treasurer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
27
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 15, 2006 By: /s/ Robert D. Regnier
------------------------------------
Robert D. Regnier, President and
Chief Executive Officer and Director
(Principal Executive Officer)
Date: May 15, 2006 By: /s/ Mark A. Fortino
------------------------------------
Mark A. Fortino, Chief Financial
Officer
(Principal Financial
[and Accounting] Officer)
28