BLUE VALLEY BAN CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ________________ TO __________________

COMMISSION FILE NUMBER: 001-15933

BLUE VALLEY BAN CORP
(Exact name of registrant as specified in its charter)

KANSAS 48-1070996
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

11935 RILEY
OVERLAND PARK, KANSAS 66225-6128
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (913) 338-1000

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Number of shares of Common Stock ($1.00 par value) outstanding at the close
of business on June 30, 2002 was 2,179,176 shares.

BLUE VALLEY BAN CORP
INDEX

PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

Independent Accountants' Report .............................................. 3

Consolidated Balance Sheets - June 30, 2002 (unaudited) and December 31, 2001 4

Consolidated Statements of Income (unaudited) - three months and
six months ended June 30, 2002 and 2001 .................................... 6

Consolidated Statements of Stockholders' Equity (unaudited) -
six months ended June 30, 2002 and 2001 .................................... 7

Consolidated Statements of Cash Flows (unaudited) - six months ended
June 30, 2002 and 2001 ..................................................... 8

Notes to Consolidated Financial Statements (unaudited) - six months ended
June 30, 2002 and 2001 ..................................................... 9

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ..................................................... 12

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .............. 23

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS ....................................................... 25

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ............................... 25

ITEM 3. DEFAULTS UPON SENIOR SECURITIES ......................................... 25

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..................... 25

ITEM 5. OTHER INFORMATION ....................................................... 25

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ........................................ 26

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INDEPENDENT ACCOUNTANTS' REPORT

Board of Directors
Blue Valley Ban Corp
Overland Park, Kansas 66225

We have reviewed the accompanying consolidated balance sheet of Blue Valley Ban
Corp as of June 30, 2002, and the related consolidated statements of income for
the three-month and six-month periods ended June 30, 2002 and 2001 and the
consolidated statements of stockholders' equity and cash flows for the six-month
periods ended June 30, 2002 and 2001. These financial statements are the
responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards , 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 generally accepted accounting principles.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2001 and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended (not presented
herein), and in our report dated February 1, 2002, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 2001 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.

/s/ BKD, LLP

Kansas City, Missouri
July 25, 2002

3

BLUE VALLEY BAN CORP
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
(dollars in thousands, except share data)

ASSETS

See Accompanying Notes to Consolidated Financial Statements
and Independent Accountant's Report 4

BLUE VALLEY BAN CORP
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
(dollars in thousands, except share data)

LIABILITIES AND STOCKHOLDERS' EQUITY

See Accompanying Notes to Consolidated Financial Statements
and Independent Accountant's Report 5

BLUE VALLEY BAN CORP
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(dollars in thousands, except share data)

See Accompanying Notes to Consolidated Financial Statements
and Independent Accountant's Report 6

BLUE VALLEY BAN CORP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(dollars in thousands, except share data)

See Accompanying Notes to Consolidated Financial Statements
and Independent Accountant's Report 7

BLUE VALLEY BAN CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(dollars in thousands, except share data)

See Accompanying Notes to Consolidated Financial Statements
and Independent Accountant's Report 8

BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)

NOTE 1: BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
the Company's consolidated financial position as of June 30, 2002, and
the consolidated results of its operations, stockholders' equity and
cash flows for the periods ended June 30, 2002 and 2001, and are of a
normal recurring nature.

Certain information and note disclosures normally included in the
company's annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's December 31, 2001 Form 10-K filed with the Securities and
Exchange Commission.

The results of operations for the period are not necessarily indicative
of the results to be expected for the full year.

The report of BKD, LLP commenting upon its review accompanies the
consolidated financial statements included in Item 1 of Part I.

NOTE 2: EARNINGS PER SHARE

Basic earnings per share is computed based on the weighted average
number of shares outstanding during each year. Diluted earnings per
share is computed using the weighted average common shares and all
potential dilutive common shares outstanding during the period.

The computation of per share earnings for the six-months ended June 30,
2002 and 2001 is as follows:

See Independent Accountants' Report 9

BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)

NOTE 3: LONG-TERM DEBT

Long-term debt at June 30, 2002 and December 31, 2001, consisted of the
following components:

(A) Due in August 2009, payable in monthly installments of $23,175,
plus interest at 7.5%; collateralized by land, building and
assignment of future rents.

(B) Borrowing under $10 million revolving line of credit; interest
only at the fed funds rate + 1.68% due quarterly until 2003,
when the outstanding principal balance is due; collateralized by
common stock of the Company's subsidiary bank.

(C) Due in 2008 and 2010 and 2011; collateralized by various assets
including mortgage-backed loans, and U.S. Treasury and Agency
securities. The interest rates on the advances range from 4.00%
to 5.682%. Federal Home Loan Bank advance availability is
determined quarterly and at June 30, 2002, approximately
$51,596,000 was available.

Aggregate annual maturities of long-term debt at June 30, 2002 are as
follows:

See Independent Accountants' Report 10

BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)

NOTE 4: TRUST PREFERRED SECURITIES

On July 21, 2000, BVBC Capital Trust I (the "Trust"), a Delaware
business trust formed by the Company, completed the sale of $11,500,000
of 10.375% trust preferred securities. The Trust is a 100% owned finance
subsidiary of the Company. The Trust also issued $355,672 of common
securities to the Company and used the total proceeds of $11,855,672
from the offering to purchase $11,855,672 in principal amount of 10.375%
junior subordinated debentures of the Company due September 30, 2030.
Payments to the Company on the common securities are subordinated to the
trust preferred securities in the event of a default on the junior
subordinated debentures. The Company paid all underwriting discounts and
other operating expenses related to the offering and received net
proceeds of $10,578,000. The junior subordinated debentures are the sole
assets of the Trust and are eliminated, along with the related income
statement effects, in the Company's consolidated financial statements.
The trust preferred securities are mandatorily redeemable upon the
maturity of the junior subordinated debentures or upon earlier
redemption as provided in the indenture. The Company has the right to
redeem the junior subordinated debentures, in whole or in part, on or
after September 30, 2005, at a redemption price specified in the
indenture plus any accrued but unpaid interest to the redemption date.
The Company has fully and unconditionally guaranteed the Trust's
obligations under the trust preferred securities on a subordinated basis
to the extent that the funds are held by the Trust. The trust preferred
securities meet the criteria to be considered regulatory capital.

See Independent Accountants' Report 11

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. The
Company intends such forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and is including this
statement for purposes of those safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe future
plans, strategies and expectations of the Company, can generally be
identified by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Company
is unable to predict the actual results of its future plans or
strategies with certainty. Factors which could have a material adverse
effect on the operations and future prospects of the Company include,
but are not limited to, fluctuations in market rates of interest and
loan and deposit pricing; a deterioration of general economic conditions
or the demand for housing in the Company's market areas; legislative or
regulatory changes; adverse developments in the Company's loan or
investment portfolio; any inability to obtain funding on favorable
terms; the loss of key personnel; significant increases in competition;
and the possible dilutive effect of potential acquisitions or
expansions. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be
placed on such statements.

GENERAL

RESULTS OF OPERATIONS

Three months ended June 30, 2002 and 2001. Net income for the quarter
ended June 30, 2002, was $1.2 million, as compared to net income of
$763,000 for the quarter ended June 30, 2001, representing an increase
of $418,000, or 54.78%. Diluted earnings per share increased 51.43% to
$0.53 during the second quarter of 2002 from $0.35 in the same period of
2001. The Company's annualized return on average assets and average
stockholders' equity for the three-month period ended June 30, 2002 were
0.90% and 16.43%, compared to 0.69% and 12.23%, respectively, for the
same period in 2001, increases of 30.43% and 34.34%, respectively. The
principal contributor to our increase in net income from the prior year
second quarter to the current year was an increase in non-interest
income. The expansion of the Company's internet mortgage capabilities
coupled with declines in market interest rates during 2001 resulted in a
significant increase in the number of residential mortgage loans
originated, a trend which has persisted through the second quarter of
2002. The Company's internet mortgage capabilities were expanded
considerably with the creation of the Internet Mortgage Division and the
introduction of its website, internetmortgage.com, during the first
quarter of 2001. The division began realizing significant gains in
non-interest income during the second quarter of 2001; however, the
income generated did not begin to offset the costs of expansion, mainly
increased staffing and occupancy costs, until the third quarter of the
year. Consequently, the Company has realized a considerably greater
impact on net income from mortgage origination and refinancing revenue
generated by this division during the three-month period ended June 30,
2002 as compared to the same period in 2001. In addition, the Company's
Retail Mortgage Division has also experienced a significant increase in
residential mortgage loan originations in the Company's local market
during the second quarter of 2002 due to declines in market interest
rates. Non-interest income generated by the Retail Mortgage Division
increased by nearly 60% during the second quarter of 2002 as compared to
the second quarter of 2001.

12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Net interest income of $3.8 million remained virtually unchanged during
the three-month period ended June 30, 2002 as compared to the
three-month period ended June 30, 2001.

Interest income for the current year second quarter was $7.4 million, a
decrease of $1.0 million, or 12.15%, from $8.4 million in the same
quarter in the prior year. This decrease was primarily a result of an
overall decrease in the yield on average earning assets of 197 basis
points to 6.18 % in the second quarter of 2002, as compared to 8.15% in
the prior year second quarter. Average earning asset volume increased
from the second quarter of 2001 to the current period by $66.8 million,
or 15.92%, which partially offset the decrease in yield on
interest-earning assets. The 197 basis point decrease in yield has
resulted primarily from declines in market interest rates throughout
2001 which have persisted into the current year.

Interest expense for the current year second quarter was $3.6 million, a
decrease of $1.2 million, or 25.07%, from $4.8 million in the prior year
second quarter. The decrease is attributable to a decrease in the rates
paid on average interest-bearing liabilities during the current quarter.
There have been two primary causes for this decline in interest rates.
First is the impact of the overall decline in market interest rates on
the rates of our funding sources. Secondly, promotional time deposits
offered during May, June and July of 2000, which bore interest rates
notably higher than current market rates, renewed, repriced or matured
during the first quarter of 2002 at significantly lower rates. The rate
paid on total average interest-bearing liabilities decreased to 3.35%
during the quarter ended June 30, 2002 compared to 5.22% during the same
quarter in 2001, a decrease of 187 basis points. Average
interest-bearing deposits increased by $47.2 million, or 14.69% from the
prior year and other interest-bearing liabilities increased by $15.6
million or 31.64% from the prior year, mainly in the form of long-term
FHLB borrowings. These increases in interest-bearing liability volume
partially offset the overall decrease in rate.

Six months ended June 30, 2002 and 2001. Net income for the six months
ended June 30, 2002 was $2.3 million, compared to net income of $1.3
million for the six-month period ended June 30, 2001, representing an
increase of $1.0 million, or 83.67%. Diluted earnings per share
increased 81.03% to $1.05 during the six months ended June 30, 2002 from
$0.58 in the same period of 2001. The Company's annualized return on
average assets and average stockholders' equity for the six-month period
ended June 30, 2002 were 0.91% and 16.05%, compared to 0.59% and 10.43%,
respectively, for the same period in 2001, increases of 54.24% and
53.88%, respectively. The principal contributor to our increase in net
income from the six months ended June 30, 2001 to the current year was
an increase in non-interest income. The expansion of the Company's
internet mortgage capabilities coupled with declines in market interest
rates during 2001, which have persisted into the current year, resulted
in a significant increase in the number of residential mortgage loans
originated, a trend which has continued through the six-months ended
June 30, 2002. The Company's internet mortgage capabilities were
expanded considerably with the creation of the Internet Mortgage
Division and the introduction of its website, internetmortgage.com,
during the first quarter of 2001. The division began realizing
significant gains in non-interest income during the second quarter of
2001; however, the income generated did not begin to offset the costs of
expansion, mainly increased staffing and occupancy costs, until the
third quarter of the year. Consequently, the Company has realized a
considerably greater impact on net income from mortgage origination and
refinancing revenue during the six-month period ended June 30, 2002 as
compared to the same period in 2001. In addition, the Company's Retail
Mortgage Division experienced a significant increase in residential
mortgage loan originations in the Company's local market during the
six-month period ended June 30, 2002 due to declines in market interest
rates.

13

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Non-interest income generated by the Retail Mortgage Division increased
by nearly 80% during the six-months ended June 30, 2002 as compared to
the same period in 2001. Net interest income of $7.6 million increased
by $441,000 or 6.13% during the six-month period ended June 30, 2002 as
compared to $7.2 million for the six-month period ended June 30, 2001.

Interest income for the six months ended June 30, 2002 was $15.0
million, a decrease of $1.9 million, or 11.18%, from $16.9 million for
the same period in the prior year. This decrease was primarily a result
of an overall decrease in the yield on average earning assets of 206
basis points to 6.37 % during the six months ended June 30, 2002,
compared to 8.43% during that period in the prior year. Average earning
asset volume increased from the first half of 2001 to the current period
by $71.8 million, or 17.53%, which partially offset the decrease in
yield on interest-earning assets. The 206 basis point decrease in yield
has resulted primarily from decreases in market interest rates
throughout 2001 which have persisted into the current year.

Interest expense for the six-month period ended June 30, 2002 was $7.4
million, a decrease of $2.3 million, or 23.99%, from $9.7 million in the
same period of the prior year. The decrease is attributable to a
decrease in the rates paid on average interest-bearing liabilities
during the current period. There have been two primary causes for this
decline in interest rates. First is the impact of the overall decline in
market interest rates on the rates of our funding sources. Secondly,
promotional time deposits offered during May, June and July of 2000,
which bore interest rates notably higher than current market rates,
renewed, repriced or matured during the first quarter of 2002 at
significantly lower rates. The rate paid on total average
interest-bearing liabilities decreased to 3.53% during the six-month
period ended June 30, 2002 compared to 5.40% during the same period in
2001, a decrease of 187 basis points. Average interest-bearing deposits
increased by $39.8 million, or 12.68% from the prior year and other
interest-bearing liabilities increased by $19.8 million or 40.56% from
the prior year, mainly in the form of long-term FHLB borrowings. These
increases in interest-bearing liability volume partially offset the
overall decrease in rate.

Average Balance Sheets. The following table sets forth for the periods
and, as of the dates indicated, information regarding our average
balances of assets and liabilities as well as the dollar amounts of
interest income from interest-earning assets and interest expense on
interest-bearing liabilities and the resultant yields or costs. Ratio,
yield and rate information are based on average daily balances where
available; otherwise, average monthly balances have been used.
Nonaccrual loans are included in the calculation of average balances for
loans for the periods indicated.

14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

AVERAGE BALANCES, YIELDS AND RATES

- ----------

(1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%.

15

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Analysis of Changes in Net Interest Income Due to Changes in Interest
Rates and Volumes. The following table presents the dollar amount of
changes in interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities. It
distinguishes between the increase or decrease related to changes in
balances and changes in interest rates. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to:

o changes in volume, reflecting changes in volume multiplied by
the prior period rate; and

o changes in rate, reflecting changes in rate multiplied by the
prior period volume.

For purposes of this table, changes attributable to both rate and
volume, which cannot be segregated, have been allocated proportionately
to the change due to volume and the change due to rate.

CHANGES IN INTEREST INCOME AND
EXPENSE VOLUME AND RATE VARIANCES

- ----------

(1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%.

16

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

PROVISION FOR LOAN LOSSES

The provision for loan losses for the second quarter of 2002 was
$470,000, compared to $555,000 for the same period of 2001, resulting in
a $85,000, or 15.32%, decrease. For the six-months ended June 30, 2002
and 2001, the provision was $1.1 million for both periods. The decrease
in the provision in the second quarter of 2002 has resulted from
improvements in credit quality in our loan portfolio. We make provisions
for loan losses in amounts management deems necessary to maintain the
allowance for loan losses at an appropriate level.

NON-INTEREST INCOME

Non-interest income increased to $3.9 million, or 148.01%, during the
three-month period ended June 30, 2002, from $1.6 million during the
three-month period ended June 30, 2001. Non-interest income for the
six-months ended June 30, 2002 was $7.5 million, an increase of $5.0
million, or 202.17%, from $2.5 million for the six-months ended June 30,
2001. These increases are primarily attributable to an increase in loans
held for sale fee income, though significant increases were also
realized in NSF charges and service fees. Loans held for sale fee income
increased $2.1 million, or 183.04%, and $4.8 million, or 332.21%, for
the three-month and six-month periods ended June 30, 2002, respectively.
We have experienced significant growth in our loans held for sale income
due to the expansion of our internet mortgage capabilities concurrent
with a relatively low-rate environment. Mortgage originations and
refinancing, and the resultant revenue, have continued to flourish in
the low interest rate environment which has persisted through the second
quarter of 2002. This increase was partially offset by a decrease in the
realized gain on sales of investment securities of $40,000 during the
second quarter of 2002. Interest rate volatility experienced in the bond
market during 2002 has created opportunities for the Company to realize
appreciation on available-for-sale securities. The Company sold six
investment securities during the current year with a total book value of
$13.0 million and realized a gain of $193,000. During 2001, many of our
investment securities had appreciated significantly due to the declining
interest rate environment. We took advantage of opportunities to
mitigate the risk of long-term rate volatility in our available-for-sale
investment portfolio by selling some of our longer-term bonds. Four
investment securities with a total book value of $5.0 million were sold
during the first six months of 2001 resulting in a gain of $217,000.

17

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

NON-INTEREST EXPENSE

Non-interest expense increased to $5.4 million, or 54.59%, during the
three-month period ended June 30, 2002 and to $10.5 million, or 56.44%,
during the six-month period ended June 30, 2002, from $3.5 million and
$6.7 million in the prior year periods, respectively. These increases
are primarily attributable to an increase in salaries and employee
benefits expense, which increased $1.5 million, or 66.81%, during the
second quarter of 2002 and $2.9 million, or 69.88%, during the six-month
period ended June 30, 2002, compared to the prior year periods. Salaries
and employee benefits expense increased as we hired additional staff to
facilitate our growth. We had 227 full-time equivalent employees at June
30, 2002 as compared to 169 at June 30, 2001. Many areas of the Company
added employees to manage growth with the expansion of the Internet
Mortgage Division necessitating approximately 50% of the net increase in
full-time employees. Also, as our internet and retail mortgage loan
originations have grown, commissions paid have also grown, contributing
to the increase in salaries and employee benefits expense during 2002.

FINANCIAL CONDITION

Total assets for the Company at June 30, 2002, were $534.8 million, an
increase of $42.7 million, or 8.69%, compared to $492.0 million at
December 31, 2001. Deposits and stockholders' equity at June 30, 2002,
were $431.7 million and $30.9 million, respectively, compared with
$394.2 million and $28.5 million, respectively, at December 31, 2001,
increases of $37.4 million, or 9.49%, and $2.4 million, or 8.29%,
respectively.

Loans at June 30, 2002 totaled $341.4 million, an increase of $12.6
million, or 3.83%, compared to December 31, 2001. The loan to deposit
ratio at June 30, 2002 was 80.37% compared to 84.74% at December 31,
2001. The deposit growth of 9.49% has provided the funding necessary to
facilitate our loan growth.

18

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Mortgage loans held for sale at June 30, 2002 totaled $32.9 million, a
decrease of $9.0 million, from $41.9 million at December 31, 2001.
Seasonal factors, efficiencies in loan processing, etc. can cause
periodic fluctuations in the balance of mortgage loans held for sale. As
the low interest rate environment has persisted, the average volume of
loans has steadied somewhat in the second quarter of 2002 to an average
balance of $36.0 million. Excess cash and due from bank balances,
federal funds sold, scheduled calls and maturities of investment
securities, and deposit growth have provided the funding necessary to
facilitate the mortgage loan origination growth. Also available to fund
growth is a line-of-credit with the Federal Home Loan Bank. Advance
availability with the Federal Home Loan Bank is determined quarterly and
at June 30, 2002, approximately $51,596,000 million 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:

19

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

NON-PERFORMING ASSETS

As of June 30, 2002, non-performing loans equaled 0.73% of total loans.
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. The
percentage of non-performing loans to total loans at June 30, 2002 is in
line with historical percentages despite a decline in general economic
conditions, as the loan portfolio has been cautiously monitored for
possible non-performing loans and these situations have been
aggressively managed when they have emerged. Generally, the Bank
maintains its allowance for loan losses in excess of its non-performing
loans. As of June 30, 2002, our ratio of allowance for loan losses to
non-performing loans was 218.65%.

20

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

21

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The allowance for loan losses as a percent of total loans has remained
fairly constant at 1.60% as of June 30, 2002, compared to 1.58% at
December 31, 2001. For the six months ended June 30, 2002, annualized
net charge-offs equaled 0.48% of average total loans. This ratio is
slightly below historical averages due in part to charge-off recoveries
of $222,000 during the period.

Liquidity is measured by a financial institution's ability to raise
funds through deposits, borrowed funds, capital, or the sale of
marketable assets, such as residential mortgage loans, a portfolio of
SBA loans, or available-for-sale securities. Other sources of liquidity,
including cash flow from the repayment of loans, are also considered in
determining whether liquidity is satisfactory. Liquidity is also
achieved through growth of core deposits and liquid assets, and
accessibility to the money and capital markets. The funds are used to
meet deposit withdrawals, maintain reserve requirements, fund loans and
operate the organization. Core deposits are defined as demand deposits,
interest-bearing transaction accounts, savings deposits and certificates
of deposit less than $100,000. Also excluded from core deposits are
brokered and internet deposits. Core deposits were 64.57% of our total
assets at June 30, 2002, and 66.54% of total assets at December 31,
2001. Internal guidelines have been established to measure liquid assets
as well as relevant ratios concerning asset levels and purchased funds.
These indicators are reported to the board of directors monthly, and at
June 30, 2002, the Bank was within the established guidelines.

At June 30, 2002, our total stockholders' equity was $30.9 million and
our equity to asset ratio was 5.78%. At June 30, 2002, our Tier 1
capital ratio was 9.13% compared to 8.87% at December 31, 2001, while
our total risk-based capital ratio was 10.73% compared to 10.69% at
December 31, 2001. Both exceed the capital minimums established in the
risk-based capital requirements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a continued part of our financial strategy, we attempt to manage the
impact of fluctuations in market interest rates on our net interest
income. This effort entails providing a reasonable balance between
interest rate risk, credit risk, liquidity risk and maintenance of
yield. Our funds management policy is established by our Board of
Directors and monitored by our Asset/Liability Management Committee. Our
funds management policy sets standards within which we are expected to
operate. These standards include guidelines for exposure to interest
rate fluctuations, liquidity, loan limits as a percentage of funding
sources, exposure to correspondent banks and brokers, and reliance on
non-core deposits. Our funds management policy also establishes the
reporting requirements to the Board of Directors. Our investment policy
complements our funds management policy by establishing criteria by
which we may purchase securities. These criteria include approved types
of securities, brokerage sources, terms of investment, quality
standards, and diversification.

We use an asset/liability modeling service to analyze the Bank of Blue
Valley's current sensitivity to instantaneous and permanent changes in
interest rates. The system simulates the Bank's asset and liability base
and projects future net interest income results under several interest
rate assumptions. This allows management to view how changes in interest
rates will affect the spread between the yield received on assets and
the cost of deposits and borrowed funds.

The asset/liability modeling service is also used to analyze the net
economic value of equity at risk under instantaneous shifts in interest
rates. The "net economic value of equity at risk" is defined as the
market value of assets less the market value of liabilities plus/minus
the market value of any off-balance sheet positions. By effectively
looking at the present value of all future cash flows on or off the
balance sheet, the net economic value of equity modeling takes a
longer-term view of interest rate risk.

We strive to maintain a position such that changes in interest rates
will not affect net interest income or the economic value of equity by
more than 10%, per 100 basis points. The following table sets forth the
estimated percentage change in the Bank of Blue Valley's net interest
income over the next twelve month period and net economic value of
equity at risk at June 30, 2002 based on the indicated instantaneous and
permanent changes in interest rates.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The above table indicates that, at June 30, 2002, in the event of a sudden
and sustained increase in prevailing market rates, our net interest income
would be expected to increase as our assets would be expected to reprice
quicker than our liabilities, while a decrease in rates would indicate just
the opposite. The table also indicates that, at June 30, 2002, in the event
of a sudden increase or decrease in prevailing market rates, the current
net economic value of our equity would decrease. Net economic value of
equity at risk is based on the current market values of assets,
liabilities, and current off-balance sheet positions, and was in excess of
our book value at June 30, 2002.

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PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On May 15, 2002, the Company held its Annual Meeting of Stockholders.
There were 2,175,676 shares outstanding and entitled to vote at the
Annual Meeting, of which 1,748,147 shares were represented in person or
by proxy. The following items were submitted at the Annual Meeting for
consideration by the stockholders.

1. Election of Director

C. Ted McCarter and Don H. Alexander were elected at the Annual
Meeting to serve a three year term, or until his successor is duly
elected and qualified. The voting results for both were as follows:

Shares Voted For: 1,748,147
Shares Voted Against 0
Shares Abstained 0

The directors of the Company whose terms of office extended beyond
the date of the Annual Meeting include:

Robert D. Regnier
Wayne A. Henry, Jr.
Thomas A. McDonnell

2. The acts of the Directors and Officers as shown by the books and
records regularly kept and maintained by the corporation since the
last Annual Meeting of the Stockholders of the Company were approved
and ratified. The voting results were as follows:

Shares Voted For: 1,748,147
Shares Voted Against 0
Shares Abstained 0

ITEM 5. OTHER INFORMATION

Not applicable

25

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(D) EXHIBITS

11. Computation of Earnings Per Share. Please see p. 9.

15. Letter regarding Unaudited Interim Financial Information

99.1 Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350

99.2 Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350

(E) REPORTS ON FORM 8-K

Blue Valley filed no reports on Form 8-K during the quarter
ended June 30, 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

BLUE VALLEY BAN CORP

Date: August 14, 2002 By: /s/ Robert D. Regnier
------------------------------------
Robert D. Regnier, President and
Chief Executive Officer

Date: August 14, 2002 By: /s/ Mark A. Fortino
------------------------------------
Mark A. Fortino, Treasurer

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