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 SEPTEMBER 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 September 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 - September 30, 2002 (unaudited) and December 31, 2001 ........... 4

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

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

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

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

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ..................................................................... 11

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .............................. 22

ITEM 4. CONTROLS AND PROCEDURES ................................................................. 24

PART II. OTHER INFORMATION

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

ITEM 2. 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 ........................................................ 25

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 (the "Company") as of September 30, 2002, and the related consolidated
statements of income for the three-month and nine-month periods ended September
30, 2002 and 2001 and the consolidated statements of stockholders' equity and
cash flows for the nine-month periods ended September 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 auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.

Based on our reviews, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.

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

/s/ BKD, LLP

Kansas City, Missouri
October 25, 2002

3

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

ASSETS

See Accompanying Notes to Consolidated Financial Statements
and Independent Accountants' Report. 4

BLUE VALLEY BAN CORP
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 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 Accountants' Report. 5

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

See Accompanying Notes to Consolidated Financial Statements
and Independent Accountants' Report. 6

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

See Accompanying Notes to Consolidated Financial Statements
and Independent Accountants' Report. 7

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

See Accompanying Notes to Consolidated Financial Statements
and Independent Accountants' Report. 8

BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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 September 30, 2002, and
the consolidated results of its operations, stockholders' equity and cash
flows for the periods ended September 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 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, 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 nine-months ended September
30, 2002 and 2001 is as follows:

See Independent Accountants' Report. 9

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

NOTE 3: LONG-TERM DEBT

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

(A) Due in August 2009, payable in monthly installments of $23,175,
including 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 2007, 2008, 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 1.55% to
5.682%. Federal Home Loan Bank advance availability is determined
quarterly and at September 30, 2002, approximately $75,002,000 was
available.

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

See Independent Accountants' Report 10

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 September 30, 2002 and 2001. Net income for the
quarter ended September 30, 2002, was $1.7 million, as compared to net
income of $1.0 million for the quarter ended September 30, 2001,
representing an increase of $614,000, or 58.92%. Diluted earnings per
share increased 57.44% to $0.74 during the third quarter of 2002 from
$0.47 in the same period of 2001. The Company's annualized returns on
average assets and average stockholders' equity for the three-month
period ended September 30, 2002 were 1.22% and 20.76%, compared to
0.90% and 16.43%, respectively, for the same period in 2001, increases
of 35.55% and 26.35%, respectively. The increase in net income from the
prior year third quarter to the current year was due to increases in
both non-interest and net interest income.

The expansion of the Company's residential mortgage origination
divisions coupled with declines in market interest rates during 2001
resulted in a significant increase in the number of loans originated, a
trend which has persisted through the third 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. As a result of continued expansion of this division
and additional market interest rate declines during 2002, the Company
has realized a considerable increases in net income from mortgage
origination and refinancing revenue generated by this division during
the three-month period ended September 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 third quarter of
2002 due to declines in market interest rates and increased marketing
efforts.

Net interest income of $4.2 million increased $458,000 or 12.20% during
the three-month period ended September 30, 2002 as compared to the
three-month period ended September 30, 2001, due to reductions in rates
paid on interest-bearing liabilities.

11

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

Interest income for the current year third quarter was $7.7 million, a
decrease of $615,000, or 7.39%, from $8.3 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 146 basis points to
6.19% in the third quarter of 2002, as compared to 7.65% in the prior
year third quarter. Average earning asset volume increased from the
third quarter of 2001 to the current period by $63.4 million, or
14.51%, which partially offset the decrease in yield on
interest-earning assets. The 146 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 third quarter was $3.5 million, a
decrease of $1.1 million, or 23.45%, from $4.6 million in the prior
year third 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 3.21% during the quarter
ended September 30, 2002 compared to 4.74% during the same quarter in
2001, a decrease of 153 basis points. Average interest-bearing deposits
increased by $26.2 million, or 7.94% from the prior year and other
interest-bearing liabilities increased by $23.4 million or 43.62% 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.

Nine months ended September 30, 2002 and 2001. Net income for the nine
months ended September 30, 2002 was $4.0 million, compared to net
income of $2.3 million for the nine-month period ended September 30,
2001, representing an increase of $1.7 million, or 72.46%. Diluted
earnings per share increased 70.47% to $1.79 during the nine months
ended September 30, 2002 from $1.05 in the same period of 2001. The
Company's annualized return on average assets and average stockholders'
equity for the nine-month period ended September 30, 2002 were 1.02%
and 17.62%, compared to 0.70% and 12.31%, respectively, for the same
period in 2001, increases of 45.71% and 43.13%, respectively. The
principal contributor to the increase in net income from the nine
months ended September 30, 2001 to the current year was an increase in
non-interest income.

The expansion of the Company's residential mortgage capabilities
coupled with declines in market interest rates during 2001 resulted in
a significant increase in the number of loans originated, a trend which
continued through the nine-months ended September 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. Consequently, the Company has realized a considerably
greater impact on net income from mortgage origination and refinancing
revenue during the nine-month period ended September 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
nine-month period ended September 30, 2002 due to declines in market
interest rates and increased marketing efforts.

Net interest income of $11.8 million increased by $899,000 or 8.21%
during the nine-month period ended September 30, 2002 as compared to
$10.9 million for the nine-month period ended September 30, 2001.

12

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

Interest income for the nine months ended September 30, 2002 was $22.7
million, a decrease of $2.5 million, or 9.93%, from $25.3 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 181
basis points to 6.31% during the nine months ended September 30, 2002,
compared to 8.12% during that period in the prior year. Average earning
asset volume increased from the first three quarters of 2001 to the
current period by $69.1 million, or 16.50%, which partially offset the
decrease in yield on interest-earning assets. The 181 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 nine-month period ended September 30, 2002 was
$10.9 million, a decrease of $3.4 million, or 23.82%, from $14.3
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 3.42% during
the nine-month period ended September 30, 2002 compared to 5.17% during
the same period in 2001, a decrease of 175 basis points. Average
interest-bearing deposits increased by $35.2 million, or 11.03% from
the prior year and other interest-bearing liabilities increased by
$20.9 million or 41.57% 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.

13

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%.

14

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

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

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%.

15

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

PROVISION FOR LOAN LOSSES

The provision for loan losses for the third quarter of 2002 was
$660,000, compared to $570,000 for the same period of 2001, resulting
in a $90,000, or 15.79%, increase. For the nine-months ended September
30, 2002 and 2001, the provision was $1.7 million for both periods. The
increase in the provision during the third quarter of 2002 has resulted
from increases in the volume of 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 $5.3 million, or 105.41%, during the
three-month period ended September 30, 2002, from $2.6 million during
the three-month period ended September 30, 2001. Non-interest income
for the nine-months ended September 30, 2002 was $12.8 million, an
increase of $7.7 million, or 152.79%, from $5.1 million for the
nine-months ended September 30, 2001. These increases are primarily
attributable to an increase in loans held for sale fee income, though
increases were also realized in NSF charges and service fees. Loans
held for sale fee income increased $3.0 million, or 162.28%, and $7.8
million, or 237.74%, for the three-month and nine-month periods ended
September 30, 2002, respectively. We have experienced significant
growth in our loans held for sale income due to the expansion of our
residential mortgage origination 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 third quarter
of 2002. In addition, 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
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. Investment securities with a total book value of
$15.9 million were sold during the first nine months of 2001 resulting
in a gain of $499,000.

16

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

NON-INTEREST EXPENSE

Non-interest expense increased to $6.3 million, or 50.95%, during the
three-month period ended September 30, 2002 and to $16.8 million, or
54.33%, during the nine-month period ended September 30, 2002, from
$4.2 million and $10.9 million in the prior year periods, respectively.
These increases are primarily attributable to an increase in salaries
and employee benefits expense, which increased $1.6 million, or 60.16%,
during the third quarter of 2002 and $4.5 million, or 66.07%, during
the nine-month period ended September 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 249 full-time
equivalent employees at September 30, 2002 as compared to 187 at
September 30, 2001. Many areas of the Company added employees to manage
growth with the expansion of the Company's mortgage divisions
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.
Commissions paid during the three-month and nine-month periods ended
September 30, 2002 were $1.3 million and $3.0 million, respectively,
compared to $363,000 and $634,000 in the prior year periods,
respectively.

FINANCIAL CONDITION

Total assets for the Company at September 30, 2002, were $559.1
million, an increase of $67.1 million, or 13.63%, compared to $492.0
million at December 31, 2001. Deposits and stockholders' equity at
September 30, 2002, were $426.7 million and $32.7 million,
respectively, compared with $394.2 million and $28.5 million,
respectively, at December 31, 2001, increases of $32.5 million, or
8.23%, and $4.1 million, or 14.50%, respectively.

Loans at September 30, 2002 totaled $357.7 million, an increase of
$23.7 million, or 7.08%, compared to December 31, 2001. The loan to
deposit ratio at September 30, 2002 was 83.83% compared to 84.74% at
December 31, 2001. The deposit growth of 8.23% has provided the funding
necessary to facilitate our loan growth.

17

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

Mortgage loans held for sale at September 30, 2002 totaled $75.5
million, an increase of $33.7 million, from $41.9 million at December
31, 2001. Interest rate changes, 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 increased during 2002 to an
average balance of $53.0 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 September 30, 2002, approximately
$75,002,135 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:

18

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

NON-PERFORMING ASSETS

As of September 30, 2002, non-performing loans equaled 0.76% 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 September 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 September 30, 2002, our ratio of allowance for loan losses
to non-performing loans was 212.92%.

19

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

20

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 1.62% as of September 30, 2002, compared to 1.58% at
December 31, 2001. For the nine months ended September 30, 2002,
annualized net charge-offs equaled 0.47% of average total loans. This
ratio is slightly below historical averages due in part to charge-off
recoveries of $277,000 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 62.99%
of our total assets at September 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 September 30, 2002, the Bank was within
the established guidelines.

At September 30, 2002, our total stockholders' equity was $32.7 million
and our equity to asset ratio was 5.84%. At September 30, 2002, our
Tier 1 capital ratio was 9.10% compared to 8.87% at December 31, 2001,
while our total risk-based capital ratio was 10.55% compared to 10.69%
at December 31, 2001. Both exceed the capital minimums established in
the risk-based capital requirements.

21

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 Blue Valley Ban
Corp's wholly-owned subsidiary, Bank of Blue Valley's (the "Bank")
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 September 30, 2002 based on the indicated
instantaneous and permanent changes in interest rates.

22

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The above table indicates that, at September 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 September 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 September 30,
2002.

23

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.

As of the date of this Quarterly Report on Form 10-Q, there have not
been any significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent
to the date of their evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

24

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

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

Not applicable

ITEM 5. OTHER INFORMATION

Not applicable

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(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 September 30, 2002.

25

SIGNATURES

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

BLUE VALLEY BAN CORP

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

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

26

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert D. Regnier, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Blue Valley
Ban Corp (the "Company");

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of the date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditor any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significant affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

November 14, 2002

/s/ Robert D. Regnier
---------------------
Robert D. Regnier,
President and Chief Executive Officer

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark A. Fortino, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Blue Valley
Ban Corp (the "Company");

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of the date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditor any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significant affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

November 14, 2002

/s/ Mark A. Fortino
-------------------
Mark A. Fortino,
Treasurer
(Chief Financial Officer)