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 MARCH 31, 2003

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by checkmark whether the registrant is an accelerated filer.
Yes [ ] No [X]

As of March 31, 2003 the registrant had 2,235,736 shares of Common Stock
($1.00 par value) outstanding, of which 1,202,853 shares were held by
non-affiliates. The aggregate market value of the common shares of the
registrant held by non-affiliates, computed based on the March 31, 2003 closing
price of the stock, was approximately $29.5 million.

BLUE VALLEY BAN CORP
INDEX

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

Consolidated Balance Sheets - March 31, 2003 (unaudited) and December 31, 2002......................4

Consolidated Statements of Income (unaudited) -
three months ended March 31, 2003 and 2002........................................................6

Consolidated Statements of Stockholders' Equity (unaudited) -
three months ended March 31, 2003 and 2002 .......................................................7

Consolidated Statements of Cash Flows (unaudited) -
three months ended March 31, 2003 and 2002........................................................8

Notes to Consolidated Financial Statements (unaudited) -
three months ended March 31, 2003 and 2002........................................................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....................................21

ITEM 4. CONTROLS AND PROCEDURES.......................................................................23

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.............................................................................24

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.....................................................24

ITEM 3. DEFAULTS UPON SENIOR SECURITIES...............................................................24

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................................24

ITEM 5. OTHER INFORMATION.............................................................................24

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..............................................................24

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INDEPENDENT ACCOUNTANTS' REPORT

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

We have reviewed the consolidated balance sheet of Blue Valley Ban Corp as of
March 31, 2003, and the related consolidated statements of income, stockholders'
equity and cash flows for the three-month periods ended March 31, 2003 and 2002.
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, 2002 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 14, 2003 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, 2002 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 25, 2003

3

BLUE VALLEY BAN CORP
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND DECEMBER 31, 2002
(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
MARCH 31, 2003 AND DECEMBER 31, 2002
(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 ENDED MARCH 31, 2003 AND 2002
(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
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(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
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(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
THREE MONTHS ENDED MARCH 31, 2003 AND 2002

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,
2003, and the consolidated results of its operations, changes in
stockholders' equity and cash flows for the periods ended March 31,
2003 and 2002, 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,
2002 Form 10-K filed with the Securities and Exchange Commission.

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

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

NOTE 2: EARNINGS PER SHARE

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

The computation of per share earnings for the three-months ended March
31, 2003 and 2002 is as follows:

9

BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002

NOTE 3: LONG-TERM DEBT

Long-term debt at March 31, 2003 and December 31, 2002, 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 $8 million revolving line of credit; interest
only at the Fed Funds Rate + 1.68% due quarterly until
December 2003, when the outstanding principal balance is due;
collateralized by common stock of the Company's subsidiary
bank. In February, 2003, the line of credit was amended and
the available balance reduced from $10 million in conjunction
with the execution of the term note discussed in note (C).

(C) Due in December 2012, payable in quarterly installments of
principal plus interest at the Fed Funds Rate + 1.68%;
collateralized by common stock of the Company's subsidiary
bank.

(D) Due in 2007, 2008, 2010 and 2011; collateralized by various
assets including mortgage-backed loans. The interest rates on
the advances range from 1.55% to 5.682%. Federal Home Loan
Bank advance availability is determined quarterly and at March
31, 2003, approximately $71,308,000 was available.

Aggregate annual maturities of long-term debt at March 31, 2003 are as
follows:

10

BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002

NOTE 4: ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company applies Accounting Principles Board No. 25 and related
Interpretations in accounting for its stock option plan and no
compensation cost has been recognized. Pro forma compensation costs for
the Company's plan are determined based on the fair value at the option
grant dates using the minimum value method under Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-based Compensation."
During the quarter, the Company issued no stock options; consequently,
reported and pro forma net income were identical.

NOTE 5: SUBSEQUENT EVENT

On April 10th, 2003, BVBC Capital Trust II ("the Trust"), a Delaware
business trust formed by the Company, completed the sale of $7,500,000
of trust preferred securities. The Trust is a 100% owned finance
subsidiary of the Company. The Trust also issued $232,000 of common
securities to the Company and used the total proceeds of $7,732,000
from the offering to purchase $7,732,000 in principal amount of
variable rate (LIBOR plus 3.25%) junior subordinated debentures of the
Company due April 24, 2033. Securities issued by the Trust are
subordinate to the $11,500,000 issued by BVBC Capital Trust I on July
21, 2000. The offering was a private placement that the Company intends
to use to reduce existing debt and to fund additional growth.

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; 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, 2002.
Further description of our critical accounting policies can be found in
our Annual Report on Form 10-K for the year ended December 31, 2002.

RESULTS OF OPERATIONS

Three months ended March 31, 2003 and 2002. Net income for the quarter
ended March 31, 2003, was $1.8 million, compared to net income of $1.2
million for the quarter ended March 31, 2002, representing an increase
of $616,000, or 53.10%. Diluted earnings per share increased 48.07% to
$0.77 during the first quarter of 2003 from $0.52 in the same period of
2002. The Company's annualized return on average assets and average
stockholders' equity for the three-month period ended March 31, 2003
were 1.23% and 20.19%, compared to 0.92% and 16.11%, respectively, for
the same period in 2002, increases of 33.69% and 25.32%, respectively.
The principal contributing factors to our increase in net income from
the prior year first quarter to the current year were an increase in
non-interest income, specifically loans held for sale fee income and an
increase in net interest income. The current low interest rate
environment has resulted in continued strong demand

12

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

for residential mortgage loan originations as well as a decline in
funding rates. The Company continues to capitalize on the mortgage
resources put into place during 2001 and 2002.

Fully tax equivalent (FTE) net interest income for the three-month
period ended March 31, 2003 was $4.6 million, an increase of $628,000,
or 15.96%, from $3.9 million for the three-month period ended March 31,
2002.

FTE interest income for the current year first quarter was $7.7
million, with a slight increase of $6,000, or 0.07%, from $7.7 million
in the prior year first quarter. FTE interest income remained constant
due to an overall decrease in the yield on average earning assets
offset by an increase in earning assets. The overall yield on average
earning assets decreased by 84 basis points to 5.74% in the first
quarter of 2003, compared to 6.58% in the prior year first quarter.
Average earning asset volume increased from the first quarter of 2002
to the current period by $69.9 million, or 14.71% which offset the
decrease in yield on interest-earning assets. The 84 basis point
decrease in yield resulted primarily from decreases in market interest
rates during 2002 and the impact of the low interest rates on new and
repriced assets during 2002 and 2003.

Interest expense for the current year first quarter was $3.2 million, a
decrease of $622,000, or 16.49%, from $3.8 million in the prior year
first quarter. The decrease is attributable to a decrease in the rates
paid on average interest-bearing liabilities during the first quarter
of 2003. The primary cause for this decline was the overall decline in
market interest rates and the impact of the low interest rates on new
and repriced liabilities during 2002 and 2003. The rate paid on total
average interest-bearing liabilities decreased to 2.76% during the
quarter ended March 31, 2003 compared to 3.72% during the quarter ended
March 31, 2002, a decrease of 96 basis points. Average interest-bearing
deposits decreased slightly by $1.5 million, or 0.44% from the prior
year and other interest-bearing liabilities increased by $53.1 million
or 73.25% from the prior year, mainly in the form of FHLB borrowings,
Federal Funds purchased, securities sold under agreements to repurchase
and notes payable. The increase in volume partially offset the decrease
in rate.

Average Balance Sheets. The following table sets forth, for the periods
and as of the dates indicated, information regarding our average
balances of assets and liabilities as well as the dollar amounts of 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.

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 current period rate; and

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

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 first quarter of 2003 was
$600,000, compared to $600,000 for the same period of 2002. We make
provisions for loan losses in amounts that management deems necessary
to maintain the allowance for loan losses at an appropriate level. The
allowance for loan losses is reviewed monthly, considering such factors
as current and projected economic conditions, loan growth, the
composition of the loan portfolio, loan trends and classifications, and
other factors.

NON-INTEREST INCOME

Non-interest income increased to $5.7 million, or 59.51%, during the
three-month period ended March 31, 2003, from $3.6 million during the
three-month period ended March 31, 2002. This increase is attributable
primarily to increases in loans held for sale fee income of $2.1
million. During 2002, we experienced significant growth in our loans
held for sale income due to the expansion of our internet mortgage
capabilities concurrent with a relatively low-rate environment.
Mortgage originations and refinancing, and the resultant revenue, have
continued to flourish in the low interest rate environment which has
persisted through the first quarter of 2003.

16

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

NON-INTEREST EXPENSE

Non-interest expense increased to $6.8 million, or 35.15%, during the
three-month period ended March 31, 2003, from $5.0 million in the prior
year period. This increase is attributable to an increase in salaries
and employee benefits expense of $1.4 million, occupancy expense of
$208,000 and general and administrative expense of $219,000. Our
salaries and employee benefits expense increased to $4.7 million during
the first quarter of 2003 from $3.3 million during the prior year first
quarter, an increase of 40.76%, due to increased volume-based incentive
compensation in our mortgage production departments as well as
additional staff hired to facilitate our growth. We had 263 full-time
equivalent employees at March 31, 2003 as compared to 226 at March 31,
2002. Many areas of the Company added employees to manage growth and
expansion.

FINANCIAL CONDITION

Total assets for the Company at March 31, 2003, were $591.4 million, a
decrease of $13.8 million, or 2.29%, compared to $605.2 million at
December 31, 2002. Deposits and stockholders' equity at March 31, 2003,
were $449.2 million and $36.2 million, respectively, compared with
$423.8 million and $34.3 million, respectively, at December 31, 2002,
increases of $25.4 million, or 5.99%, and $1.9 million, or 5.53%,
respectively.

Loans at March 31, 2003 totaled $404.0 million, reflecting an increase
of $23.9 million, or 6.28%, compared to December 31, 2002. Deposit
volume grew $25.4 million, or 5.99%, to $449.2 million at March 31,
2003 as compared to $423.8 million at December 31, 2002. The majority
of the increase in volume was due to an increase in demand and time
deposits. The loan to deposit ratio at March 31, 2003 was 89.93%
compared to 89.69% at December 31, 2002.

Mortgage loans held for sale at March 31, 2003 totaled $66.0 million, a
decrease of $53.3 million, or 44.66%, compared to December 31, 2002.
While the mortgage origination and refinancing boom experienced during
2002 continued into the first quarter of 2003, the Company's loans held
for sale balance declined primarily due to mortgage interest rate
fluctuations during the period. 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, 2003, approximately
$71,308,000 million was available.

17

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

Non-performing assets consist primarily of loans past due 90 days or
more and nonaccrual loans and foreclosed real estate. The following
table sets forth our non-performing assets as of the dates indicated:

NON-PERFORMING ASSETS

As of March 31, 2003, non-performing loans equaled 1.31% of total
loans, representing a substantial increase in non-performing loans from
December 31, 2002. This increase was primarily due to one commercial
credit relationship which became past due over 90 days in the first
quarter of 2003. The Company had reserved for the estimated potential
loss from this credit relationship when it was identified as impaired
during the fourth quarter of 2002. The level of loans charged-off
decreased during the first quarter of 2003, as evidenced by the
decrease in our ratio of net charge-offs to average loans to 0.06% for
the period ending March 31, 2003 as compared to 0.36% for the period
ending December 31, 2002. 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

18

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

losses in excess of its non-performing loans. As of March 31, 2003, our
ratio of allowance for loan losses to non-performing loans was 143.18%.

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

19

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

The allowance for loan losses as a percent of total loans increased
slightly to 1.85% as of March 31, 2003, compared to 1.82% as of
December 31, 2002. As of March 31, 2003, net charge-offs equaled 0.06%
of average total loans on an annualized basis.

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 59.28% and 57.80% of our total
assets at March 31, 2003, and December 31, 2002, respectively.
Management has established internal guidelines to measure liquid assets
as well as relevant ratios concerning asset levels and purchased funds.
These indicators are reported to the board of directors monthly, and at
March 31, 2003, the Bank was within the established guidelines.

At March 31, 2003, our total stockholders' equity was $36.2 million and
our equity to asset ratio was 6.12%. At March 31, 2003, our Tier 1
capital ratio was 9.11% compared to 8.82% at December 31, 2002, while
our total risk-based capital ratio was 10.36% compared to 10.13% at
December 31, 2002. As of March 31, 2003, we had capital in excess of
the requirements for a "well-capitalized" institution.

20

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

We strive to maintain a position such that current changes in interest
rates will not affect net interest income or the economic value of
equity by more than 5%, per 50 basis points. The following table sets
forth the estimated percentage change in the Bank of Blue Valley's net
interest income over the next twelve month period and net economic
value of equity at risk at March 31, 2003 based on the indicated
instantaneous and permanent changes in interest rates.

The above table indicates that, at March 31, 2003, 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

21

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

(loans) reprice to lower rates faster than our liabilities, but our
liabilities - long-term Federal Home Loan Bank of Topeka (FHLB)
advances and existing time deposits - would not decrease in rate as
much as market rates. In addition, fixed rate loans might experience an
increase in prepayments, further decreasing yields on earning assets
and causing net interest income to decrease. Another consideration with
a rising interest rate scenario is the impact on mortgage loan
refinancing, which would likely decline, leading to lower loans held
for sale fee income, though the impact is difficult to quantify or
project.

The table also indicates that, at March 31, 2003, in the event of a
sudden increase or decrease in prevailing market rates, the current net
economic value of our equity would decrease. Given our current
asset/liability position, a 25, 50 or 100 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.

22

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.

23

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

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

Not applicable

ITEM 5. OTHER INFORMATION

Not applicable

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

EXHIBITS

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

15. Letter regarding Unaudited Interim Financial Information

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

99.2 Certification of the Treasurer pursuant to 18 U.S.C. Section
1350

REPORTS ON FORM 8-K

Blue Valley filed no reports on Form 8-K during the quarter ended
March 31, 2003.

24

SIGNATURES

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

BLUE VALLEY BAN CORP

Date: May 12, 2003 By: /s/ Robert D. Regnier
--------------------------------
Robert D. Regnier, President and
Chief Executive Officer

Date: May 12, 2003 By: /s/ Mark A. Fortino
--------------------------------
Mark A. Fortino, Treasurer

25

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 officer 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 officer 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.

May 12, 2003

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

26

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 officer 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 officer 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 officer 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.

May 12, 2003

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

27