<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 8, 2000.
REGISTRATION NOS. 333-34328
333-34328-01
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--------------------------------------------------------------------------------
Securities & Exchange Commission
Washington, D.C. 20549
------------------------------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<TABLE>
<S> <C>
BLUE VALLEY BAN CORP KANSAS
(Exact name of registrant as specified in its (State or other jurisdiction of incorporation
charter) or organization)
6022 48-1070996
(Primary Standard Industrial Classification (I.R.S. Employer Identification No.)
Code Number)
BVBC CAPITAL TRUST I DELAWARE
(Exact name of registrant as specified in its (State or other jurisdiction of incorporation
charter) or organization)
6022 48-1229554
(Primary Standard Industrial Classification (I.R.S. Employer Identification No.)
Code Number)
</TABLE>
11935 RILEY, OVERLAND PARK, KANSAS 66225-6128; (913) 338-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Robert D. Regnier, Chief Executive Officer
Blue Valley Ban Corp
11935 Riley
Overland Park, Kansas 66225-6128
(913) 338-1000
with copies to:
<TABLE>
<S> <C>
Steven F. Carman, Esq Thomas C. Erb, Esq.
Blackwell Sanders Peper Martin LLP Lewis, Rice & Fingersh, L.C.
Two Pershing Square 500 North Broadway
2300 Main Street, Suite 1000 St. Louis, Missouri 63102
Kansas City, Missouri 64108 (314) 444-7600
(816) 983-8000
</TABLE>
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
Subject To Completion, Dated , 2000
PROSPECTUS
1,250,000 TRUST PREFERRED SECURITIES
BVBC CAPITAL TRUST I
% CUMULATIVE TRUST PREFERRED SECURITIES
FULLY, IRREVOCABLY AND UNCONDITIONALLY GUARANTEED
ON A SUBORDINATED BASIS BY
BLUE VALLEY BAN CORP
------------------------
BVBC Capital Trust I is offering 1,250,000 trust preferred securities. No
public market currently exists for the trust preferred securities.
The trust preferred securities generally consist of an indirect beneficial
interest in our % junior subordinated debentures. The junior subordinated
debentures have the same payment terms as the trust preferred securities and
will be purchased and held by BVBC Capital Trust I using the proceeds of this
offering. A brief description of the trust preferred securities can be found
under "Prospectus Summary -- The Offering" in this prospectus.
We have applied to have the trust preferred securities listed for trading
on the American Stock Exchange under the symbol " ."
------------------------
YOU SHOULD CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 6 BEFORE INVESTING IN
THE TRUST PREFERRED SECURITIES.
------------------------
THE TRUST PREFERRED SECURITIES ARE NOT SAVINGS ACCOUNTS, DEPOSITS, OR OTHER
OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE BANK INSURANCE FUND OF THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
------------------------
<TABLE>
<CAPTION>
PER TRUST
PREFERRED SECURITY TOTAL
------------------ -----------
<S> <C> <C>
Public Offering Price....................................... $8.00 $10,000,000
Proceeds to BVBC Capital Trust I............................ $8.00 $10,000,000
</TABLE>
This is a firm commitment underwriting. We will pay underwriting
commissions of $ per trust preferred security, or a total of $ , for
arranging the investment in our junior subordinated debentures. We have granted
the underwriter the right to purchase up to an additional 187,500 trust
preferred securities to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
STIFEL, NICOLAUS & COMPANY
INCORPORATED
Date of this Prospectus is , 2000
<PAGE> 3
[GRAPH OMITTED]
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the trust preferred securities being sold
in this offering and other consolidated financial statements and related notes
appearing elsewhere in this prospectus. Unless we indicate otherwise, all
information in this prospectus (1) reflects the four-for-one stock split of our
common stock effective as of January 20, 2000, and (2) assumes no exercise of
the underwriter's over-allotment option to purchase up to an additional 187,500
trust preferred securities from BVBC Capital Trust I.
BLUE VALLEY
We organized Blue Valley and our wholly-owned subsidiary, Bank of Blue
Valley, in 1989 to provide banking services to closely-held businesses, their
owners, professionals and individuals in Johnson County, Kansas, a high growth,
demographically attractive area within the Kansas City, Missouri -- Kansas
Metropolitan Statistical Area. Our focus has been to take advantage of the
current and anticipated growth in our market area as well as to serve the needs
of small and mid-sized commercial borrowers -- customers that we believe
currently are underserved as a result of banking consolidation in the industry
generally and within our market specifically.
We have experienced significant internal growth since our inception. In
addition, in 1994, we acquired the deposits of a branch of a failed savings and
loan institution to augment our internal growth and expand into an additional
market which management believed was attractive. In 1994, we also completed the
construction of our current headquarters in Overland Park, Kansas. We currently
have three banking locations in Johnson County, Kansas, including our main
office in Overland Park, a full-service office in Olathe, Kansas, and a
supermarket banking facility in Shawnee, Kansas. We plan to open an additional
full-service office in Shawnee, Kansas in the third quarter of 2000.
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
COMPOUND
GROWTH OR
AVERAGE FOR THE
FIVE YEARS
THREE MONTHS ENDED ENDED
MARCH 31, DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------- --------------- ----------------------------------------------------
2000 1999 1999(1) 1999 1998 1997 1996 1995
-------- -------- --------------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income........................ $ 833 $ 655 39.91% $ 3,083 $ 2,816 $ 2,286 $ 1,622 $ 1,049
Earnings per share (diluted)...... 0.38 0.30 27.59% 1.42 1.35 1.22 0.85 0.70
Total assets...................... 333,662 261,351 26.82% 332,613 253,724 201,644 162,739 132,794
Total loans....................... 254,325 186,038 36.65% 250,410 161,444 127,308 101,323 71,791
Total deposits.................... 278,861 218,383 25.70% 268,145 209,824 170,792 139,929 112,614
Total stockholders' equity........ 19,627 17,476 30.08% 18,869 17,016 13,464 10,100 8,761
Return on average total assets.... 1.03% 1.03% 1.14% 1.08% 1.28% 1.30% 1.13% 0.89%
Return on average total
stockholders' equity............ 17.54% 15.43% 18.46% 17.43% 18.98% 20.62% 17.79% 17.46%
</TABLE>
---------------
(1) For the period indicated, these figures represent compound annual growth
rate of net income, earnings per share (diluted), total assets, total loans,
total deposits and total stockholders' equity, and average annual return on
average total assets and average total stockholders' equity.
1
<PAGE> 5
BUSINESS STRATEGY
Since our founding, we have strived to increase stockholder value by
executing a community banking strategy tailored to provide our customers with
competitive financial products and services, our employees with the opportunity
to share in our financial success and our community with a stable, growth
oriented employer. To further our primary business objectives, we have
identified the following business strategies:
- We intend to grow and diversify our loan portfolio by aggressively
marketing new customers, cross-marketing our existing customers and
expanding our loan product offerings.
- We intend to grow our residential mortgage loan origination, investment
brokerage, trust services and other lines of business and to develop
additional sources of non-interest income.
- We intend to continue to emphasize controlling the expenses necessary to
facilitate our growth as a community bank with diversified and
developing lines of business.
- We intend to expand our presence within our market area, primarily by
considering opening new branches and establishing new ATMs and, to the
extent that opportunities present themselves, by considering acquisition
opportunities within our market area and in contiguous areas.
We believe that our primary strengths are our:
- high level of customer service standards,
- growth opportunities in our primary market area,
- market perception as an independent community bank focused on serving
the needs of our market, as compared to a regional or national bank, and
- experienced senior management team.
BVBC TRUST
BVBC Trust is a newly created Delaware business trust. We created BVBC
Trust to offer the trust preferred securities and to purchase our junior
subordinated debentures. BVBC Trust has a term of 35 years, but may dissolve
earlier as provided in its trust agreement.
The principal executive offices of Blue Valley and BVBC Trust are located
at 11935 Riley, Overland Park, Kansas 66225-6128. The main telephone number for
both Blue Valley and BVBC Trust is (913) 338-1000. Our Internet address is
http://www.bankbv.com.
2
<PAGE> 6
THE OFFERING
Securities offered......... BVBC Trust is offering 1,250,000 of its trust
preferred securities to the public, and will sell
its common securities to Blue Valley. Together, the
trust preferred securities and the common
securities are referred to as trust securities.
BVBC Trust will use the proceeds from the sale of
trust securities to buy from Blue Valley a series
of % junior subordinated debentures due June
30, 2030, which will have the same payment terms as
the trust preferred securities.
Quarterly distributions are
payable to you on the
trust preferred
securities............... The distributions payable on each preferred
security will:
- be fixed at a rate per year of %;
- accrue from the date of issuance of the trust
preferred securities; and
- be payable quarterly on March 31, June 30,
September 30 and December 31 of each year that
the trust preferred securities are outstanding,
beginning on September 30, 2000, subject to our
right to defer distributions on the trust
preferred securities.
Blue Valley and BVBC Trust
have rights to defer
distributions to you on
the trust preferred
securities............... BVBC Trust will defer distributions on the trust
preferred securities if Blue Valley defers interest
payments on the junior subordinated debentures.
Blue Valley generally has the right to defer
interest payments on the junior subordinated
debentures for up to 20 consecutive quarters.
During any deferral period, you will still
accumulate the right to receive distributions when
subsequently made at the annual rate of %,
plus you will earn interest at the annual rate of
%, compounded quarterly, on any unpaid
distributions.
You will still be taxed,
even if distributions on
the trust preferred
securities are
deferred................. If distributions on the trust preferred securities
are deferred, you will be required to accrue
interest income in the form of original issue
discount and include it in your gross income for
United States federal income tax purposes. See
"Risk Factors -Distributions on the trust preferred
securities may be deferred; you may have to include
interest in your taxable income before you receive
cash," "Description of the Junior Subordinated
Debentures -- Option to Extend Interest Payment
Period" and "Material Federal Income Tax
Consequences -- Interest Income and Original Issue
Discount."
Your trust preferred
securities will be redeemed
by BVBC Trust when the
junior subordinated
debentures mature........ The junior subordinated debentures will mature on
June 30, 2030. BVBC Trust will redeem your trust
preferred securities upon the stated maturity date
of the junior subordinated debentures or earlier if
they are prepaid.
3
<PAGE> 7
If the junior subordinated
debentures are prepaid,
your trust preferred
securities will be
redeemed................. Blue Valley may prepay the junior subordinated
debentures prior to maturity:
- on or after June 30, 2005; or
- at any time upon events occurring that may have
a significant adverse effect on the benefits to
Blue Valley of having the trust preferred
securities outstanding.
Upon any prepayment of the junior subordinated
debentures, your trust preferred securities will be
redeemed at the liquidation amount of $8 per
preferred security plus any accrued and unpaid
distributions to the date of redemption. See
"Description of the Trust Preferred Securities --
Redemption -- Mandatory and Optional Rights of Blue
Valley" and "Description of the Junior Subordinated
Debentures -- Redemption."
At its option, Blue Valley
may require you to exchange
your trust preferred
securities for its junior
subordinated debentures.. Blue Valley has the right at any time to dissolve
BVBC Trust. Upon a dissolution of BVBC Trust, after
satisfaction of liabilities to creditors, if any,
of BVBC Trust, you will receive junior subordinated
debentures in exchange for the principal amount of
your holdings in trust preferred securities, plus
accrued and unpaid interest equal to the accrued
and unpaid distributions on the trust preferred
securities. See "Description of the Trust Preferred
Securities -- Distribution of Junior Subordinated
Debentures."
Your trust preferred
securities are fully and
unconditionally
guaranteed by Blue Valley
on a subordinated
basis.................... Blue Valley will fully, irrevocably and
unconditionally guarantee the trust preferred
securities on a subordinated basis. However, if
Blue Valley does not make a payment on the junior
subordinated debentures, BVBC Trust will not have
sufficient funds to make payments on the trust
preferred securities and the guarantee will not
apply. See "Description of the Trust Preferred
Securities Guarantee."
Your trust preferred
securities rank lower in
payment priority compared
to other obligations of
Blue Valley.............. Blue Valley's obligations under its trust preferred
securities guarantee, the junior subordinated
debentures and other governing documents described
in this prospectus are unsecured and rank junior in
right of payment to all current and future senior
and subordinated debt of Blue Valley. In addition,
because Blue Valley is a holding company, all
existing and future liabilities of any Blue Valley
subsidiary will rank prior to all obligations of
Blue Valley relating to the trust preferred
securities and the junior subordinated debentures.
There is no limit on the amount of these
liabilities or the amount of other trust preferred
4
<PAGE> 8
securities or other junior subordinated debentures
of Blue Valley or its subsidiaries that may be
issued in the future.
You will have limited
voting rights............ As a holder of trust preferred securities, you have
only limited voting rights. See "Description of the
Trust Preferred Securities -- Voting Rights;
Amendment of the Trust Agreement."
There is no established
market for the trust
preferred securities..... No public trading market currently exists for the
trust preferred securities. We have applied to have
the trust preferred securities approved for listing
on the American Stock Exchange under the trading
symbol " ." See "Market for the Trust
Preferred Securities."
No rating.................. The trust preferred securities have not been rated
by any nationally recognized statistical rating
organization.
Use of proceeds............ We intend to use the net proceeds from this
offering as follows:
- repay approximately $7.3 million of debt
outstanding as of April 30, 2000, under our bank
stock loan; and
- retain the remainder for general corporate
purposes, including investments from time to
time in the Bank in the form of additional
capital and possible future acquisitions. We
have no agreements or understandings at this
time for any acquisitions, and we cannot be sure
whether any acquisitions will ever occur.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------- -------------------------------------
2000 1999 1999 1998 1997 1996 1995
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges(1)
Including interest on deposits............................ 1.35x 1.39x 1.41x 1.46x 1.47x 1.44x 1.33x
Excluding interest on deposits............................ 3.42x 4.32x 4.36x 5.32x 6.50x 5.20x 3.25x
Pro Forma Ratio of Earnings to Fixed Charges(2)
Including interest on deposits............................ 1.34x -- 1.39x -- -- -- --
Excluding interest on deposits............................ 3.00x -- 3.26x -- -- -- --
</TABLE>
---------------
(1) For purposes of calculating the ratio of earnings to fixed charges, earnings
consists of income before taxes plus interest expense. Fixed charges consist
of interest expense.
(2) For purposes of calculating the pro forma ratio of earnings to fixed
charges, earnings consists of income before taxes plus pro forma interest
expense. Pro forma interest expense consists of historical interest expense
plus (1) interest expense on the junior subordinated debentures assuming
that we issued a total principal amount of $10 million at 10.0% at the
beginning of the period minus (2) historical interest expense on the $7.3
million of our debt under our bank stock loan that we intend to retire with
the proceeds from this offering.
5
<PAGE> 9
RISK FACTORS
In addition to the other information in this prospectus, you should
carefully consider the following factors before investing in the common stock or
the trust preferred securities.
RISK FACTORS RELATING TO BLUE VALLEY
IF WE ARE UNABLE TO IMPLEMENT ASPECTS OF OUR GROWTH STRATEGY, OUR BUSINESS
MAY BE ADVERSELY AFFECTED.
The key components of our growth strategy are growing and diversifying our
loan portfolio, increasing our non-interest income and expanding our presence
within our market area. Our failure to execute successfully any or all of these
components could adversely affect our financial performance and our ability to
meet our strategic objectives. Our ability to achieve these key components is
subject to the following risks:
- To grow our loan portfolio, we plan to aggressively cross-market our
lending products and services to existing and new customers of our
deposit and other services. The business of lending is extremely
competitive, and we cannot be sure whether we will be able to
successfully cross-market our lending products and services to our other
customers. See "-- We are in a very competitive industry." To diversify
our loan portfolio, me must be able to correctly identify new lending
products that will provide us with an acceptable return on a
risk-adjusted basis. Our senior management may not be able to
successfully identify these products or effectively manage the
integration of products that we have not previously offered.
- We also plan to increase our non-interest income by expanding our
mortgage, trust and investment brokerage businesses. In a rising
interest rate environment, our ability to increase our fee income from
mortgage originations is likely to be adversely affected because fewer
customers will refinance their existing residential mortgage loans. We
have offered trust services since 1996 and investment brokerage services
since 1999. These lines of our business are still in the formative
stages of their growth, their present contributions to our revenues and
net income are currently minimal, and we cannot be sure whether we will
ever derive significant revenues from these areas.
- In order to expand our presence within our market area through the
establishment of new branches or ATMs, we must be able to correctly
identify profitable or growing markets. If we attempt to implement our
strategy by acquiring existing branches of other institutions, our
success will depend on our ability to identify acquisition opportunities
that will complement our banking operations, and our ability to
successfully integrate their operations with ours. In either case, we
cannot be sure whether we will be able to identify suitable
opportunities for further expansion or to successfully execute our
expansion plans.
OUR OPERATIONS MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO MAINTAIN AND
INCREASE OUR DEPOSIT BASE AND SECURE ADEQUATE FUNDING.
We fund our banking and lending activities primarily through demand,
savings and time deposits and, to a lesser extent, lines of credit,
sale/repurchase facilities from various financial institutions, and Federal Home
Loan Bank borrowings. The success of our business plan depends in part on our
ability to maintain and increase our deposit base and our ability to maintain
access to other funding sources. Our inability to obtain funding on favorable
terms, on a timely basis, or at all, would adversely affect our operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
THE LOSS OF OUR KEY PERSONNEL COULD ADVERSELY AFFECT OUR OPERATIONS.
We are a relatively small organization and depend on the services of all of
our employees. Our growth and development to date has depended in a large part
on a few key employees who have primary responsibility for maintaining personal
relationships with our largest customers. The unexpected loss of
6
<PAGE> 10
services of one or more of these key employees could have a material adverse
effect on our operations. Our key employees are Robert D. Regnier, John K.
Doull, Mark A. Fortino, Nancy A. Taylor, Penny T. Hershman and Bonnie M.
McConnaughy. Each of these persons are officers of the Bank. We do not have
employment or non-compete agreements with any of these key employees. We carry a
$1 million "key person" life insurance policy on the life of Mr. Regnier.
CHANGES IN INTEREST RATES MAY ADVERSELY AFFECT OUR EARNINGS AND COST OF FUNDS.
Changes in interest rates affect our operating performance and financial
condition in diverse ways. A substantial part of our profitability depends on
the difference between the rates we receive on loans and investments and the
rates we pay for deposits and other sources of funds. Our net interest spread
will depend on many factors that are partly or entirely outside our control,
including competition, federal monetary and fiscal policies, and economic
conditions generally. Historically, net interest spreads for many financial
institutions have widened and narrowed in response to these and other factors,
which are often collectively referred to as "interest rate risk." We intend to
try to minimize our exposure to interest rate risk, but we will be unable to
eliminate it.
In our banking operations, we are subject to interest rate risk on loans
held in our portfolio arising from mismatches between the dollar amount of
repricing or maturing assets and liabilities. These mismatches are referred to
as the "interest rate sensitivity gap," which is measured in terms of the ratio
of the interest rate sensitivity gap to total assets. A higher level of assets
repricing or maturing than liabilities over a given time frame is considered
asset-sensitive and is reflected as a positive gap. In contrast, a higher level
of liabilities repricing or maturing than assets over a given time frame is
considered liability-sensitive and is reflected as a negative gap. As of
December 31, 1999, we had a negative interest rate sensitivity gap. A negative
gap will generally enhance earnings in a falling interest rate environment and
will negatively impact earnings in a rising interest rate environment. A
positive gap will generally enhance earnings in a rising interest rate
environment and negatively impact earnings in a falling interest rate
environment. In addition, in a rising interest rate environment, our fee income
is likely to be adversely affected because fewer residential mortgage loans will
be refinanced. Fluctuations in interest rates are not predictable or
controllable. Although we have attempted to structure our asset and liability
management strategies to mitigate the impact on net interest income of changes
in market interest rates, we can not give any assurance that a sudden or
significant change in prevailing interest rates will not have a material adverse
effect on our operating results.
BECAUSE OUR BUSINESS IS CONCENTRATED IN THE KANSAS CITY METROPOLITAN AREA, A
DOWNTURN IN THE KANSAS CITY ECONOMY MAY ADVERSELY AFFECT OUR BUSINESS.
Our success is dependent to a significant extent upon the general economic
conditions in the Kansas City metropolitan area, including Johnson County,
Kansas, and, in particular, the conditions for the medium-sized and small-sized
businesses that are the focus of our customer base. Although currently the
economy in these areas is favorable, we do not know whether these conditions
will continue. Adverse changes in economic conditions in the Kansas City
metropolitan area, including Johnson County, Kansas, could impair our ability to
collect loans, reduce our growth rate and have a negative effect on our overall
financial condition.
A DECREASE IN THE DEMAND FOR HOUSING IN OUR MARKET AREA MAY ADVERSELY AFFECT OUR
EARNINGS.
As of March 31, 2000, approximately $77.4 million, or 30.42%, of our loan
portfolio consisted of residential mortgage loans and construction loans for
residential builders, primarily in Johnson County, Kansas. The demand for
housing in Johnson County is influenced by a number of factors, including
prevailing interest rates, inflation, levels of regional commercial activity,
consumer preferences for suburban housing, and the continuing presence of
significant employers in the Johnson County region. A change in any of these
factors, or in factors that we do not anticipate, could cause the demand for
housing in Johnson County to decline. Because of our focus on residential
mortgage loans and construction loans for
7
<PAGE> 11
residential builders, if this occurs we could experience significant losses in
our loan portfolio and a material decrease in our earnings.
IF OUR ALLOWANCE FOR LOAN LOSSES IS INSUFFICIENT TO ABSORB LOSSES IN OUR LOAN
PORTFOLIO, IT WILL ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Some borrowers may not repay loans that we make to them. This risk is
inherent in the banking business. Like all financial institutions, we maintain
an allowance for loan losses to absorb probable loan losses in our loan
portfolio. However, we cannot predict loan losses with certainty, and we cannot
assure you that our allowance will be sufficient. Loan losses in excess of our
reserves would have an adverse effect on our financial condition and results of
operations.
In addition, various regulatory agencies, as an integral part of the
examination process, periodically review our loan portfolio. These agencies may
require us to add to the allowance for loan losses based on their judgments and
interpretations of information available to them at the time of their
examinations. If these agencies require us to increase our allowance for loan
losses, our earnings will be adversely affected in the period in which the
increase occurs.
Our indirect automobile loan portfolio, which was approximately $34.7
million, or 13.66%, of our loan portfolio as of March 31, 2000, may present a
greater risk of loss than our other loan categories. This is because these types
of loans are secured by automobiles, which depreciate rapidly, unlike loans
secured by residential real estate. We cannot be sure whether our level of
charge-offs for indirect automobile loans in future periods will be consistent
with our historical levels of indirect automobile loan charge-offs.
WE MAY INCUR SIGNIFICANT COSTS IF WE FORECLOSE ON ENVIRONMENTALLY CONTAMINATED
REAL ESTATE.
If we foreclose on a defaulted real estate loan to recover our investment,
we may be subject to environmental liabilities in connection with the underlying
real property. It is also possible that hazardous substances or wastes may be
discovered on these properties during our ownership or after they are sold to a
third party. If they are discovered on a property that we have acquired through
foreclosure or otherwise, we may be required to remove those substances and
clean up the property. We may have to pay for the entire cost of any removal and
clean-up without the contribution of any other third parties. We may also be
liable to tenants and other users of neighboring properties. These costs or
liabilities may exceed the fair value of the property. In addition, we may find
it difficult or impossible to sell the property prior to or following any
environmental clean-up.
IF WE ARE NOT ABLE TO COMPETE EFFECTIVELY IN THE HIGHLY COMPETITIVE BANKING
INDUSTRY, OUR BUSINESS WILL BE ADVERSELY AFFECTED.
Our business is extremely competitive. Many of our competitors are, or are
affiliates of, enterprises that have greater resources, name recognition and
market presence than we do.
Some of our competitors are not regulated as extensively as we are and,
therefore, may have greater flexibility in competing for business. Some of these
competitors are subject to similar regulation but have the advantages of
established customer bases, higher lending limits, extensive branch networks,
numerous ATMs, and more ability to absorb the costs of maintaining technology or
other factors.
RISK FACTORS RELATING TO THE TRUST PREFERRED SECURITIES
MOST OF OUR CURRENT AND FUTURE CREDITORS WILL GET PAID BEFORE BVBC TRUST WILL
GET PAID UNDER THE JUNIOR SUBORDINATED DEBENTURES AND BEFORE YOU WILL GET PAID
UNDER THE TRUST PREFERRED SECURITIES GUARANTEE.
Our obligations under the trust preferred securities guarantee and the
junior subordinated debentures are unsecured and will rank junior in priority of
payment to any senior and subordinated debt we may incur, which generally
includes indebtedness, liabilities or obligations we may have, contingent or
otherwise. As of April 30, 2000, we had approximately $9.1 million in
indebtedness that would rank senior in priority of payment to the junior
subordinated debentures. Our obligations under the junior subordinated
8
<PAGE> 12
debentures will also be effectively subordinated to all existing and future
liabilities and obligations of the Bank.
The trust preferred securities, the junior subordinated debentures and the
trust preferred securities guarantee do not limit our ability or the ability of
the Bank to incur unlimited future indebtedness, liabilities and obligations,
which may rank senior to the junior subordinated debentures and the trust
preferred securities guarantee.
For more information on our obligations under the trust preferred
securities guarantee and the junior subordinated debentures, see "Description of
the Trust Preferred Securities Guarantee -- Status of the Trust Preferred
Securities Guarantee" and "Description of the Junior Subordinated Debentures --
Subordination of Junior Subordinated Debentures to Senior and Subordinated Debt
of Blue Valley."
IF WE DO NOT MAKE PAYMENTS UNDER THE JUNIOR SUBORDINATED DEBENTURES, BVBC TRUST
WILL BE UNABLE TO PAY DISTRIBUTIONS AND LIQUIDATION AMOUNTS AND THE TRUST
PREFERRED SECURITIES GUARANTEE WILL NOT APPLY.
The ability of BVBC Trust to pay distributions and, upon redemption, the
liquidation amount of $8 per trust preferred security is solely dependent upon
our ability to make the related payments on the junior subordinated debentures
when due. If we default on our obligation to pay principal of or interest on the
junior subordinated debentures, BVBC Trust will not have sufficient funds to pay
distributions or the liquidation amount.
In that case, you will not be able to rely upon the trust preferred
securities guarantee for payment of these amounts because the trust preferred
securities guarantee only applies if we make a payment of principal or interest
on the junior subordinated debentures. For more information on our obligations
under the trust preferred securities guarantee and the junior subordinated
debentures, see "Description of the Trust Preferred Securities
Guarantee -- Status of the Trust Preferred Securities Guarantee" and
"Description of the Junior Subordinated Debentures -- Subordination of Junior
Subordinated Debentures to Senior and Subordinated Debt of Blue Valley."
WE MAY NOT BE ABLE TO MAKE INTEREST PAYMENTS ON THE JUNIOR SUBORDINATED
DEBENTURES UNLESS WE RECEIVE DIVIDENDS FROM THE BANK.
Substantially all of our assets consist of our investment in the Bank.
Thus, our ability to pay interest and principal on the junior subordinated
debentures to BVBC Trust depends primarily upon our receipt of cash dividends
from the Bank. Dividend payments from the Bank to us are subject to, among other
things:
- regulatory limitations, generally based on current and retained earnings
and capital maintenance requirements, imposed by various bank regulatory
agencies;
- profitability, financial condition and capital expenditures and other
cash flow requirements of the Bank; and
- prior claims of creditors of the Bank.
IF WE ELECT TO DEFER INTEREST PAYMENTS ON THE JUNIOR SUBORDINATED DEBENTURES,
YOU MAY HAVE TO INCLUDE INTEREST IN YOUR TAXABLE INCOME BEFORE YOU RECEIVE CASH.
It is possible that you will not receive cash distributions on the trust
preferred securities for up to 20 consecutive quarters. This will occur if we
elect to defer interest payments on the junior subordinated debentures. These
periods during which we defer interest payments are referred to as "extension
periods." Because you will be required to include interest in your income for
United States federal income tax purposes during an extension period
irrespective of whether interest is actually paid, you may have to pay taxes
before you actually receive the cash distributions. In addition, the market
price of the trust preferred securities is likely to be adversely affected if we
elect to defer the interest payments.
An extension period may last for up to 20 consecutive quarters, but not
beyond the maturity date of the junior subordinated debentures. We must make
payments of all deferred interest upon the earlier of
9
<PAGE> 13
the end of the extension period or the maturity date. This right exists only if
no event of default under the junior subordinated debentures has occurred and is
continuing. If we exercise this right, BVBC Trust would defer distributions on
the trust preferred securities during any extension period. However, you would
still accumulate distributions at the annual rate of % of the liquidation
amount of $8 per trust preferred security, plus you will earn interest at the
annual rate of %, compounded quarterly, on any unpaid distributions. When
we pay all the accumulated amounts due to you during an extension period, the
extension period will terminate. However, we have the right to begin another
extension period under the same terms outlined above. You will also not receive
the cash distributions related to any accrued and unpaid interest from BVBC
Trust if you sell the trust preferred securities before the end of an extension
period. However, you will be required to include accrued interest income as
original issue discount for United States federal income tax purposes in respect
of your pro rata share of the junior subordinated debentures held by BVBC Trust.
While we will take the position that original issue discount will not arise
before the first extension period, it is possible that all interest on the
junior subordinated debentures would be required to be accounted for as original
issue discount. In these circumstances, the receipt of interest would not
separately be reported as taxable income. See "Material Federal Income Tax
Consequences -- Interest Income and Original Issue Discount" for more
information regarding the tax consequences of the trust preferred securities.
In the event that we exercise our right to defer interest payments on the
junior subordinated debentures, we will be prohibited from paying dividends on
our common stock during the extension period. Because we have no history of
paying dividends on our common stock, and no intention to do so in the immediate
future, the prohibition against paying dividends during an extension period may
have less of a deterrent effect on us than on a company with a history of paying
dividends on its common stock. Nevertheless, we have no current intention of
exercising our right to defer interest payments on the junior subordinated
debentures. However, if we exercise our right in the future, the market price of
the trust preferred securities is likely to be adversely affected.
IF WE REDEEM THE JUNIOR SUBORDINATED DEBENTURES, IT WILL CAUSE A REDEMPTION OF
THE TRUST PREFERRED SECURITIES AND YOU MAY NOT BE ABLE TO REINVEST THE PROCEEDS
AT THE SAME OR HIGHER RATE OF RETURN.
You are subject to the risk that we will redeem the trust preferred
securities. If the trust preferred securities are redeemed, you may not be able
to reinvest the money you receive upon redemption at a rate that is equal to or
higher than the rate of return you receive on the trust preferred securities.
Although the junior subordinated debentures have a stated maturity date of June
30, 2030, they may be redeemed by us prior to maturity in the following
circumstances:
- in whole or in part, beginning on June 30, 2005, at our option;
- in whole upon a change in the federal tax laws or a change in the
interpretation of the tax laws by the courts or the Internal Revenue
Service, which would result in a risk that (1) BVBC Trust may be subject
to federal income tax, (2) the interest we pay on the junior
subordinated debentures will not be deductible by us for federal income
tax purposes, or (3) BVBC Trust is or will be subject to more than a
minimal amount of other taxes or governmental charges;
- in whole upon a change in the laws or regulations to the effect that
BVBC Trust is or will be considered to be an investment company that is
required to be registered under the Investment Company Act of 1940; or
- in whole upon a change in the laws or regulations if there is a risk
that we will not be able to treat all or a substantial portion of the
trust preferred securities as Tier 1 (core) capital for purposes of
federal banking guidelines.
Our exercise of these redemption rights is subject to our receipt of prior
approval of federal banking regulators, if required, and would cause an early
redemption of the trust preferred securities. For further information concerning
tax or regulatory events that may trigger redemption of the junior subordinated
10
<PAGE> 14
debentures, resulting in redemption of the trust preferred securities, see
"Description of the Trust Preferred Securities -- Redemption."
YOU ARE SUBJECT TO REPAYMENT RISK BECAUSE POSSIBLE TAX LAW CHANGES COULD RESULT
IN A REDEMPTION OF THE TRUST PREFERRED SECURITIES.
Future legislation may be enacted that could adversely affect our ability
to deduct our interest payments on the junior subordinated debentures for
federal income tax purposes, making redemption of the junior subordinated
debentures likely and resulting in a redemption of the trust preferred
securities.
From time to time, the current administration has proposed federal income
tax law changes that would, among other things, generally deny interest
deductions to a corporate issuer if the debt instrument has a term exceeding 15
years and if the debt instrument is not reflected as indebtedness on the
issuer's consolidated balance sheet. Other proposed tax law changes would have
denied interest deductions if the debt instrument had a term exceeding 20 years.
These proposals were not enacted into law. Although it is impossible to predict
future proposals, if a future proposal of this sort were to become effective in
a form applicable to already issued and outstanding securities, we could be
precluded from deducting interest on the junior subordinated debentures.
Enactment of this type of proposal might in turn give rise to a tax event as
described under "Description of the Trust Preferred
Securities -- Redemption -- Mandatory and Optional Rights of Blue Valley."
You should also be aware that a petition was filed during 1998 in the
United States Tax Court as a result of a challenge by the Internal Revenue
Service ("IRS") of a taxpayer's treatment as indebtedness of a security issued
with characteristics similar to the junior subordinated debentures. Although the
IRS agreed to dismissal of the adjustments related to this issue, it could
assert similar adjustments against other taxpayers. If these adjustments were
proposed and the issue were litigated to a conclusion in which the IRS's
position on this matter were sustained, this judicial determination could
constitute a tax event that could result in an early redemption of the trust
preferred securities. For further information, see "Description of the Trust
Preferred Securities -- Redemption -- Mandatory and Optional Rights of Blue
Valley," "Description of the Junior Subordinated Debentures -- Redemption" and
"Material Federal Income Tax Consequences."
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF TRUST PREFERRED
SECURITIES MAY HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF YOUR INVESTMENT.
Your investment in the trust preferred securities may decrease in value if
the junior subordinated debentures are distributed to you in exchange for your
trust preferred securities. If the junior subordinated debentures are
distributed to you in exchange for your trust preferred securities and we
exercise our right to redeem less than all of the junior subordinated
debentures, the junior subordinated debentures may not qualify for listing on
The American Stock Exchange or another exchange. Although the indenture requires
us to use our best efforts to list the junior subordinated debentures on an
exchange in the event that they are distributed to you, this requirement will
not prevent us from partially redeeming the junior subordinated debentures.
Accordingly, we cannot predict the liquidity or market prices for the junior
subordinated debentures that may be distributed. The junior subordinated
debentures that you receive upon a distribution, or the trust preferred
securities you hold pending a distribution, may trade at a discount to the price
that you paid to purchase the trust preferred securities, or if the junior
subordinated debentures are not listed on an exchange, they may not be actively
traded at all.
Because you may receive junior subordinated debentures, you must also make
an investment decision with regard to these securities. You should carefully
review all the information regarding the junior subordinated debentures
contained in this prospectus.
Under "Material Federal Income Tax Consequences" we discuss applicable
United States federal income tax consequences of a distribution of the junior
subordinated debentures.
11
<PAGE> 15
IN THE EVENT OF A DEFAULT UNDER THE TRUST PREFERRED SECURITIES, YOU MAY BE
REQUIRED TO RELY ON THE PROPERTY TRUSTEE OF BVBC TRUST TO ENFORCE YOUR RIGHTS.
You may not be able to directly enforce rights against us if an event of
default occurs with respect to the junior subordinated debentures. For a listing
of events that are events of default, see "Description of the Trust Preferred
Securities -- Events of Default; Notice" and "Description of the Junior
Subordinated Debentures -- Indenture Events of Default."
If an event of default under the junior subordinated debentures occurs and
is continuing, this event will also be an event of default under the trust
preferred securities. In that case, you generally would first have to rely on
the property trustee's enforcement of its rights as holder of the junior
subordinated debentures against us. If the property trustee fails to exercise
its rights under the junior subordinated debentures, you will then be able to
exercise any other remedies available under the junior subordinated debentures.
However, if the default arises because we fail to pay interest or
principal, except during an extension period, on the junior subordinated
debentures, you may proceed directly against us without first relying on the
property trustee.
LIMITED COVENANTS RELATING TO THE TRUST PREFERRED SECURITIES AND THE JUNIOR
SUBORDINATED DEBENTURES WILL NOT NECESSARILY PROTECT YOU.
Our obligations as set forth in the governing documents relating to the
trust preferred securities and the junior subordinated debentures are limited.
As a result, the governing documents will not necessarily protect you in the
event of an adverse change in our financial condition or results of operations.
The governing documents do not limit our ability or the ability of any of our
subsidiaries to incur additional debt. You should not consider the terms of the
governing documents to be a significant factor in evaluating whether we will be
able to comply with our obligations under the junior subordinated debentures or
the trust preferred securities guarantee.
WE WILL CONTROL BVBC TRUST AND YOU WILL HAVE LIMITED VOTING RIGHTS.
As a holder of trust preferred securities, you have limited voting rights.
These rights relate only to the dissolution or termination of BVBC Trust, the
modification of the trust preferred securities and removal of the property and
indenture trustees of BVBC Trust upon the occurrence of a limited number of
events. You will not have any voting rights regarding Blue Valley's business or
any matters regarding the administrative trustees. See "Description of the Trust
Preferred Securities -- Voting Rights; Amendment of the Trust Agreement" for
more information on your limited voting rights.
THERE HAS NOT BEEN A PRIOR MARKET FOR THE TRUST PREFERRED SECURITIES, AND AN
ACTIVE TRADING MARKET FOR THE TRUST PREFERRED SECURITIES MAY NOT DEVELOP.
The trust preferred securities are a new issue of securities with no
established trading market. Although we have applied to have the trust preferred
securities listed on the American Stock Exchange, a listing does not guarantee
that an active trading market for the trust preferred securities will develop.
We can give no assurance of the depth of that market or that holders of trust
preferred securities will be able to sell their trust preferred securities
easily. An inactive or illiquid trading market could adversely affect the price
of your trust preferred securities.
IF WE EXERCISE OUR RIGHT TO REDEEM LESS THAN ALL OF THE JUNIOR SUBORDINATED
DEBENTURES, THE TRUST PREFERRED SECURITIES MAY CEASE TO BE LISTED ON AN
EXCHANGE.
Beginning June 30, 2005, we have the right to redeem the junior
subordinated debentures in whole or in part. If we elect to redeem less than all
of the junior subordinated debentures, BVBC Trust will redeem a proportionate
part of the trust preferred securities. The trust preferred securities may cease
to qualify for listing on the American Stock Exchange and may not qualify for
listing on another exchange or The
12
<PAGE> 16
Nasdaq Stock Market in the event of a partial redemption. Although the trust
agreement requires the administrative trustees to use their best efforts to
maintain the listing of the trust preferred securities on the American Stock
Exchange or another exchange, this requirement will not prevent us from causing
a partial redemption of the trust preferred securities.
TRADING CHARACTERISTICS OF THE TRUST PREFERRED SECURITIES MAY CREATE ADVERSE TAX
CONSEQUENCES FOR YOU.
The trust preferred securities may trade at a price that does not reflect
the value of accrued but unpaid interest on the underlying junior subordinated
debentures. If you dispose of your trust preferred securities between record
dates for payments on the trust preferred securities, you may have adverse tax
consequences. Under these circumstances, you will be required to include accrued
but unpaid interest on the junior subordinated debentures allocable to the trust
preferred securities through the date of disposition in your income as ordinary
income if you use the accrual method of accounting or if this interest
represents original issue discount.
If interest on the junior subordinated debentures is included in income
under the original issue discount provisions, you would add this amount to your
adjusted tax basis in your share of the underlying junior subordinated
debentures deemed disposed. If your selling price is less than your adjusted tax
basis, which will include all accrued but unpaid original issue discount
interest included in your income, you could recognize a capital loss which,
subject to limited exceptions, cannot be applied to offset ordinary income for
federal income tax purposes. See "Material Federal Income Tax Consequences" for
more information on possible adverse tax consequences to you.
THE TRUST PREFERRED SECURITIES AND THE JUNIOR SUBORDINATED DEBENTURES ARE NOT
INSURED, AND YOU ARE SUBJECT TO THE RISK OF LOSS OF PRINCIPAL.
Neither the trust preferred securities nor the junior subordinated
debentures are insured by the Bank Insurance Fund, the Savings Association
Insurance Fund of the Federal Deposit Insurance Corporation or any other
governmental agency. As a result, you will not be able to rely on any third
party for payment if we default on our obligations.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus may contain forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
Forward-looking statements relate to future events or to our future financial
performance. In some cases, you can identify forward-looking statements by
terminology like "may," "will," "should," "expects," "plans," "intends,"
"anticipates," "could," "believes," "estimates," "predicts," "objective,"
"potential," "projection," "forecast," "goal" or similar expressions. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of factors more fully described in the "Risk Factors"
section and elsewhere in this prospectus.
Although we believe that the expectations reflected in any forward-looking
statements are reasonable, we cannot guarantee future events or results. Except
as may be required under federal law, we undertake no obligation to update
publicly any forward-looking statements for any reason, even if new information
becomes available or other events occur.
13
<PAGE> 17
USE OF PROCEEDS
We will receive proceeds from the sale of our junior subordinated
debentures to BVBC Trust. BVBC Trust will purchase our junior subordinated
debentures with proceeds from the sale of the trust preferred securities. The
net proceeds to us from the sale of the junior subordinated debentures, after
deducting underwriting commissions and estimated offering expenses, will be
approximately $9.2 million, or $10.6 million if the underwriter's over-allotment
option is exercised in full. We intend to use the net proceeds as follows:
- repay approximately $7.3 million of debt outstanding as of April 30,
2000 under our bank stock loan, which accrues interest at the rate of
prime minus 1%, and matures on July 31, 2000; and
- retain the remainder for general corporate purposes, including
investments from time to time in the Bank in the form of additional
capital and possible future acquisitions. We have no agreements or
understandings at this time for any acquisitions, and we cannot be sure
whether any acquisitions will ever occur.
MARKET FOR THE TRUST PREFERRED SECURITIES
We have applied to have the trust preferred securities listed on the
American Stock Exchange under the symbol " ." We are not sure, however,
whether an active and liquid trading market will develop, or if developed, will
continue. The public offering price and distribution rate have been determined
by negotiations among our representatives and the underwriters, and the public
offering price of the trust preferred securities may not be indicative of the
market price following the offering. See "Underwriting."
ACCOUNTING TREATMENT
For financial reporting purposes, we will treat BVBC Trust as our
subsidiary. Accordingly, we will include the accounts of BVBC Trust in our
consolidated financial statements. We will include the trust preferred
securities as debt in our consolidated balance sheets, and will include
appropriate disclosures about the trust preferred securities, the trust
preferred securities guarantee and the junior subordinated debentures in the
notes to our consolidated financial statements. For financial reporting
purposes, we will record distributions on the trust preferred securities as
interest expense in our consolidated statements of income.
Future reports of Blue Valley filed under the Securities Exchange Act of
1934 will include a footnote to the consolidated financial statements stating
that:
- BVBC Trust is a wholly-owned subsidiary of Blue Valley;
- the sole asset of BVBC Trust is the junior subordinated debentures,
specifying the principal amount, interest rate and maturity date of the
junior subordinated debentures; and
- the obligations of Blue Valley described in this prospectus, in the
aggregate, constitute a full, irrevocable and unconditional guarantee on
a subordinated basis by Blue Valley of the obligations of BVBC Trust
under the trust preferred securities.
BVBC Trust will not file separate reports under the Securities Exchange Act.
14
<PAGE> 18
CAPITALIZATION
The following table sets forth (a) our historical capitalization at March
31, 2000; and (b) our adjusted capitalization after giving effect to this
offering and the use of net proceeds as described in "Use of Proceeds" above,
and assuming the underwriter's over-allotment option was not exercised.
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------------
AS ADJUSTED
ACTUAL FOR THIS OFFERING
------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SHORT-TERM AND LONG-TERM DEBT:
Borrowed money(1)........................................... $ 9,137 $ 1,874
Guaranteed preferred beneficial interests in Blue Valley's
junior subordinated debentures(2)......................... -- 10,000
------- -------
Total short-term and long-term debt....................... 9,137 11,874
STOCKHOLDERS' EQUITY:
Common stock, par value $1.00 per share; 15,000,000 shares
authorized; 2,141,720 shares issued and outstanding....... 2,142 2,142
Additional paid-in capital.................................. 5,277 5,277
Retained earnings........................................... 13,290 13,290
Unrealized depreciation on available-for-sale securities,
net....................................................... (1,082) (1,082)
------- -------
Total stockholders' equity................................ 19,627 19,627
------- -------
Total capitalization...................................... 28,764 31,501
CAPITAL RATIOS:(3)(4)(5)
Ratio of equity to total assets............................. 5.88% 5.85%
Risk-based capital ratios:
Total capital to risk-weighted assets ratio............... 8.28 11.92
Tier 1 capital to risk-weighted assets ratio.............. 7.03 9.54
Tier 1 capital to average assets ratio (leverage ratio)... 5.91 8.02
</TABLE>
---------------
(1) Does not include deposits, Federal Home Loan Bank borrowings or securities
sold under agreements to repurchase.
(2) In connection with the issuance of the guaranteed preferred beneficial
interest in Blue Valley's junior subordinated debentures, we estimate we
will incur expenses of $800,000 (including underwriter's commissions of
$500,000).
(3) The capital ratios, as adjusted, are computed including the total estimated
net proceeds from the sale of the trust preferred securities, in a manner
consistent with Federal Reserve guidelines.
(4) Federal Reserve guidelines for calculation of Tier 1 capital limits the
amount of cumulative trust preferred securities which can be included in
Tier 1 capital to 25% of total Tier 1 capital. Approximately $6.9 million of
the trust preferred securities offered hereby will be included as Tier 1
capital for Blue Valley. The balance of the trust preferred securities
offered hereby will be included as Tier 2 capital for Blue Valley.
(5) Unrealized depreciation on available-for-sale securities, net, is not
included in calculating regulatory capital ratios.
15
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents our consolidated financial data as of and for
the three months ended March 31, 2000 and 1999 and the five years ended December
31, 1999, and should be read in conjunction with the consolidated financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," each of which is included
elsewhere in this prospectus. The selected statements of condition and
statements of income data, insofar as they relate to the five years in the
five-year period ended December 31, 1999, have been derived from our audited
consolidated financial statements. The selected financial data for the three
months ended March 31, 2000 and 1999, are derived from our unaudited interim
consolidated financial statements.
<TABLE>
<CAPTION>
AS OF AND FOR THE
----------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF INCOME DATA
INTEREST INCOME:
Loans, including fees................ $ 6,273 $ 4,027 $ 20,422 $ 14,608 $ 12,000 $ 9,100 $ 6,689
Federal funds sold and
interest-bearing deposits.......... 38 152 431 396 276 315 822
Securities........................... 753 713 2,755 2,814 2,275 2,231 1,682
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total interest income.............. 7,064 4,892 23,608 17,818 14,551 11,646 9,193
---------- ---------- ---------- ---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest-bearing demand deposits..... 185 120 644 348 296 267 235
Savings and money market deposit
accounts........................... 1,242 527 3,156 1,637 1,353 1,256 1,081
Other time deposits.................. 1,524 1,582 6,032 6,247 4,985 3,668 2,859
Funds borrowed....................... 504 294 1,372 973 624 605 720
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total interest expense............. 3,455 2,523 11,204 9,205 7,258 5,796 4,895
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income................ 3,609 2,369 12,404 8,613 7,293 5,850 4,298
Provision for loan losses............ 465 300 2,144 1,061 660 648 370
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses.................. 3,144 2,069 10,260 7,552 6,633 5,202 3,928
---------- ---------- ---------- ---------- ---------- ---------- ----------
NON-INTEREST INCOME:
Loans held for sale fee income....... 232 459 1,623 1,329 439 232 129
NSF charges & service fees........... 131 136 553 598 499 402 327
Other service charges................ 237 64 659 157 107 79 60
Realized gain on securities
available-for-sale................. -- -- 3 112 8 71 --
Other income......................... 75 56 186 450 401 424 344
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total non-interest income.......... 675 715 3,024 2,646 1,454 1,208 860
NON-INTEREST EXPENSE:
Salaries and employee benefits....... 1,409 997 4,578 3,312 2,304 1,803 1,444
Occupancy............................ 257 198 894 748 663 581 508
FDIC and other insurance............. 29 25 113 121 86 290 163
General & administrative............. 903 588 3,095 1,815 1,603 1,196 1,053
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total non-interest expense......... 2,598 1,808 8,680 5,996 4,656 3,870 3,168
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes........... 1,221 976 4,604 4,202 3,431 2,540 1,620
Income tax provision............... 388 321 1,521 1,386 1,145 918 571
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income......................... $ 833 $ 655 $ 3,083 $ 2,816 $ 2,286 $ 1,622 $ 1,049
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA
Basic earnings....................... $ 0.39 $ 0.31 $ 1.45 $ 1.36 $ 1.24 $ 0.88 $ 0.72
Diluted earnings..................... 0.38 0.30 1.42 1.35 1.22 0.85 0.70
Dividends............................ -- -- -- -- -- -- --
Book value basic (at end of
period)............................ 9.16 8.20 8.83 7.99 6.64 5.49 4.77
Weighted average common shares
outstanding:
Basic.............................. 2,140,929 2,130,396 2,131,372 2,065,400 1,843,288 1,836,796 1,447,300
Diluted............................ 2,175,301 2,149,084 2,166,008 2,084,088 1,867,844 1,912,876 1,494,324
</TABLE>
16
<PAGE> 20
<TABLE>
<CAPTION>
AS OF AND FOR THE
--------------------------------------------------------------------------
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA (AT END OF
PERIOD):
Total securities................................ $ 51,733 $ 45,116 $ 48,646 $ 53,427 $ 40,247 $ 36,588 $ 35,496
Total loans..................................... 254,325 186,038 250,410 161,444 127,308 101,323 71,791
Total assets.................................... 333,662 261,351 332,613 253,724 201,644 162,739 132,794
Total deposits.................................. 278,861 218,383 268,145 209,824 170,792 139,929 112,614
Funds borrowed.................................. 32,190 23,561 43,177 25,142 16,298 11,904 10,423
Total stockholders' equity...................... 19,627 17,476 18,869 17,016 13,464 10,100 8,761
Trust assets under administration............... 20,976 14,309 19,436 13,099 8,241 3,081 --
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Performance Ratios:
Net interest margin (1)......................... 4.84% 4.15% 4.77% 4.30% 4.66% 4.57% 4.13%
Non-interest income to average assets........... 0.83 1.12 1.06 1.20 0.83 0.84 0.73
Non-interest expense to average assets.......... 3.20 2.84 3.04 2.72 2.66 2.69 2.68
Net overhead ratio (2).......................... 2.37 1.72 1.98 1.52 1.83 1.85 1.95
Efficiency ratio (3)............................ 60.64 58.63 56.26 53.26 53.23 54.83 61.42
Return on average assets (4).................... 1.03 1.03 1.08 1.28 1.30 1.13 0.89
Return on average equity (5).................... 17.54 15.43 17.43 18.98 20.62 17.79 17.46
Asset Quality Ratios:
Non-performing loans to total loans............. 0.74% 0.63% 0.21% 0.84% 0.33% 0.40% 0.68%
Allowance for possible loan losses to:
Total loans................................... 1.57 1.37 1.52 1.45 1.27 1.26 1.16
Non-performing loans.......................... 211.04 218.12 710.80 171.88 380.71 312.50 172.37
Net charge-offs to average total loans.......... 0.46 0.21 0.32 0.23 0.27 0.24 0.23
Non-performing assets to total assets........... 0.66 0.62 0.22 0.55 0.61 0.28 0.64
Balance Sheet Ratios:
Loans to deposits............................... 91.20% 85.19% 93.39% 76.94% 74.54% 72.41% 63.75%
Average interest-earning assets to average
interest-bearing liabilities.................. 113.23 117.25 116.11 116.57 114.55 114.76 110.84
Capital Ratios:
Total equity to total assets.................... 5.88% 6.69% 5.67% 6.71% 6.68% 6.21% 6.60%
Total capital to risk-weighted assets ratio..... 8.28 9.02 8.07 9.62 9.87 8.91 9.58
Tier 1 capital to risk-weighted assets ratio.... 7.03 7.77 6.82 8.37 8.65 7.72 8.48
Tier 1 capital to average assets ratio.......... 5.91 6.09 5.80 6.13 6.28 5.57 5.50
Ratio of Earnings to Fixed Charges (6)
Including interest on deposits.................. 1.35x 1.39x 1.41x 1.46x 1.47x 1.44x 1.33x
Excluding interest on deposits.................. 3.42 4.32 4.36 5.32 6.50 5.20 3.25
Pro Forma Ratio of Earnings to Fixed Charges (7)
Including interest on deposits.................. 1.34x -- 1.39x -- -- -- --
Excluding interest on deposits.................. 3.00 -- 3.26 -- -- -- --
</TABLE>
---------------
(1) Net interest income divided by average interest-earning assets.
(2) Non-interest expense less non-interest income divided by average total
assets.
(3) Non-interest expense divided by the sum of net interest income plus
non-interest income.
(4) Net income divided by average total assets.
(5) Net income divided by average common equity.
(6) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before taxes plus interest expense. Fixed charges consist
of interest expense.
(7) For purposes of calculating the pro forma ratio of earnings to fixed
charges, earnings consists of income before taxes plus pro forma interest
expense. Pro forma interest expense consists of historical interest expense
plus (1) interest expense on the junior subordinated debentures assuming
that we issued a total principal amount of $10 million at 10.0% at the
beginning of such period minus (2) historical interest expense on the $7.3
million of our debt under our bank stock loan that we intend to retire with
the proceeds from this offering.
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following presents management's discussion and analysis of our
financial condition and results of operations as of the dates and for the
periods indicated. You should read this discussion in conjunction with our
"Selected Consolidated Financial Data," our consolidated financial statements
and the accompanying notes, and the other financial data contained elsewhere in
this prospectus.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ significantly from those
anticipated in these forward-looking statements as a result of various factors,
including those discussed in "Risk Factors" contained elsewhere in this
prospectus. See "Cautionary Note on Forward-Looking Statements."
GENERAL
Over the past five years, we have achieved significant growth in assets,
increased our deposit base, and increased earnings. Our focus has primarily been
on real estate development, home construction, indirect consumer lending and
small business lending, with an emphasis on customer service so as to attract
and retain core deposits. This strategy, paired with rapid population growth in
Johnson County, Kansas, has been key to our success. From 1995 through 1999:
- our loans grew at a 36.65% compound annual rate;
- our net income grew at a 39.91% compound annual rate and our earnings
per share grew at a 27.59% compound annual rate;
- our annual return on average equity has averaged 18.46%;
- our annual return on average assets has averaged 1.14%;
- our ratio of non-performing assets to total assets declined from 0.64%
to 0.22%; and
- our ratio of net charge-offs to average total loans has averaged less
than 0.26%.
During the three months ended and as of March 31, 2000:
- our loans increased by $3.9 million, or 1.56%, from December 31, 1999;
- our earnings per share increased by 26.67%, as compared to the prior
year first quarter;
- our annualized return on average equity was 17.54%;
- our annualized return on average assets was 1.03%;
- our ratio of non-performing assets to total assets was 0.66%; and
- our ratio of net charge-offs to average total loans was 0.46%.
The population of Johnson County, Kansas has grown from approximately
327,000 to 417,000, or 28%, between 1987 and 1997. This represents 55% of the
total increase in the 11-county Kansas City, Missouri-Kansas Metropolitan
Statistical Area (the "Kansas City MSA") and 61% of the increase in the entire
State of Kansas. Between 1986 and 1996, Johnson County's economy created 99,000
jobs and added over 4,000 businesses, representing over half of the Kansas City
MSA's total growth. In addition, we believe that the recent consolidation in the
banking industry that has occurred in our market area has generated significant
opportunities for the remaining independent community banks, including the Bank,
to serve those customers who still desire the level of customer service that we
believe is not available at many larger regional and national banks.
A major contributor to our asset growth since 1995 has been strong growth
in all of our major loan categories. Our growth is not attributable to any
single loan category, but has come from a number of diverse loan products. We
have become less concentrated in any one area with commercial loans, being our
largest portfolio, decreasing from 46.40% of our portfolio at December 31, 1995,
to 25.70% at
18
<PAGE> 22
March 31, 2000. This diversification has occurred through growth in commercial
real estate loans and residential real estate loans, as well as
personal/consumer loans.
Our growth in profitability over the five years ended December 31, 1999
reflects conservative loan underwriting practices resulting in net charge-off
ratios averaging less than 0.26%. Our net charge-off ratio during the three
months ended March 31, 2000 was 0.46% on an annualized basis. This ratio was
higher than our historical average because we implemented a more aggressive
charge-off policy during the first quarter of the current year. Management
intends to vigorously pursue collection on all items.
Our efficiency ratios have averaged below 56% during the five years ended
December 31, 1999, however for the three months ended March 31, 2000 our
efficiency ratio increased to 60.64%. Because salary increases for our officers
are effective January 1 of each year, our first quarter efficiency ratio is
typically higher than our annual efficiency ratio. For example, our efficiency
ratio for the three months ended March 31, 1999 was 58.63%, but for the year
ended December 31, 1999 it was 56.26%
In addition, strong growth of non-interest income to average assets from
0.73% in 1995 to 1.06% in 1999, has significantly contributed to our
profitability over this period. Due to increases in market interest rates which
resulted in lower residential mortgage loan originations, our non-interest
income to average assets for the three months ended March 31, 2000 decreased to
0.83% on an annualized basis.
Our net interest margin has remained between 4.13% and 4.77% from 1995 to
1999 and was 4.84% during the three months ended March 31, 2000. Our net
interest income and net interest margin have also benefited from a ratio of
loans to deposits that has increased from a low of 63.75% in 1995 to a high of
93.39% in 1999, and a growing number of non-interest bearing deposits. Our loan
to deposit ratio was 91.20% at March 31, 2000. Our funding philosophy has been
to increase deposits from retail and commercial deposit sources as necessary to
fund loans within the limits of the Bank's capital base. Although a higher
loan-to-deposit ratio potentially limits the Bank's liquidity, our portfolio of
available-for-sale securities and various lines of credit have provided adequate
sources of liquidity when needed.
Our level of non-performing assets reflects the Bank's conservative
underwriting policies, has resulted in low levels of nonaccrual loans, and has
reduced the costs of resolving non-performing assets. Over the five years ended
December 31, 1999, non-performing loans to total loans averaged below 0.50%, net
charge-offs to average total loans averaged below 0.26%, and non-performing
assets to total assets averaged below 0.46%. Generally, banks benefit from lower
levels of non-performing loans by realizing more of the interest income accrued
on the loan portfolio and enjoying a greater ability to rely on internal growth
to fund new loans.
As of March 31, 2000, non-performing loans to total loans was 0.74%, net
charge-offs to average total loans was 0.46% and non-performing assets to total
assets was 0.66%. All three of these ratios were above historical averages due
in part to:
- a more aggressive charge-off policy we implemented in the first quarter
of the current year; and
- rising fuel prices, which contributed to defaults in the Bank's
portfolio of over-the-road truck and trailer leases. The over-the-road
truck and trailer lease portfolio is approximately $5.0 million, or
1.97%, of the $254.3 million loan portfolio as of March 31, 2000.
Our philosophy has been to value non-performing loans at their estimated
collectible value and to aggressively manage these situations. Generally, the
Bank maintains its allowance for loan losses in excess of its non-performing
loans. Over the five years ended December 31, 1999, our ratio of allowance for
loan losses to non-performing loans averaged 349.65%. As of March 31, 2000, our
ratio of allowance for loan losses to non-performing loans was 211.04%.
We fund our operations primarily through demand, savings and time deposits
and, to a lesser extent, lines of credit, sale/repurchase facilities from
various financial institutions, and Federal Home Loan Bank borrowings. In 1999,
our total deposits increased by $58 million to $268 million from $210 million. A
significant portion of this increase was a result of a new deposit product, our
"short-term parking account," introduced by the Bank in the fourth quarter of
1998. This account, which pays a higher yield than our
19
<PAGE> 23
other money market account, requires a minimum balance of $10,000 and allows
depositors to access their funds only on the 15th and last day of each month.
NET INCOME
Three months ended March 31, 2000 and 1999. Net income for the three
months ended March 31, 2000 was $833,000, a 27.18% increase over the $655,000
earned in the prior year first quarter. The principal contributor to our
increase in net income during the current year first quarter was an increase of
$1.2 million, or 52.34%, in net interest income. Diluted earnings per share
increased 26.67% to $0.38 in the current year first quarter from $0.30 in the
prior year first quarter.
Years ended December 31, 1999 and 1998. Net income for 1999 was $3.1
million, a 9.48% increase over the $2.8 million earned in 1998. The principal
contributors to our increase in net income during 1999 were an increase of $3.8
million, or 44.01%, in additional net interest income and an increase of
$294,000, or 22.12%, in additional fee income from loans held for sale that we
originated and sold in the secondary market. Diluted earnings per share
increased 5.19% to $1.42 in 1999 from $1.35 in 1998. The growth of diluted
earnings per share of 5.19% was less than the growth of net income of 9.48% due
to 81,920 more diluted shares being outstanding at December 31, 1999 compared
with December 31, 1998. We had more diluted shares as a result of stock options
being exercised as well as 64,000 additional options being granted in 1999.
Years ended December 31, 1998 and 1997. Net income for 1998 was $2.8
million, a 23.18% increase over the $2.3 million earned in 1997. The improvement
in 1998 net income was primarily the result of an increase of $1.3 million, or
18.10%, in net interest income and an increase of $890,000, or 202.73%, in loans
held for sale fee income. As a result, diluted earnings per share increased
10.66% to $1.35 in 1998 from $1.22, in 1997. The growth of diluted earnings per
share of 10.66% was less than the growth of net income of 18.10% due to 216,244
more diluted shares being outstanding at December 31, 1998 compared with
December 31, 1997. We had more diluted shares as a result of stock options being
exercised as well as 65,516 additional options being granted in 1998.
Two industry measures of the performance by a banking institution are its
return on average assets, referred to as "ROA," and return on average
stockholders' equity, referred to as "ROE." ROA measures net income in relation
to average total assets and indicates a company's ability to employ its
resources profitably. During the three months ended March 31, 2000, our ROA was
1.03% (on an annualized basis), compared to 1.08% for 1999, 1.28% for 1998 and
1.30% for 1997. This decrease in ROA is partially attributable to our increased
investment in infrastructure during this period to support our future growth. In
addition, the strong asset growth rate of Blue Valley, with assets increasing at
a 25.47% compound annualized rate for this time period which exceeded the
compound annualized growth rate in net income during the same period,
contributed to the decrease in ROA.
ROE is determined by dividing net income by average stockholders' equity
and indicates how effectively a company can generate net income on the capital
invested by its stockholders. For the three months ended March 31, 2000, our ROE
was 17.54% (on an annualized basis), compared to 17.43% for 1999, 18.98% for
1998 and 20.62% for 1997. While earnings increased in 1999 and in 1998, ROE
decreased in 1999 and 1998. This decrease in ROE is partially attributable to
our increased investment in infrastructure during this period. In addition, the
$5.9 million of additional equity added through earnings, as well as $723,000
added through 109,660 options being exercised during the same time period,
contributed to the decrease in ROE.
NET INTEREST INCOME
The primary component of our net income is our net interest income. Net
interest income is determined by the spread between the yields we earn on our
interest-earning assets and the rates we pay on our interest-bearing
liabilities, as well as the relative amounts of such assets and liabilities. Net
interest margin is determined by dividing net interest income by average
interest-earning assets.
20
<PAGE> 24
Three months ended March 31, 2000 and 1999. Net interest income for the
three months ended March 31, 2000 increased to $3.6 million from $2.4 million in
the prior year first quarter, a $1.2 million, or 52.34%, increase. This increase
was primarily the result of a $67.7 million increase in average interest-
earning assets, which more than offset a $66.9 million increase in average
interest-bearing liabilities. Additionally, the increase in our cost of funds
was less than the increase in the average rate we received on our average
interest-earning assets. Our net interest margin improved to 4.84% during the
current year first quarter, from 4.15% during the prior year first quarter. One
of the major contributors to the improvement in our net interest margin was
interest of $555,000 earned on a purchased lease portfolio on average
outstanding leases of $5.4 million, for a yield of 40.98%. We expect our
interest income from these purchased leases to decline over the next two years
as the portfolio matures. Without the interest income generated from this
portfolio, the net interest margin would have been 4.18%.
Interest income for the current year first quarter was $7.1 million, an
increase of $2.2 million, or 44.40%, from $4.9 million in the prior year first
quarter, primarily as a result of a $67.7 million, or 28.52%, growth in
interest-earning assets. Excluding the interest income generated from the
purchased lease portfolio discussed above, the yield on average interest-earning
assets increased to 8.82% in 2000 from 8.46% in 1999, which combined with the
increase in volume, resulted in the $2.2 million increase in interest income in
the current year period, as compared to the prior year period. Interest income
on available-for-sale securities increased by $40,000, and the annualized
tax-equivalent yield on our investment portfolio increased 58 basis points in
the current year period as compared to the prior year period.
Interest expense for the current year first quarter was $3.5 million, up
$1.0 million, or 36.94%, from $2.5 million in the prior year first quarter. We
attribute the increase to a $52.9 million, or 29.58%, increase in our average
interest-bearing deposits as well as a $14.1 million, or 59.54%, increase in
other interest-bearing liabilities, including FHLB borrowings and increased
borrowings under our bank stock loan. Overall, rates paid on average
interest-bearing liabilities increased to 5.16% in the current year period from
5.06% in the prior year period, an increase of 10 basis points.
Years ended December 31, 1999 and 1998. Net interest income for 1999
increased to $12.4 million from $8.6 million in 1998, a $3.8 million, or 44.01%,
increase. This increase was primarily the result of a $59.7 million increase in
average interest-earning assets, which more than offset a $52.1 million increase
in average interest-bearing liabilities. Additionally, the decline in our cost
of funds was greater than the decline in the average rate we received on our
average interest-earning assets. Our net interest margin improved to 4.77%, from
4.30% during 1998. One of the major contributors to the improvement in our net
interest margin was interest of $2.0 million earned on a purchased lease
portfolio on average outstanding leases of $8.2 million, for a yield of 26.72%.
We expect our interest income from these purchased leases to decline over the
next two years as the portfolio matures. Without the interest income generated
from this portfolio, the net interest margin would have been 4.14%.
Interest income for 1999 was $23.6 million, an increase of $5.8 million, or
32.50%, from $17.8 million in 1998, primarily as a result of a $59.7 million, or
29.05%, growth in interest-earning assets. Excluding the interest income
generated from the purchased lease portfolio discussed above, the yield on
average interest-earning assets declined from 8.78% in 1998 to 8.50%. However,
the increase in volume more than offset this 28 basis point decline in yield,
resulting in the $5.8 million increase in interest income from 1998 to 1999.
Interest income on available-for-sale securities decreased by $59,000, and the
tax-equivalent yield on our investment portfolio decreased 15 basis points in
1999 as compared to 1998. This resulted from our sale in 1998 of
higher-yielding, callable debt securities, which appeared to us likely to be
called due to the then-prevailing interest rate environment.
Interest expense for 1999 was $11.2 million, up $2.0 million, or 21.72%,
from $9.2 million in 1998. We attribute the increase to a $42.4 million, or
26.88%, increase in our average balances of interest-bearing deposits as well as
a $9.7 million, or 52.57%, increase in other interest-bearing liabilities,
including FHLB borrowings and increased borrowings under our bank stock loan.
Overall, rates paid on average interest-bearing liabilities decreased to 4.91%
in 1999 from 5.22% in 1998, a decline of 31 basis points. The
21
<PAGE> 25
additional deposits generated by the introduction of our short-term parking
account were used to fund a portion of our loan growth. The remaining funds were
obtained from other deposit products, as well as advances from the FHLB.
Years ended December 31, 1998 and 1997. Net interest income for 1998
increased to $8.6 million from $7.3 million in 1997, a $1.3 million, or 18.10%,
increase. This increase was primarily the result of a $45.7 million increase in
average interest-earning assets, which offset a $36.8 million increase in
average interest-bearing liabilities. Although the net interest margin decreased
to 4.30% in 1998 from 4.66% in 1997, the additional volume generated more net
interest income.
Interest income for 1998 was $17.8 million, an increase of $3.2 million, or
22.45%, up from $14.6 million in 1997, primarily as a result of growth in
interest-earning assets. Yields on interest-earning assets declined 42 basis
points to 8.78% from 9.20% in 1997. Loan interest and fee income increased to
$14.6 million from $12.0 million because of the greater volume of loans
outstanding. These additional loans were funded by deposit growth as well as
advances from the FHLB. The tax-equivalent yield on our investment portfolio
remained constant at 6.39% for both 1998 and 1997. However, interest income on
available-for-sale securities increased by $539,000 as a result of growth in the
portfolio.
Interest expense for 1998 was $9.2 million, up $1.9 million, or 26.83%,
from $7.3 million in 1997. We attribute the increase to growth in our deposit
base, as well as increases in other funding sources such as the FHLB. Overall,
rates paid on average interest-bearing liabilities remained constant at 5.22% in
1998 compared with 5.21% in 1997, or 1 basis point difference.
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.
22
<PAGE> 26
AVERAGE BALANCES, YIELDS AND RATES
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------------------------------------- -----------------------------
2000 1999 1999
----------------------------- ----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold........... $ 2,798 $ 38 5.46% $ 13,616 $ 152 4.53% $ 9,482 $ 431 4.55%
Investment
securities -- taxable...... 34,757 579 6.70 36,942 546 5.99 33,422 2,087 6.24
Investment securities -- non-
taxable(1)................. 14,539 233 6.45 14,609 223 6.19 14,399 895 6.22
Mortgage loans held for
sale....................... 935 20 8.60 1,658 31 7.58 1,413 112 7.93
Loans, net of unearned
discount and fees.......... 251,913 6,253 9.98 170,440 3,996 9.51 206,310 20,310 9.84
-------- ------ -------- ------ --------
Total earning assets..... 304,942 7,123 9.39 237,265 4,948 8.46 265,026 23,835 8.99
-------- ------ -------- ------ --------
Cash and due from
banks -- non-interest
bearing.................... 12,143 7,375 9,883
Allowance for possible loan
losses..................... (3,637) (2,531) (2,842)
Premises and equipment,
net........................ 5,560 5,392 5,505
Other assets................. 7,548 10,292 7,723
-------- -------- --------
Total assets............. $326,556 $257,793 $285,295
======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997
----------------------------- -----------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold........... $ 7,786 $ 396 5.09% $ 5,063 $ 276 5.45%
Investment
securities -- taxable...... 33,836 2,191 6.48 28,834 1,846 6.40
Investment securities -- non-
taxable(1)................. 13,502 835 6.18 9,080 575 6.33
Mortgage loans held for
sale....................... 2,026 138 6.81 795 56 7.04
Loans, net of unearned
discount and fees.......... 148,221 14,470 9.76 115,939 11,944 10.30
-------- --------
Total earning assets..... 205,371 18,030 8.78 159,711 14,697 9.20
-------- --------
Cash and due from
banks -- non-interest
bearing.................... 7,689 6,425
Allowance for possible loan
losses..................... (2,069) (1,516)
Premises and equipment,
net........................ 4,776 4,408
Other assets................. 4,491 6,163
-------- --------
Total assets............. $220,258 $175,191
======== ========
</TABLE>
23
<PAGE> 27
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------------------------------------- -----------------------------
2000 1999 1999
----------------------------- ----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits-interest bearing:
Interest-bearing demand
accounts................. $ 22,883 $ 185 3.25% $ 13,820 $ 120 3.52% $ 19,260 $ 644 3.34%
Savings and money market
deposits................. 102,703 1,242 4.86 54,453 527 3.92 74,535 3,156 4.23
Time deposits.............. 105,946 1,524 5.79 110,408 1,582 5.81 106,366 6,032 5.67
-------- ------ -------- ------ -------- -------
Total interest-bearing
deposits............... 231,532 2,951 5.13 178,681 2,229 5.06 200,161 9,832 4.91
-------- ------ -------- ------ -------- -------
Short-term borrowings........ 25,892 339 5.27 11,663 128 4.45 16,122 690 4.28
Long-term debt............... 11,886 165 5.58 12,017 166 5.60 11,973 682 5.70
-------- ------ -------- ------ -------- -------
Total interest-bearing
liabilities............ 269,310 3,455 5.16 202,361 2,523 5.06 228,256 11,204 4.91
-------- ------ -------- ------ -------- -------
Non-interest bearing
deposits................... 35,719 36,186 37,314
Other liabilities............ 2,430 2,025 2,034
Stockholders' equity......... 19,097 17,221 17,691
-------- -------- --------
Total liabilities and
stockholders' equity... $326,556 $257,793 $285,295
======== ======== ========
Net interest income/spread... $3,668 4.23% $2,425 3.40% $12,631 4.08%
====== ==== ====== ==== ======= ====
Net interest margin.......... 4.84% 4.15% 4.77%
==== ==== ====
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997
----------------------------- -----------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits-interest bearing:
Interest-bearing demand
accounts................. $ 12,620 $ 348 2.76% $ 10,661 $ 296 2.78%
Savings and money market
deposits................. 41,001 1,637 3.99 34,490 1,353 3.92
Time deposits.............. 104,141 6,247 6.00 82,683 4,985 6.03
-------- ------ -------- -------
Total interest-bearing
deposits............... 157,762 8,232 5.22 127,834 6,634 5.19
-------- ------ -------- -------
Short-term borrowings........ 12,192 591 4.85 9,372 458 4.89
Long-term debt............... 6,223 382 6.14 2,215 166 7.50
-------- ------ -------- -------
Total interest-bearing
liabilities............ 176,177 9,205 5.22 139,421 7,258 5.21
-------- ------ -------- -------
Non-interest bearing
deposits................... 27,567 22,098
Other liabilities............ 1,678 2,588
Stockholders' equity......... 14,836 11,084
-------- --------
Total liabilities and
stockholders' equity... $220,258 $175,191
======== ========
Net interest income/spread... $8,825 3.56% $ 7,439 3.99%
====== ==== ======= =====
Net interest margin.......... 4.30% 4.66%
==== =====
</TABLE>
---------------
(1) Presented on a full tax-equivalent basis assuming a tax rate of 34%.
24
<PAGE> 28
Analysis of Changes in Net Interest Income Due to Changes in Interest Rates
and Volumes. The following table presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. It distinguishes between the increase
or decrease related to changes in balances and changes in interest rates. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to:
- changes in volume, reflecting changes in volume multiplied by the prior
period rate; and
- 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
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------------------- ---------------------------------------------------------
2000 COMPARED TO 1999 1999 COMPARED TO 1998 1998 COMPARED TO 1997
---------------------------- ---------------------------- --------------------------
CHANGE CHANGE CHANGE CHANGE CHANGE CHANGE
DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL
RATE VOLUME CHANGE RATE VOLUME CHANGE RATE VOLUME CHANGE
------ -------- -------- ------ -------- -------- ------ -------- ------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold............. $ 42 $ (156) $ (114) $ (33) $ 68 $ 35 $ (17) $ 137 $ 120
Investment
securities -- taxable........ 61 (28) 33 (78) (26) (104) 23 322 345
Investment securities -- non-
taxable(1)................... 11 (1) 10 5 55 60 (13) 273 260
Mortgage loans held for sale... 5 (16) (11) 31 (57) (26) (2) 84 82
Loans, net of unearned
discount..................... 251 2,006 2,257 120 5,720 5,840 (586) 3,112 2,526
---- ------ ------ ----- ------ ------ ----- ------ ------
Total interest income........ 370 1,805 2,175 45 5,760 5,805 (595) 3,928 3,333
---- ------ ------ ----- ------ ------ ----- ------ ------
Interest-bearing demand
accounts..................... (8) 73 65 84 212 296 (2) 54 52
Savings and money market
deposits..................... 156 559 715 104 1,415 1,519 25 259 284
Time deposits.................. 12 (70) (58) (352) 137 (215) (25) 1,287 1,262
Short-term borrowings.......... 29 182 211 (56) 155 99 (4) 137 133
Long-term debt................. 2 (3) (1) (25) 325 300 (24) 240 216
---- ------ ------ ----- ------ ------ ----- ------ ------
Total interest expense....... 191 741 932 (245) 2,244 1,999 (30) 1,977 1,947
---- ------ ------ ----- ------ ------ ----- ------ ------
Net interest income............ $179 $1,064 $1,243 $ 290 $3,516 $3,806 $(565) $1,951 $1,386
==== ====== ====== ===== ====== ====== ===== ====== ======
</TABLE>
---------------
(1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%.
PROVISION FOR LOAN LOSSES
We make provisions for loan losses in amounts management deems necessary to
maintain the allowance for loan losses at an appropriate level. During the three
months ended March 31, 2000, we provided $465,000 for loan losses, as compared
to $300,000 for the three months ended March 31, 1999. The provision for loan
losses increased to $2.1 million in 1999 from $1.1 million in 1998, or 102.07%,
while the loan portfolio increased to $250.4 million in 1999 from $161.4 million
in 1998, or 55.11%. The provision for loan losses increased to $1.1 million in
1998 from $660,000 in 1997, or 60.76%, while the loan portfolio increased to
$161.4 million in 1998 from $127.3 million in 1997, or 26.81%. The allowance for
loan losses as a percentage of loans increased to 1.57% at March 31, 2000, as
compared to 1.52% in 1999, 1.45% in 1998, 1.27% in 1997 and 1.26% 1996. We
increased the allowance for loan losses in the three months ended March 31,
2000, and in 1999 and 1998 based upon an analysis of several factors, including
the changing loan mix and overall growth in the loan portfolio.
The adequacy of the allowance is analyzed monthly based on internal loan
reviews and quality measurements of our loan portfolio. The Bank has for many
years used several different methods of calculating the allowance, including an
historical loss ratio calculation and risk grading with associated
25
<PAGE> 29
reserve factors. The Bank then reviews its resulting analysis by confirming to
peer group ratios and regulatory calculation formulas. During 1999 the Bank
refined and expanded its risk grading system which allocates a reserve factor,
ranging from 0% for a 1 graded loan, to 100% for a 10 graded loan. At the same
time, two of its loan portfolios that carry a higher risk grading, personal and
leases, grew a combined $41.6 million, or 124.26%. These two loan categories are
assigned higher risk gradings than our other loan categories because some of our
personal loans are not secured by collateral. In addition, the underlying
collateral for our secured personal loans and our leases may depreciate rapidly
and not provide an adequate source of repayment if we are required to repossess
the collateral.
The growth of our higher risk grade portfolios in 1999 is reflected in the
overall allocation of the allowance for loan losses. Personal loans received
22.09% of the allowance at December 31, 1999, compared with 9.19% at December
31, 1998. Leases received 14.65% and 10.55% for the same time periods,
respectively. Portfolios which have historically had a low charge-off experience
ratio, and whose risk grading reflect a lower level of risk, such as commercial
real estate, residential real estate, home equity, and construction, received
either a similar or smaller allocation as of December 31, 1999. For example,
during 1999, the commercial real estate portfolio grew $11.2 million or 72.20%,
and received an allocation of 7.02% at December 31, 1999, as compared with 6.62%
at December 31, 1998. During 1999, the residential real estate portfolio grew
$4.9 million, or 17.22%, and the allowance allocation decreased to 9.53% at
December 31, 1999, compared with 14.52% at December 31, 1998.
Due to the significant growth in our higher risk grade portfolios, the
overall result was a higher level of reserve at December 31, 1999 compared with
December 31, 1998. The loan loss reserve represents our best estimate of
probable losses that have been incurred as of the respective balance sheet
dates.
NON-INTEREST INCOME
The following table describes the items of our non-interest income for the
periods indicated:
NON-INTEREST INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31
------------ --------------------------
2000 1999 1999 1998 1997
---- ---- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans held for sale fee income................. $232 $459 $1,623 $1,329 $ 439
NSF charges and service fees................... 131 136 553 598 499
Other service charges.......................... 237 64 659 157 107
Realized gain on sales of investment
securities................................... -- -- 3 112 8
Other income................................... 75 56 186 450 401
---- ---- ------ ------ ------
Total non-interest income................. $675 $715 $3,024 $2,646 $1,454
==== ==== ====== ====== ======
</TABLE>
Non-interest income decreased to $675,000, or 5.59%, during the three
months ended March 31, 2000, from $715,000 during the prior year first quarter.
This decrease is primarily attributable to a decrease in origination fees
resulting from a lower level of residential mortgage loans which we originated
and sold in the secondary market in first quarter of 2000 compared to the first
quarter of 1999. This decrease is mainly attributable to the rising interest
rate environment and a slow down in the residential mortgage industry. However,
the decrease in origination fee income was largely offset through other lines of
business which generated other service charge income, such as investment
brokerage services which generated an additional $82,000 over the prior year
quarter, and commercial mortgage services which generated an additional $43,000
over the prior year quarter.
Non-interest income increased to $3.0 million in 1999, from $2.6 million in
1998 and $1.5 million in 1997, increases of 14.29% and 81.98%, respectively.
These increases were primarily attributable to the increase in origination fees
resulting from the higher level of residential mortgage loans which we
26
<PAGE> 30
originated and sold in the secondary market in 1999 and 1998. The increase in
loans held for sale fee income is the result of $82.4 million of residential
mortgage loans that we originated and sold in the secondary market in 1999, as
compared to $75.6 million in 1998 and $31.1 million in 1997. Although our
practice has been to hold substantially all of our investment securities to
maturity, in 1998 we recognized a substantial increase in gain on sales of
investment securities when we sold a number of debt securities in our portfolio
that were subject to call. Due to the interest rate environment, it appeared
likely that these securities would be called. By selling the securities and
reinvesting the proceeds, we were able to maintain a comparable yield while
extending the maturity of the dollars invested. Other service charge income
increased by $502,000 in 1999. This increase is a result of the Bank developing
new products which are beginning to generate fee-based income. Our investment
brokerage, commercial mortgage brokerage and brokered lease services generated
an additional $208,000 in 1999 over 1998. In addition a rental fleet of tanker
equipment purchased as part of a portfolio of leases during 1999 generated
rental income of $127,000 before it was eventually liquidated. The remainder of
the increase is a result of the growth in the Bank, and increases in general
customer relationship/retail fee based products, such as ATM, check orders, and
various other retail products. Other service charge income was fairly constant
in 1998 compared with 1997. Other income has declined over the past two years
because as we have grown and expanded our number of employees, we have leased
less of our corporate headquarters to outside parties, which decreased our
rental income by $133,000 in 1999 and $79,000 in 1998.
NON-INTEREST EXPENSE
The following table describes the items of our non-interest expense for the
periods indicated.
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31
------------------ --------------------------
2000 1999 1999 1998 1997
------- ------- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits.............. $1,409 $ 997 $4,578 $3,312 $2,304
Occupancy................................... 257 198 894 748 663
FDIC and other insurance expense............ 29 25 113 121 86
General and administrative.................. 903 588 3,095 1,815 1,603
------ ------ ------ ------ ------
Total non-interest expenses............ $2,598 $1,808 $8,680 $5,996 $4,656
====== ====== ====== ====== ======
</TABLE>
Non-interest expense increased to $2.6 million, or 43.69%, during the
current year first quarter, as compared to $1.8 million in the prior year first
quarter. This increase is primarily attributable to increases in salaries and
employee benefits and general and administrative expenses. Our salaries and
employee benefits and general and administrative expenses increased to $1.4
million in 2000, from $1.0 million in 1999, as we hired additional staff to
facilitate our growth. We had 122 full-time employees at March 31, 2000 as
compared to 89 at March 31, 1999. General and administrative expenses increased
to $903,000, or 53.57% in 2000, from $588,000 in 1999, which is a direct result
of our growth, as well as a referral fee due to a third party. A lease portfolio
was purchased during 1999 with the assistance of a third party. The referral fee
is due to the third party based on the performance of the portfolio and was
$108,000 for the first quarter of 2000.
Non-interest expense increased to $8.7 million in 1999, from $6.0 million
in 1998, and $4.7 million in 1997, increases of 44.76% and 28.78%, respectively.
These increases were primarily the result of increases in salaries and employee
benefits and general and administrative expenses. Our salaries and employee
benefits expenses increased to $4.6 million in 1999, from $3.3 million in 1998,
and $2.3 million in 1997, as we hired additional staff to facilitate our growth.
We had 112, 83 and 61 full-time employees at the end of 1999, 1998 and 1997,
respectively. General and administrative expense increased to $3.1 million in
1999, from $1.8 million in 1998, and $1.6 million in 1997, which is a direct
result of our growth, as well as our increased advertising and marketing
efforts. Advertising and marketing expenditures increased to $476,000
27
<PAGE> 31
in 1999, from $269,000 in 1998, and $119,000 in 1997. A lease portfolio was
purchased during 1999 with the assistance of a third party. A referral fee is
due to a third party based on performance of the portfolio. The referral fee
accrued in 1999 was $305,000 and is included in general and administrative
expenses.
INCOME TAXES
Our income tax expense during the three months ended March 31, 2000 was
$388,000, compared to $321,000 during the prior year first quarter. This
increase reflects our higher earnings during the current year period. Income
taxes for fiscal years 1999, 1998 and 1997 were $1.5 million, $1.4 million and
$1.1 million, respectively. The increases in taxes in 1999 and 1998 reflect our
higher earnings. Our consolidated income tax rate varies from the statutory rate
principally due to the effects of state income taxes and interest income earned
on our municipal securities portfolio which is tax-exempt for federal income tax
purposes.
FINANCIAL CONDITION
Lending Activities. Our loan portfolio is our main source of income, and
has been the principal component of our revenue growth. Our loan portfolio
reflects an emphasis on commercial, residential real estate, construction, and
personal lending and leasing. We emphasize commercial lending to professionals,
businesses and their owners. Commercial loans and loans secured by commercial
real estate accounted for 37.11% of our total loans at March 31, 2000, 36.41% of
our total loans at December 31, 1999, and over 40% of our total loans at year
end 1998, 1997, 1996, and 1995. These loans increased at more than a 26.04%
compound annual rate during the four-year period ended December 31, 1999.
However, as the Bank's portfolio has become more diversified, these loans have
decreased as a percentage of the total portfolio from 50.31% at year-end 1995 to
37.11% at March 31, 2000.
Loans were $254.3 million at March 31, 2000, an increase of $3.9 million,
or 1.56%, compared to December 31, 1999. Loan growth was limited in the first
quarter due to funding constraints. The loan to deposit ratio remained above 91%
from December 31, 1999 through the end of the first quarter. Although management
believes that higher-cost funding sources, like brokered deposits, are available
to the Bank, consistent with our growth strategy, management seeks to maintain
an appropriate balance between loan portfolio growth and our overall cost of
funds.
Loans were $250.4 million at December 31, 1999, an increase of $89.0
million, or 55.11%, compared to December 31, 1998. We experienced increases in
each of our loan categories, with the most significant increases occurring in
commercial real estate, personal, construction and leasing. Over the last five
years, we have expanded our personal lending lines of business in an effort to
more broadly diversify our risk across multiple lines of business. A significant
portion of the growth in our personal lending lines over the last five years is
attributable to growth in our indirect automobile loan portfolio. As a result of
the significant growth over the past five years in our indirect automobile loan
portfolio and management's belief that our current level of investment in
indirect automobile loans as a percentage of our overall loan portfolio is
appropriate, we do not anticipate significant additional growth in our indirect
automobile loan portfolio in future periods. The growth of our commercial real
estate portfolio is a result of the natural economic growth and development of
our market area, coupled with the addition of experienced construction and
development lenders.
The following table sets forth the composition of our loan portfolio by
loan type as of the dates indicated. The amounts in the following table are
shown net of discounts and other deductions.
28
<PAGE> 32
LOAN PORTFOLIO
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF MARCH 31, -----------------------------------------------------------------
2000 1999 1998 1997
------------------- ------------------- ------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial real estate............. $ 29,023 11.41% $ 26,617 10.63% $ 15,457 9.57% $ 7,878 6.19%
Residential real estate............ 33,323 13.10 33,251 13.28 28,367 17.57 24,075 18.91
Commercial......................... 65,370 25.70 64,552 25.78 52,310 32.41 45,969 36.11
Personal........................... 42,620 16.76 44,747 17.87 19,751 12.23 14,590 11.46
Home equity........................ 10,706 4.22 9,820 3.92 6,170 3.82 7,030 5.52
Construction....................... 44,032 17.31 41,007 16.38 25,624 15.87 16,273 12.78
Leases............................. 29,251 11.50 30,416 12.14 13,765 8.53 11,493 9.03
-------- ------ -------- ------ -------- ------ -------- ------
Total loans and leases........... 254,325 100.00% 250,410 100.00% 161,444 100.00% 127,308 100.00%
====== ====== ====== ======
Less allowance for loan losses..... 3,995 3,817 2,341 1,618
--------
Loans receivable, net.............. $250,330 $246,593 $159,103 $125,690
======== ======== ======== ========
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------
1996 1995
------------------- ------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial real estate............. $ 7,300 7.20% $ 2,810 3.91%
Residential real estate............ 14,253 14.07 8,429 11.74
Commercial......................... 41,514 40.97 33,311 46.40
Personal........................... 9,507 9.38 4,680 6.52
Home equity........................ 5,267 5.20 3,176 4.42
Construction....................... 12,747 12.58 10,048 14.00
Leases............................. 10,735 10.60 9,337 13.01
-------- ------ ------- ------
Total loans and leases........... 101,323 100.00% 71,791 100.00%
====== ======
Less allowance for loan losses..... 1,275 836
Loans receivable, net.............. $100,048 $70,955
======== =======
</TABLE>
29
<PAGE> 33
Collateral and Concentration. At March 31, 2000, and at December 31, 1999,
1998, and 1997, substantially all of our loans were collateralized with real
estate, inventory, accounts receivable and/or other assets or were guaranteed by
the Small Business Administration. Loans to individuals and businesses in the
construction industry totaled $54.6 million, or 21.47%, of total loans, as of
March 31, 2000. The Bank does not have any other concentrations of loans to
individuals or businesses involved in a single industry totaling 5% of total
loans. The Bank's lending limit under federal law to any one borrower was $7.2
million at March 31, 2000. The Bank's largest single borrower, net of
participations, at March 31, 2000 had outstanding loans of $4.8 million.
The following table presents the aggregate maturities of loans in each
major category of our loan portfolio as of December 31, 1999, excluding the
allowance for loan and valuation losses. Additionally, the table presents the
dollar amount of all loans due more than one year after December 31, 1999 which
have predetermined interest rates (fixed) or adjustable interest rates
(variable). Actual maturities may differ from the contractual maturities shown
below as a result of renewals and prepayments or the timing of loan sales.
MATURITIES AND SENSITIVITIES OF LOANS TO
CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------------------------------------
MORE THAN ONE YEAR
LESS THAN ONE TO OVER FIVE ------------------
ONE YEAR FIVE YEARS YEARS TOTAL FIXED VARIABLE
--------- ---------- --------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial Real Estate............. $ 2,190 $16,523 $7,904 $26,617 $ 8,614 $15,813
Commercial......................... 34,973 22,214 7,365 64,552 10,450 19,129
Construction....................... 18,746 21,544 1,046 41,336 2,735 19,855
</TABLE>
NON-PERFORMING ASSETS
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:
30
<PAGE> 34
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, ---------------------------------------------
2000 1999 1998 1997 1996 1995
--------- ------- ------ ------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REAL ESTATE LOANS:
Past due 90 days or more............................... $ 150 $ -- $ -- $ -- $ -- $ 134
Nonaccrual............................................. -- -- -- -- -- --
INSTALLMENT LOANS:
Past due 90 days or more............................... -- -- 7 -- -- 202
Nonaccrual............................................. 19 87 38 -- 89 57
CREDIT CARDS AND RELATED PLANS:
Past due 90 days or more............................... -- -- -- -- -- --
Nonaccrual............................................. -- -- -- -- -- --
COMMERCIAL AND ALL OTHER LOANS:
Past due 90 days or more............................... 979 50 319 -- 163 68
Nonaccrual............................................. 533 375 650 367 156 24
LEASE FINANCING RECEIVABLES:
Past due 90 days or more............................... 56 -- 121 -- -- --
Nonaccrual............................................. 156 25 227 58 -- --
DEBT SECURITIES AND OTHER ASSETS (EXCLUDING OTHER REAL
ESTATE OWNED AND OTHER REPOSSESSED ASSETS):
Past due 90 days or more............................... -- -- -- -- -- --
Nonaccrual............................................. -- -- -- -- -- --
------ ------- ------ ------ ------- -------
Total non-performing loans........................... 1,893 537 1,362 425 408 485
------ ------- ------ ------ ------- -------
FORECLOSED ASSETS HELD FOR SALE.......................... 311 186 46 795 40 370
------ ------- ------ ------ ------- -------
Total non-performing assets.......................... $2,204 $ 723 $1,408 $1,220 $ 448 $ 855
====== ======= ====== ====== ======= =======
Total non-performing loans to total loans................ 0.74% 0.21% 0.84% 0.33% 0.40% 0.68%
Total non-performing loans to total assets............... 0.57 0.16 0.54 0.21 0.25 0.37
Allowance for loan losses to non-performing loans........ 211.04 710.80 171.88 380.71 312.50 172.37
Non-performing assets to loans and foreclosed assets held
for sale............................................... 0.87 0.29 0.87 0.95 0.44 1.18
</TABLE>
Impaired Loans. A loan is considered impaired when it is probable that we
will not receive all amounts due according to the contractual terms of the loan.
This includes loans that are delinquent 90 days or more, nonaccrual loans, and
certain other loans identified by management. Accrual of interest is
discontinued, and interest accrued and unpaid is removed, at the time the loans
are delinquent 90 days. Interest is recognized for nonaccrual loans only upon
receipt, and only after all principal amounts are current according to the terms
of the contract.
Impaired loans totaled $5.5 million at March 31, 2000, and $5.2 million at
December 31, 1999 and 1998, with related allowances for loan losses of $1.1
million, $825,000 and $747,000, respectively.
Interest of $149,000 was recognized on average impaired loans of $6.0
million during the three months ended March 31, 2000. Interest of $713,000 and
$600,000 was recognized on average impaired loans of $4.1 million and $3.5
million for 1999 and 1998, respectively. Interest of $17,000 was recognized on
impaired loans on a cash basis during the first quarter of the current year.
Interest of $140,000 and $85,000 was recognized on impaired loans on a cash
basis during 1999 and 1998, respectively.
Allowance For Loan Losses. The allowance for loan losses is increased by
provisions charged to expense and reduced by loans charged off, net of
recoveries. The allowance is maintained at a level considered adequate to
provide for loan losses inherent in the portfolio, based on management's
evaluation of the loan portfolio. Management assesses the adequacy of the
allowance for loan losses based upon a number of factors including, among
others:
- analytical reviews of loan loss experience in relationship to
outstanding loans and commitments;
31
<PAGE> 35
- unfunded loan commitments;
- problem and non-performing loans and other loans presenting credit
concerns;
- trends in loan growth, portfolio composition and quality;
- appraisals of the value of collateral; and
- management's judgement with respect to current economic conditions and
their impact on the existing loan portfolio.
General allowances have been established, based upon management's risk
grading system and considering such factors as peer group ratios and the results
of recent regulatory examinations, and allocated to the individual loan
categories. Specific allowances are accrued on specific loans evaluated for
impairment for which the basis of each loan, including accrued interest, exceeds
the discounted amount of expected future collections of interest and principal
or, alternatively, the fair value of loan collateral.
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
<TABLE>
<CAPTION>
THREE MONTHS
ENDED AS OF AND FOR THE
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period.................. $ 3,817 $ 2,341 $ 2,341 $ 1,618 $ 1,275 $ 836 $ 611
Loans charged-off:
Commercial real estate........................ -- -- -- -- -- -- --
Residential real estate....................... -- -- -- -- -- -- --
Commercial.................................... 81 -- 567 310 357 216 198
Personal...................................... 72 5 47 49 19 7 60
Home equity................................... -- -- -- -- -- -- --
Construction.................................. -- -- -- -- -- -- 24
Leases........................................ 156 87 158 27 83 91 37
-------- -------- -------- -------- -------- -------- --------
Total loans charged-off..................... 309 92 772 386 459 314 319
Recoveries:
Commercial real estate........................ -- -- -- -- -- -- --
Residential real estate....................... -- -- -- -- -- -- --
Commercial.................................... 5 3 90 38 84 78 138
Personal...................................... 7 -- 2 6 1 11 32
Home equity................................... -- -- -- -- -- -- --
Construction.................................. -- -- -- -- -- -- --
Leases........................................ 10 -- 12 4 57 16 4
-------- -------- -------- -------- -------- -------- --------
Total recoveries............................ 22 3 104 48 142 105 174
-------- -------- -------- -------- -------- -------- --------
Net loans charged-off........................... 287 89 668 338 317 209 145
Provision for loan losses....................... 465 300 2,144 1,061 660 648 370
-------- -------- -------- -------- -------- -------- --------
Balance at end of period........................ $ 3,995 $ 2,552 $ 3,817 $ 2,341 $ 1,618 $ 1,275 $ 836
======== ======== ======== ======== ======== ======== ========
Loans outstanding:
Average....................................... 251,913 170,440 206,310 148,221 115,939 87,501 63,155
End of period................................. 254,325 186,038 250,410 161,444 127,308 101,323 71,791
Ratio of allowance for loan losses to loans
outstanding:
Average....................................... 1.59% 1.50% 1.85% 1.58% 1.40% 1.46% 1.32%
End of period................................. 1.57 1.37 1.52 1.4558 1.27 1.26 1.16
Ratio of net charge-offs to:
Average loans................................. 0.46 0.21 0.32 0.23 0.27 0.24 0.23
End of period loans........................... 0.45 0.19 0.27 0.21 0.25 0.21 0.20
</TABLE>
32
<PAGE> 36
The following table shows our allocation of the allowance for loan losses
by specific category at the end of each of the periods shown. Management
attempts to allocate specific portions of the allowance for loan losses based on
specifically identifiable problem loans. However, the allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any category.
33
<PAGE> 37
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF MARCH 31, ------------------------------------------------------------------
2000 1999 1998 1997
-------------------- -------------------- -------------------- --------------------
% OF % OF % OF % OF
TOTAL TOTAL TOTAL TOTAL
AMOUNT ALLOWANCE AMOUNT ALLOWANCE AMOUNT ALLOWANCE AMOUNT ALLOWANCE
-------- --------- -------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial real estate........ $ 363 9.09% $ 268 7.02% $ 155 6.62% $ 75 4.63%
Residential real estate....... 355 8.89 364 9.53 340 14.52 298 18.42
Commercial.................... 1,442 36.10 1,206 31.60 1,013 43.27 648 40.05
Personal...................... 701 17.55 843 22.09 215 9.19 153 9.46
Home equity................... 126 3.15 123 3.22 69 2.95 83 5.13
Construction.................. 516 12.92 454 11.89 302 12.90 223 13.78
Leases........................ 492 12.30 559 14.65 247 10.55 138 8.53
Unallocated................... -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total..................... $3,995 100.00% $3,817 100.00% $2,341 100.00% $1,618 100.00%
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------
1996 1995
-------------------- --------------------
% OF % OF
TOTAL TOTAL
AMOUNT ALLOWANCE AMOUNT ALLOWANCE
-------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial real estate........ $ 72 5.65% $ 68 8.13%
Residential real estate....... 231 18.12 93 11.12
Commercial.................... 564 44.23 370 44.26
Personal...................... 95 7.45 52 6.22
Home equity................... 60 4.71 35 4.19
Construction.................. 127 9.96 112 13.40
Leases........................ 126 9.88 106 12.68
Unallocated................... -- -- -- --
------ ------ ------ ------
Total..................... $1,275 100.00% $ 836 100.00%
====== ====== ====== ======
</TABLE>
34
<PAGE> 38
Investment securities. The primary objectives of our investment portfolio
are to secure the adequacy of principal, to provide adequate liquidity and to
provide securities for use in pledging for public funds or repurchase
agreements. Income is a secondary consideration. As a result, we generally do
not invest in mortgage-backed securities and other higher yielding investments.
All securities in our investment portfolio are classified as available for sale
in order to provide us with an additional source of liquidity when necessary.
The investment portfolio increased by $3.1 million, or 6.35%, during the quarter
ended March 31, 2000 as compared to 1999 year-end. As rates have continued to
increase, we were able to take advantage of some attractive offers and add some
higher yielding securities to our investment portfolio in the first quarter. The
balance of the investment portfolio at December 31, 1998 was higher than either
the 1999 or 1997 balance due to a 90-day, $5 million security we purchased in
December 1998 to cover a pledging requirement for one of the Bank's customers.
With the exception of this pledged security, the composition of our investment
portfolio has remained virtually unchanged over the last three years.
The following table presents the composition of our investment portfolio by
major category at the dates indicated.
INVESTMENT SECURITIES PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
MARCH 31, -----------------------------------
2000 1999 1998 1997
--------- ------- --------------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government and agency securities............ $36,973 $34,175 $38,859 $28,688
State and municipal obligations.................. 14,760 14,471 14,568 11,559
Mortgage-backed securities....................... -- -- -- --
Other securities................................. -- -- -- --
------- ------- ------- -------
Total....................................... $51,733 $48,646 $53,427 $40,247
======= ======= ======= =======
Available for sale (fair value).................. $51,733 $48,646 $53,427 $40,247
Held to maturity (amortized cost)................ -- -- -- --
------- ------- ------- -------
Total....................................... $51,733 $48,646 $53,427 $40,247
======= ======= ======= =======
</TABLE>
35
<PAGE> 39
The following table sets forth the maturities, carrying value or fair value
(in the case of investment securities available for sale), and average yields
for our investment portfolio at March 31, 2000. Yields are presented on a tax
equivalent basis. Expected maturities will differ from contractual maturities
due to unscheduled repayments and because borrowers on the underlying mortgages
may have the right to call or prepay obligations with or without prepayment
penalties.
Under our investment policy, not more than 10% of the Bank's capital may be
invested in the bonds of any single issuer, other than the United States or its
agencies.
MATURITY OF INVESTMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
MORE THAN TEN
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS YEARS
------------------ ------------------ ------------------ ------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
-------- ------- -------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. government and
Agency
securities......... $4,979 5.29% $11,726 6.42% $20,268 6.64% $ -- --%
State and municipal
Obligations........ 150 4.36 3,655 4.67 10,633 4.79 322 5.21
Mortgage-backed
Securities......... -- -- -- -- -- -- -- --
Other securities..... -- -- -- -- -- -- -- --
------ ---- ------- ---- ------- ---- ---- ----
Total available for
sale............. $5,129 5.26% $15,381 6.01% $30,901 6.01% $322 5.21%
====== ==== ======= ==== ======= ==== ==== ====
Total investment
securities....... $5,129 5.26% $15,381 6.01% $30,901 6.01% $322 5.21%
====== ==== ======= ==== ======= ==== ==== ====
<CAPTION>
TOTAL INVESTMENT SECURITIES
----------------------------
CARRYING FAIR AVERAGE
VALUE VALUE YIELD
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
AVAILABLE FOR SALE
U.S. government and
Agency
securities......... $36,973 $36,973 6.39%
State and municipal
Obligations........ 14,760 14,760 4.77
Mortgage-backed
Securities......... -- -- --
Other securities..... -- -- --
------- ------- ----
Total available for
sale............. $51,733 $51,733 5.93%
======= ======= ====
Total investment
securities....... $51,733 $51,733 5.93%
======= ======= ====
</TABLE>
Deposits. Deposits grew by $10.7 million, or 4.00%, for the quarter ended
March 31, 2000, as compared to 1999 year end. A significant portion of our
deposit growth is attributable to a new money market deposit product, our money
management account, or "short-term parking account," introduced by the Bank in
the fourth quarter of 1998. The money management account provides a hybrid of
the features available from a traditional money market account and a traditional
time deposit. The account requires a minimum balance of $10,000 and allows for
daily deposits but limits withdrawals to the 15(th) and last days of each month.
This account pays a rate of interest which is higher than a customer could
receive on a traditional money market account but lower than the rates generally
available on certificates of deposit. We believe that the trade-off to
depositors between higher interest rates but more limited access to withdrawals
has proven to be an attractive product in our market areas and provides us with
a more attractive source of funds than other alternatives such as Federal Home
Loan Bank borrowings, due to our ability to cross-sell additional services to
these account holders.
The following two tables set forth the balances for each major category of
our deposit accounts and the weighted-average interest rates paid for
interest-bearing deposits for the periods indicated:
36
<PAGE> 40
DEPOSITS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED MARCH 31, ---------------------------------------------------------------
2000 1999 1998
------------------------------ ------------------------------ ------------------------------
PERCENT WEIGHTED PERCENT WEIGHTED PERCENT WEIGHTED
OF AVERAGE OF AVERAGE OF AVERAGE
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand.................... $ 39,491 14.16% --% $ 36,950 13.78% --% $ 33,752 16.09% --%
Savings................... 3,339 1.20 2.96 3,385 1.26 2.93 3,491 1.66 2.94
Interest-bearing demand... 27,347 9.81 3.25 26,800 9.99 3.34 13,982 6.66 2.76
Money Market.............. 34,677 12.43 3.48 35,764 13.34 3.51 35,911 17.11 4.00
Money Management.......... 67,872 24.34 5.71 60,449 22.55 5.15 9,831 4.69 5.08
Time Deposits............. 106,135 38.06 5.79 104,797 39.08 5.67 112,857 53.79 6.00
-------- ------ -------- ------ -------- ------
Total deposits.......... $278,861 100.00% $268,145 100.00% $209,824 100.00%
======== ====== ======== ====== ======== ======
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997
------------------------------
PERCENT WEIGHTED
OF AVERAGE
BALANCE DEPOSITS RATE
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Demand.................... $ 27,275 15.97% --%
Savings................... 3,072 1.80 2.90
Interest-bearing demand... 12,728 7.45 2.78
Money Market.............. 35,030 20.51 4.02
Money Management.......... -- -- --
Time Deposits............. 92,687 54.27 6.03
-------- ------
Total deposits.......... $170,792 100.00%
======== ======
</TABLE>
37
<PAGE> 41
The following table sets forth the amount of our certificates of deposit
that are greater than $100,000 by time remaining until maturity as of March 31,
2000:
AMOUNTS AND MATURITIES OF
TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
---------------------------
WEIGHTED AVERAGE
AMOUNT RATE PAID
------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Three months or less........................................ $13,615 5.75%
Over three months through six months........................ 5,894 5.84
Over six months through twelve months....................... 8,107 5.79
Over twelve months.......................................... 8,224 6.28
------- ----
Total.................................................. $35,840 5.90%
======= ====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. 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 certificates of deposit less than $100,000, were 72.83% of
our total assets at March 31, 2000, and 70.11%, 68.57% and 73.98% of total
assets at December 31, 1999, 1998 and 1997, respectively.
We use various forms of short-term borrowings for cash management and
liquidity purposes on a limited basis. These forms of borrowings include federal
funds purchased, revolving lines of credit and Federal Home Loan Bank
borrowings.
We also have a bank stock loan. The amount outstanding under the amended
bank stock loan agreement is due July 31, 2000. We intend to repay the full
amount outstanding under our bank stock loan with the proceeds from this
offering. See "Use of Proceeds." As of April 30, 2000, the balance outstanding
under the bank stock loan was $7.3 million. The amended bank stock loan
agreement:
- prohibits us from paying dividends or making other distributions on our
common stock;
- prohibits us from incurring additional indebtedness other than the
junior subordinated debentures and our obligations under the trust
preferred securities guarantee; and
- is secured by all of the stock of the Bank.
The Bank is a member of the Federal Home Loan Bank System, which consists
of 12 regional Federal Home Loan Banks governed and regulated by the Federal
Housing Finance Board. The Federal Home Loan Banks provide a central credit
facility for member institutions. The Bank, as a member of the FHLB of Topeka,
is required to acquire and hold shares of capital stock in the FHLB of Topeka in
an amount at least equal to 0.30% of total assets or 1.00% of the aggregate
principal amount of its unpaid residential mortgage loans. The Bank is currently
in compliance with this requirement, with a $1.1 million investment in stock of
the FHLB of Topeka as of March 31, 2000. In 1998, the Bank took advantage of
some special advances from the FHLB to supplement its funding base. The Bank had
no outstanding short-term advances from the FHLB of Topeka at March 31, 2000.
The following table sets forth a summary of our short-term borrowings
during and as of the end of each period indicated.
38
<PAGE> 42
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
AVERAGE WEIGHTED WEIGHTED
AMOUNT AMOUNT MAXIMUM AVERAGE AVERAGE
OUTSTANDING OUTSTANDING OUTSTANDING INTEREST RATE INTEREST RATE
AT PERIOD DURING THE AT ANY DURING THE AT PERIOD
END PERIOD(1) MONTH END PERIOD END
----------- ----------- ----------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
AT OR FOR THE THREE MONTHS ENDED MARCH 31, 2000:
Federal Home Loan Bank borrowings.................. $ -- $ 4,822 $ 5,000 6.95% --%
Bank Stock Loan.................................... 7,263 7,263 7,263 7.82 8.00
Revolving lines of credit.......................... -- -- -- -- --
Repurchase agreements.............................. 11,874 12,130 13,962 3.00 3.00
------- ------- ------- ---- ----
Total............................................ 19,137 24,215 26,225 5.23 4.90
AT OR FOR THE THREE MONTHS ENDED MARCH 31, 1999:
Federal Home Loan Bank borrowings.................. -- -- -- -- --
Bank Stock Loan.................................... 3,450 3,492 3,575 7.31 7.25
Revolving lines of credit.......................... -- -- -- -- --
Repurchase agreements.............................. 7,222 7,398 8,817 3.00 3.00
------- ------- ------- ---- ----
Total............................................ 10,672 10,890 12,392 4.38 4.37
AT OR FOR THE YEAR ENDED DECEMBER 31, 1999:
Federal Home Loan Bank borrowings.................. 10,000 461 10,000 4.50 5.98
Bank Stock Loan.................................... 7,450 4,763 7,450 7.03 7.50
Revolving lines of credit.......................... -- -- -- -- --
Repurchase agreements.............................. 11,260 9,500 13,056 3.00 3.00
------- ------- ------- ---- ----
Total............................................ 28,710 14,724 30,506 4.35 5.21
AT OR FOR THE YEAR ENDED DECEMBER 31, 1998:
Federal Home Loan Bank borrowings.................. -- -- -- -- --
Bank Stock Loan.................................... 3,575 3,800 4,038 7.97 7.25
Revolving lines of credit.......................... -- -- -- -- --
Repurchase agreements.............................. 8,817 7,040 8,886 3.00 3.00
------- ------- ------- ---- ----
Total............................................ 12,392 10,840 12,924 4.74 4.23
AT OR FOR THE YEAR ENDED DECEMBER 31, 1997:
Federal Home Loan Bank borrowings.................. -- -- -- -- --
Bank Stock Loan.................................... 4,038 2,801 4,038 8.28 8.50
Revolving lines of credit.......................... -- -- -- -- --
Repurchase agreements.............................. 8,114 5,549 8,114 3.00 3.00
------- ------- ------- ---- ----
Total............................................ 12,152 8,350 12,152 4.77 4.83
</TABLE>
---------------
(1) Calculations are based on daily averages where available and monthly
averages otherwise.
Capital Resources. At March 31, 2000, our total stockholders' equity was
$19.6 million, and our equity to asset ratio was 5.88%. At December 31, 1999,
our total stockholders' equity was $18.9 million. At year-end 1999, our equity
to asset ratio was 5.67%, as compared to 6.71% at year-end 1998, and 6.68% at
year-end 1997.
The Federal Reserve Board's risk-based guidelines establish a risk-adjusted
ratio, relating capital to different categories of assets and off-balance sheet
exposures, such as loan commitments and standby letters of credit. These
guidelines place a strong emphasis on tangible stockholder's equity as the core
element of the capital base, with appropriate recognition of other components of
capital. At March 31, 2000, our Tier 1 capital ratio was 7.03%, while our total
risk-based capital ratio was 8.28%, both of which exceed the capital minimums
established in the risk-based capital requirements.
39
<PAGE> 43
Our risk-based capital ratios at March 31, 2000, and December 31, 1999,
1998 and 1997 are presented below.
RISK-BASED CAPITAL
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31 ------------------------------
2000 1999 1998 1997
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
TIER 1 CAPITAL
Stockholder's equity............................ $ 19,627 $ 18,869 $ 17,016 $ 13,464
Intangible assets............................... (1,410) (1,448) (1,600) (1,753)
Unrealized appreciation on available-for-sale
securities................................... 1,082 957 (352) (260)
Other........................................... -- -- -- --
-------- -------- -------- --------
Total Tier 1 capital......................... 19,299 18,378 15,064 11,451
-------- -------- -------- --------
TIER 2 CAPITAL
Qualifying allowance for loan losses............ 3,434 3,371 2,255 1,618
-------- -------- -------- --------
Total Tier 2 capital......................... 3,434 3,371 2,255 1,618
-------- -------- -------- --------
Total risk-based capital..................... $ 22,733 $ 21,749 $ 17,319 $ 13,069
======== ======== ======== ========
Risk weighted assets.............................. $274,701 $269,660 $180,077 $132,394
======== ======== ======== ========
Ratios at end of period
Total capital to risk-weighted assets ratio..... 8.28% 8.07% 9.62% 9.87%
Tier 1 capital to average assets ratio (leverage
ratio)....................................... 5.91% 5.80% 6.13% 6.28%
Tier 1 capital to risk-weighted assets ratio.... 7.03% 6.82% 8.37% 8.65%
Minimum guidelines
Total capital to risk-weighted assets ratio..... 8.00% 8.00% 8.00% 8.00%
Tier 1 capital to average assets ratio (leverage
ratio)....................................... 4.00% 4.00% 4.00% 4.00%
Tier 1 capital to risk-weighted assets ratio.... 4.00% 4.00% 4.00% 4.00%
</TABLE>
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
As a continuing part of our financial strategy, we attempt to manage the
impact of fluctuations in market interest rates on our net interest income. This
effort entails providing a reasonable balance between interest rate risk, credit
risk, liquidity risk and maintenance of yield. Our funds management policy is
established by our Board of Directors and monitored by our Risk Management
Committee. Our funds management policy sets standards within which we are
expected to operate. These standards include guidelines for exposure to interest
rate fluctuations, liquidity, loan limits as a percentage of funding sources,
exposure to correspondent banks and brokers, and reliance on non-core deposits.
Our funds management policy also establishes the reporting requirements to our
Board of Directors. Our investment policy complements our asset/liability 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.
40
<PAGE> 44
The following table sets forth our interest-rate sensitivity as of December
31, 1999
INTEREST-RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
EXPECTED MATURITY OR REPRICING DATE
-------------------------------------------
FISCAL YEAR ENDING DECEMBER 31,
0-90 91- -------------------
DAYS 365 DAYS 2000 2001
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Fixed Rate Loans..................................... $ 29,296 $ 31,721 $ 61,017 $ 28,276
Average Interest Rate.............................. 8.87% 9.09% 8.98% 9.33%
Variable Rate Loans.................................. 97,809 4,206 102,015 3,031
Average Interest Rate.............................. 9.19% 8.80% 9.17% 8.15%
Fixed Rate Investments............................... 105 3,150 3,255 3,268
Average Interest Rate.............................. 4.69% 5.80% 5.77% 5.72%
Variable Rate Investments............................ -- -- -- --
Average Interest Rate.............................. -- -- -- --
Federal Funds Sold................................... 8,000 -- 8,000 --
Average Interest Rate.............................. 5.46% -- 5.46% --
-------- -------- -------- --------
Total interest-earning assets.................... $135,210 $ 39,077 $174,287 $ 34,575
======== ======== ======== ========
INTEREST-BEARING LIABILITIES:
Interest-bearing demand.............................. $ 26,800 $ -- $ 26,800 $ --
Average Interest Rate.............................. 3.17% -- 3.17% --
Savings and money market............................. 99,598 -- 99,598 --
Average Interest Rate.............................. 4.70% -- 4.70% --
Time deposits........................................ 26,463 40,028 66,491 16,193
Average Interest Rate.............................. 5.28% 5.61% 5.48% 5.92%
Funds borrowed....................................... 23,819 7,450 31,269 --
Average Interest Rate.............................. 4.46% 7.50% 5.18% --
-------- -------- -------- --------
Total interest-bearing liabilities............... $176,680 $ 47,478 $224,158 $ 16,193
======== ======== ======== ========
CUMULATIVE:
Rate sensitive assets (RSA)........................ $135,210 $174,287 $174,287 $208,862
Rate sensitive liabilities (RSL)................... 176,680 224,158 224,158 240,351
GAP (GAP = RSA -- RSL)........................... (41,470) (49,871) (49,871) (31,489)
RSA/RSL.............................................. 76.53% 77.75% 77.75% 86.90%
RSA/Total assets..................................... 0.41 0.52 0.52 0.63
RSL/Total assets..................................... 0.53 0.67 0.67 0.72
GAP/Total assets..................................... -12.47% -14.99% -14.99% -9.47%
GAP/RSA.............................................. (0.31) (0.29) (0.29) (0.15)
<CAPTION>
EXPECTED MATURITY OR REPRICING DATE
-----------------------------------------------------------------
FISCAL YEAR ENDING DECEMBER 31,
------------------------------ FAIR
2002 2003 2004 THEREAFTER TOTAL VALUE
-------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Fixed Rate Loans..................................... $ 21,390 $ 13,380 $ 8,738 $ 3,714 $136,515 $136,013
Average Interest Rate.............................. 9.21% 9.12% 8.87% 7.63% 9.06%
Variable Rate Loans.................................. 2,748 3,759 2,090 252 113,895 113,895
Average Interest Rate.............................. 8.19% 8.82% 8.56% 8.24% 9.10%
Fixed Rate Investments............................... 2,754 4,765 4,238 30,366 48,646 48,646
Average Interest Rate.............................. 6.00% 5.36% 5.76% 5.91% 5.83%
Variable Rate Investments............................ -- -- -- -- -- --
Average Interest Rate.............................. -- -- -- -- --
Federal Funds Sold................................... -- -- -- -- 8,000 8,000
Average Interest Rate.............................. -- -- -- -- 5.46%
-------- -------- -------- -------- -------- --------
Total interest-earning assets.................... $ 26,892 $ 21,904 $ 15,066 $ 34,332 $307,056 $306,554
======== ======== ======== ======== ======== ========
INTEREST-BEARING LIABILITIES:
Interest-bearing demand.............................. $ -- $ -- $ -- $ -- $ 26,800 $ 25,303
Average Interest Rate.............................. -- -- -- -- 3.17%
Savings and money market............................. -- -- -- -- 99,598 98,701
Average Interest Rate.............................. -- -- -- -- 4.70%
Time deposits........................................ 10,851 7,024 1,930 2,308 104,797 103,898
Average Interest Rate.............................. 6.07% 6.08% 5.88% 6.71% 5.68%
Funds borrowed....................................... -- 10,000 -- 1,908 43,177 42,617
Average Interest Rate.............................. -- 5.13% -- 7.50% 5.27%
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities............... $ 10,851 $ 17,024 $ 1,930 $ 4,216 $274,372 $270,519
======== ======== ======== ======== ======== ========
CUMULATIVE:
Rate sensitive assets (RSA)........................ $235,754 $257,658 $272,724 $307,056 $307,056
Rate sensitive liabilities (RSL)................... 251,202 268,226 270,156 274,372 274,372
GAP (GAP = RSA -- RSL)........................... (15,448) (10,568) 2,568 32,684 32,684
RSA/RSL.............................................. 93.85% 96.06% 100.95% 111.91%
RSA/Total assets..................................... 0.71 0.77 0.82 0.92
RSL/Total assets..................................... 0.76 0.81 0.81 0.82
GAP/Total assets..................................... -4.64% -3.18% 0.77% 9.83%
GAP/RSA.............................................. (0.07) (0.04) 0.01 0.11
</TABLE>
41
<PAGE> 45
We measure the impact of interest rate changes on our income statement
through the use of gap analysis. The gap represents the net position of assets
and liabilities subject to repricing in specified time periods. During any given
time period, if the amount of rate sensitive liabilities exceeds the amount of
rate sensitive assets, a company would generally be considered negatively gapped
and would benefit from falling rates over that period of time. Conversely, a
positively gapped company would generally benefit from rising rates.
We have structured the assets and liabilities of our company to mitigate
the risk of either a rising or falling interest rate environment. We manage our
gap position at a 90-day horizon. Depending upon our assessment of economic
factors such as the magnitude and direction of projected interest rates over the
short- and long-term, we generally operate within guidelines set by our funds
management policy and attempt to maximize our returns within an acceptable
degree of risk. Our policy states that we should maintain a gap position at a
90-day horizon of between 0.60 and 1.40. Our position at December 31, 1999 was
0.77.
We use information from our gap analysis and other calculations as input to
help manage our exposure to changes in interest rates. During the past year, we
have attempted to maintain a gap position near 1.0 in an effort to mitigate the
risk of rapid increases or decreases in market interest rates. We have done so
because of our uncertainty about the direction of market interest rates over the
near term. To maintain our gap position of near 1.0, we structure most of our
loans to mature or reprice in less than two to four years, invest primarily in
portfolio securities with similar maturities and limit the volume of long term
funding that we accept.
Interest rate changes do not affect all categories of assets and
liabilities equally or simultaneously. There are other factors which are
difficult to measure and predict that would influence the effect of interest
rate fluctuations on our income statement. For example, a rapid drop in interest
rates might cause our loans to repay at a more rapid pace and some
mortgage-related investments to prepay more quickly than projected. This could
mitigate some of the benefits of falling rates that are expected when negatively
gapped. Conversely, a rapid rise in rates might cause the mortgage-related loans
to repay at a slower pace, which could give us an opportunity to increase our
margins.
In addition to the gap analysis currently required under our funds
management policy, our Board of Directors and Risk Management Committee continue
to evaluate additional methods of managing the impact of fluctuations in market
interest rates on our net interest income.
Disclosures about fair values of financial instruments, which reflect
changes in market prices and rates, can be found in note 16 to the consolidated
financial statements included in this prospectus.
INFLATION
The consolidated financial statements and related data presented in this
prospectus have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation. Unlike most
industrial companies, substantially all of our assets and liabilities are
monetary in nature. As a result, interest rates have a more significant impact
on our performance than the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or in the same magnitude as
prices of goods and services. We disclose the estimated fair market value of our
financial instruments in accordance with Statement of Financial Accounting
Standards No. 107. See Note 16 to the consolidated financial statements included
in this prospectus.
YEAR 2000
We have not experienced any Year 2000-related problems with our internal
data processing systems and software or those of any third parties with whom we
do business. It is possible, however, that Year 2000 compliance problems exist
that we cannot yet identify. If problems arise and we fail to address them
42
<PAGE> 46
on a timely basis, it could result in lost revenue, increased operating costs,
the loss of customers and suppliers and other business interruptions. As of
December 31, 1999, we had incurred total costs of not more than $20,000 that we
believe are allocable to our efforts to address the Year 2000 problem, of which
not more than $6,000 were incurred and expensed in 1999. No additional related
expenses have been incurred in 2000.
FUTURE ACCOUNTING REQUIREMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133")." This statement, as amended by SFAS No.
137, requires all derivatives to be recorded on the balance sheet at fair value
and establishes standard accounting methodologies for hedging activities. The
standard will result in the recognition of offsetting changes in value or cash
flows of both the hedge and the hedged item in earnings or comprehensive income
in the same period. The statement is effective for Blue Valley's fiscal year
ending December 31, 2001. Because Blue Valley generally does not hold derivative
instruments, the adoption of this statement is not expected to have a material
impact on the financial statements.
FASB also has issued Statement of Financial Accounting Standards No. 134,
"Accounting for Mortgage-Backed Securities retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Entity ("SFAS 134")." This
statement amends SFAS No. 65 allowing mortgage-backed securities or other
retained interests arising from the securitization of mortgage loans to be
classified based on the mortgage banking entities' ability and intent to sell or
hold those securities. Previously, these securities had to be held within a
trading account. This statement was effective for Blue Valley's fiscal year
ending December 31, 1999. The adoption of this standard did not have a material
impact on the financial statements.
BUSINESS
OVERVIEW
We organized Blue Valley and our wholly-owned subsidiary, Bank of Blue
Valley, in 1989 to provide banking services to closely-held businesses, their
owners, professionals and individuals in Johnson County, Kansas, a high growth,
demographically attractive area within the Kansas City MSA. Our focus has been
to take advantage of the current and anticipated growth in our market area as
well as to serve the needs of small and mid-sized commercial
borrowers -- customers that we believe currently are underserved as a result of
banking consolidation in the industry generally and within our market
specifically.
We have experienced significant internal growth since our inception. In
addition, in 1994, we acquired the deposits of a branch of a failed savings and
loan institution to augment our internal growth and we expanded into an
additional market which management believed was attractive. In 1994, we also
completed the construction of our current headquarters in Overland Park, Kansas.
We currently have three banking locations in Johnson County, Kansas, including
our main office in Overland Park, a full-service office in Olathe, Kansas, and a
supermarket banking facility in Shawnee, Kansas.
For the five-year period ended December 31, 1999, our compound annual
growth rate in loans was 36.65%, in assets was 26.82%, and in deposits was
25.70%. At December 31, 1999, we had total loans of $250.4 million, total assets
of $332.6 million, total deposits of $268.1 million and total stockholders'
equity of $18.9 million. At March 31, 2000, we had total loans of $254.3
million, total assets of $333.7 million, total deposits of $278.9 million and
total stockholders' equity of $19.6 million.
Our lending strategy focuses on commercial lending, and, to a lesser
extent, residential and consumer lending. We strive to identify, develop and
maintain diversified lines of business which provide acceptable returns on a
risk adjusted basis. Our primary lines of business consist of commercial and
industrial lending, commercial real estate lending, construction lending,
indirect lending, leasing and residential mortgage lending.
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As a complement to our lending activities, we seek to develop lines of
business which diversify our revenue sources and increase our non-interest
income. In addition to fees generated in conjunction with our loan and lease
portfolios, we derive non-interest income by providing investment brokerage
services and trust services.
In addition to the Bank, we have one direct wholly-owned subsidiary, Blue
Valley Building Corp., which owns the building and property that comprises our
headquarters in Overland Park, Kansas. The Bank has one wholly-owned subsidiary,
Blue Valley Investment Corp., which owns and services a portion of a commercial
lease portfolio that we purchased in 1999.
OUR MARKET AREA
We operate as a community bank, serving the banking needs of small and
medium-sized companies and individuals in the Kansas City MSA generally, and in
suburban Johnson County, in particular. Our trade area generally consists of
Johnson County, Kansas. We believe that coupling our strategy of providing
exceptional customer service and local decision making with attractive market
demographics has led to a rate of growth which exceeds the natural growth rate
of the banking industry as well as the internal growth experienced locally by
our peers.
The income levels and growth rate of Johnson County, Kansas compare
favorably to national averages. Johnson County's population growth rate ranks in
the top 2% of counties nationally, and its per capita income ranks in the top 1%
of counties nationally. Johnson County is also a significant banking market in
the State of Kansas and in the Kansas City MSA. According to available industry
data, as of June 30, 1999, total deposits in Johnson County, including those of
banks, thrifts and credit unions, were approximately $7.8 billion which
represented 19.23% of total deposits in the State of Kansas and 29.54% of total
deposits in the Kansas City MSA.
As our founders anticipated, the trade area surrounding our main banking
facility in Overland Park has become one of the most developed retail areas in
the Kansas City MSA. Our Olathe, Kansas branch is located approximately 10 miles
west of our main office. We opened our Olathe branch in 1994 when we acquired
the deposits of the Olathe branch of a failed savings and loan association. We
made this acquisition because it was located in a contiguous market area and we
believed that it represented a stable deposit base. The Shawnee, Kansas
supermarket banking facility is approximately 20 miles northwest of our
headquarters location. We opened our Shawnee branch for the convenience of our
existing customers in Shawnee, and to expand our market presence in Shawnee. We
are in the process of building a free-standing banking facility in Shawnee,
Kansas and expect to commence operations in the new facility during the third
quarter of 2000. After Overland Park, Shawnee is the second fastest growing area
in Johnson County, Kansas.
BUSINESS STRATEGY
Since our founding, we have strived to increase stockholder value by
executing a community banking strategy tailored to provide our customers with
competitive financial products and services, our employees with the opportunity
to share in our financial success and our community with a stable, growth
oriented employer. To further our primary business objectives, we have
identified several business strategies designed to increase and diversify our
loan portfolio, generate non-interest income, control non-interest expense and
create new markets for our existing and developing products.
- GROW AND DIVERSIFY OUR LOAN PORTFOLIO. Our lending strategy emphasizes
commercial and residential lending and, to a lesser extent, consumer
lending. To grow our portfolio, we actively pursue businesses and
professionals within our target market area as well as utilize our
existing client relationships to identify and develop a network of
potential referrals. We have also placed an increasing emphasis on
cross-marketing our lending products and services to existing and new
customers for our deposit and other services. With the advent of new
technology for delivering financial products and services, we have
identified several techniques to market our lending products. For
example, our customers are now able to use our electronic banking
services to apply
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for residential and personal loans over the Internet. Throughout our
history, we have continually broadened our product offerings in order to
decrease our reliance on any one source of lending activity and to
generate additional income. To further diversify our loan portfolio, we
intend to continue to identify and invest in new lines of business that
provide an acceptable rate of return on a risk-adjusted basis.
- PURSUE OPPORTUNITIES TO INCREASE OUR NON-INTEREST INCOME. In order to
increase stockholder value, we believe that traditional community banks
must identify and develop products which generate fee-based income in
order to augment traditional sources of interest income. Our residential
mortgage loan originations and our trust, investment brokerage and other
services provide these sources of non-interest income. Although our
trust and investment brokerage operations do not currently represent a
material source of income, we anticipate the income resulting from these
activities to increase in the future. We also seek to deploy programs
and employ individuals capable of anticipating and meeting the many
financial service needs of our relatively affluent customer base. The
experience of our management team is critical to understanding and
providing the high level of customer service which we believe is
essential in competing for these customers.
- CONTROL THE EXPENSES NECESSARY TO FACILITATE OUR GROWTH. As a
high-growth community bank with diversified and developing lines of
business, we continue to place emphasis on controlling costs. Each of
our prospective lines of business, as well as our current activities,
are reviewed to determine the potential contribution to net income and
earnings per share.
- EXPAND OUR PRESENCE WITHIN OUR MARKET AREA. We operate as a community
bank, serving the banking needs of small and medium-sized companies and
individuals in the Kansas City MSA generally, and suburban Johnson
County, Kansas in particular. We will consider opening new branches and
establishing new ATMs in high growth areas within our market area to
grow our deposit base and to expand our ability to provide lending and
other services to new and existing customers. To the extent that
opportunities present themselves, we will consider acquisition
opportunities within our market area and in contiguous areas. Our
management team expects to build upon our reputation as a community bank
capable of responding promptly to customer needs, thereby distinguishing
ourselves from many regional and national banks. We also expect to
continue to respond to changes in technology to enable us to enhance our
level of customer service. For example, through our "Blue Wave" Internet
banking service, our deposit customers can check balances, transfer
funds, pay bills and order new checks electronically around the clock.
By offering these services to our customers, we believe we have
distinguished ourselves from many community banks in our market area.
In order to successfully execute our strategies and achieve our primary
business objectives we rely upon what we believe to be our primary strengths,
including:
- CUSTOMER SERVICE STANDARDS. We believe that our emphasis on local
relationship banking, our high level of customer service standards and
our employees' commitment to customer satisfaction have been important
factors in the success and growth of the Bank.
- GROWTH OPPORTUNITIES. As of March 31, 2000, our total loan portfolio
had grown to approximately $254.3 million. We believe our Johnson County
location presents significant opportunities to grow our loan portfolio
and deposit base. The U.S. Census Bureau recently reported that the job
growth in Johnson County, Kansas in 1998 was greater than in any other
county in the United States. We believe that our operating strategy, the
continued increase in the local employment base, the relatively affluent
residential population, and the banking needs in our market areas have
positioned us to facilitate further growth in our assets and deposit
base.
- INDEPENDENT COMMUNITY BANK. As a Johnson County-headquartered,
independent community bank, we believe we have certain competitive
advantages in our market area over many banks with a regional or
national focus, particularly during the current period of industry
consolidation. We
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continue to market our local decision-making structure to customers who
have become dissatisfied with larger banks that fail to address their
service expectations.
- EXPERIENCED MANAGEMENT TEAM. Each member of our six-person senior
management team has significant banking or banking-related experience.
In 1998, our President and Chief Executive Officer was named the "1998
Financial Entrepreneur of the Year -- Midwest Region" by Ernst & Young
LLP.
LENDING ACTIVITIES
Overview. Our principal loan categories include commercial, commercial
real estate, construction, indirect, leasing and residential mortgages. We also
offer a variety of consumer loans. Our primary source of income is interest
earned on our loan portfolio. As of March 31, 2000, our loans represented
approximately 76.22% of our total assets. Although our legal lending limit to
any one borrower was $7.2 million at March 31, 2000, our largest single borrower
as of that date had outstanding loans of $4.8 million.
We have been successful in expanding our loan portfolio because of the
commitment of our staff and the economic growth in our area of operation. Our
staff has significant experience in lending and has been successful in offering
our products to potential customers and existing customers. We believe that we
have been successful in maintaining our customers because of our staff's
attentiveness to the banking needs of our customers and the development of
personal relationships with them. We strive to become a strategic business
partner with our customers, not just a source of funds.
We conduct our lending activities pursuant to the loan policies adopted by
our board of directors. These policies currently require the approval of our
loan committee of all credits in excess of $300,000. Credits up to $300,000 can
be approved by the President or by the joint signatures of our Executive Vice
President and Chief Lending Officer, and Senior Vice President -- Mortgage
Banking. Our management information systems and loan review policies are
designed to monitor lending sufficiently to ensure adherence to our loan
policies. The following table shows the composition of our loan portfolio at
March 31, 2000.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
AS OF
MARCH 31, 2000
----------------------
AMOUNT PERCENT
---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial real estate...................................... $ 29,023 11.41%
Residential real estate..................................... 33,323 13.10
Commercial.................................................. 65,370 25.70
Personal.................................................... 42,620 16.76
Home equity................................................. 10,706 4.22
Construction................................................ 44,032 17.31
Leases...................................................... 29,251 11.50
--------- ------
Total loans and leases.................................... 254,325 100.00%
Less allowance for loan losses.............................. 3,995
---------
Loans receivable, net....................................... $ 250,330
=========
</TABLE>
Commercial loans. As of March 31, 2000, approximately $65.4 million, or
25.70%, of our loan portfolio represented commercial loans. The Bank has
developed a strong reputation in the servicing of small business and commercial
loans. We have expanded this portfolio through the addition of commercial
lending staff and as a result of our reputation. Commercial loans have
historically been a significant portion of our loan portfolio and we expect to
continue our emphasis on this loan category.
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The Bank's commercial lending activities historically have been directed to
small and medium-sized companies in the Kansas City MSA, focusing on Johnson
County, Kansas, with annual sales of between $100,000 and $20 million. The
Bank's commercial customers are primarily firms engaged in manufacturing,
service, retail, construction, distribution and sales with significant
operations in our market areas. The Bank's commercial loans are primarily
secured by real estate, accounts receivable, inventory and equipment, and the
Bank generally seeks to obtain personal guarantees for its commercial loans. As
of December 31, 1999, approximately 5.44% of the number of our commercial loans
had outstanding balances in excess of $300,000, and these loans accounted for
47.68% of the total carrying value of our commercial loan portfolio. The Bank
primarily underwrites its commercial loans on the basis of the borrowers' cash
flow and ability to service the debt, as well as the value of any underlying
collateral and the financial strength of any guarantors.
Approximately $4.0 million, or 6.13%, of our commercial loans are Small
Business Administration loans, of which $3.1 million is government guaranteed.
The SBA guarantees the repayment of a portion of the principal on these loans,
plus accrued interest on the guaranteed portion of the loan. Under the federal
Small Business Act, the SBA may guarantee up to 80% of qualified loans of
$100,000 or less and up to 75% of qualified loans in excess of $100,000, up to a
maximum guarantee of $750,000. We are an active SBA lender in our market area
and have been approved to participate in the SBA Certified Lender Program.
Commercial lending is subject to risks specific to the business of each
borrower. In order to address these risks, we seek to understand the business of
each borrower, place appropriate value on any personal guarantee or collateral
pledged to secure the loan, and structure the loan amortization to maintain the
value of any collateral during the term of the loan.
Commercial real estate loans. The Bank also makes loans to provide
permanent financing for retail and office buildings, multi-family buildings and
churches. As of March 31, 2000, approximately $29.0 million, or 11.41%, of our
loan portfolio represented commercial real estate mortgage loans. Our commercial
real estate mortgage loans are underwritten on the basis of the appraised value
of the property, the cash flow of the underlying property, and the financial
strength of any guarantors.
In 1999, the bank hired a full-time loan officer to focus on the
origination of permanent commercial real estate mortgage loans, the majority of
which are sold to third-party investors. We earn fee income on commercial real
estate mortgage loans that we originate for sale to third-party investors.
Risks inherent in commercial real estate lending are related to the market
value of the property taken as collateral, the underlying cash flows and
documentation. Commercial real estate lending involves more risk than
residential lending because loan balances may be greater and repayment is
dependent on the borrower's operations. We attempt to mitigate these risks by
carefully assessing property values, investigating the source of cash flow
servicing the loan on the property and adhering to our loan documentation
policy.
Construction loans. Our construction loans include loans to developers,
home building contractors and other companies and consumers for the construction
of single family homes, land development, and commercial buildings, such as
retail and office buildings and multi-family properties. As of March 31, 2000,
approximately $44.0 million, or 17.31%, of our loan portfolio represented real
estate construction loans. The builder and developer loan portfolio has been a
consistent and profitable component of our loan portfolio over our ten-year
history. We attribute this success to our availability and prompt service. The
Bank's experience and reputation in this area have enabled it to focus on
relationships with a smaller number of larger builders. The Bank's focus on
larger and more established builders has permitted it to increase the total
value of its real estate construction portfolio. Construction loans are made to
qualified builders to build houses to be sold following construction, pre-sold
houses and model houses. These loans are generally underwritten based upon
several factors, including the experience and current financial condition of the
borrowing entity, amount of the loan to appraised value, and general conditions
of the housing market. Construction loans are also made to individuals for whom
houses are being constructed by builders with whom the Bank has an existing
relationship. Those loans are made on the basis of the
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individual's financial condition, the loan to value ratio, the reputation of the
builder, and whether the individual will be pre-qualified for permanent
financing.
Risks related to construction lending include assessment of the market for
the finished product, reasonableness of the construction budget, ability of the
borrower to fund cost overruns, and the borrower's ability to liquidate and
repay the loan at a point when the loan-to-value ratio is the greatest. We seek
to manage these risks by, among other things, ensuring that the collateral value
of the property throughout the construction process does not fall below
acceptable levels, ensuring that funds disbursed are within parameters set by
the original construction budget, and properly documenting each construction
draw.
Indirect loans. A significant portion of our consumer loan portfolio
consists of indirect automobile loans offered through automobile dealerships
located primarily in our immediate market. The indirect loan portfolio consists
of approximately 2,800 loans. At March 31, 2000, loans representing 99.89% of
the portfolio balance were current, and the historical loss experience of this
portfolio is significantly lower than industry averages. At the period ended
March 31, 2000, the indirect loan portfolio had an overall loss experience of
0.15%, which is lower than the overall Bank loss experience of 0.46% in the
three months ended March 31, 2000. We cannot be sure whether our level of
charge-offs for indirect automobile loans in future periods will be consistent
with our historical levels of indirect automobile loan charge-offs. Much of the
growth in our indirect loan portfolio in 1999 resulted from the increase in the
number of loan officers and administrative staff. This allowed us to expand our
dealer relationships and expand our territory slightly. There are currently 26
dealerships participating in this program. As a result of the significant growth
over the past five years in our indirect automobile loan portfolio and
management's belief that our current level of investment in indirect automobile
loans as a percentage of our overall loan portfolio is appropriate, we do not
anticipate significant growth in this loan category in future periods. Our loans
made through this program generally represent loans to purchase new cars. Our
indirect loans are underwritten based on the borrower's income, current debt,
past credit history, collateral, and the reputation of the originating
dealership.
The primary risks related to our indirect loan portfolio include the value
of the automobile that serves as collateral and the financial strength and
employment stability of the borrower. Because automobiles depreciate rapidly,
our indirect automobile loans present a greater risk of loss than other types of
secured loans, like loans secured by residential real estate. We attempt to
mitigate these risks by understanding and documenting the value of the
collateral, the reputation of the originating dealership and the overall
creditworthiness of the borrower.
Lease financing. Our lease portfolio includes capital leases that we have
originated and leases that we have acquired from brokers or third parties. As of
March 31, 2000, our lease portfolio totaled $29.3 million, or 11.50% of our
total loan portfolio, consisting of $11.1 million principal amount of leases
originated by us and $18.2 million principal amount of leases that we purchased.
We provide lease financing for a variety of equipment and machinery, including
office equipment, heavy equipment, telephone systems, tractor trailers and
computers. Lease terms are generally from three to five years. In 1999, we
expanded our lease financing sales staff and administrative staff. As a result,
we have been able to acquire additional brokers and direct relationships.
Management believes this area is attractive because of its ability to provide a
source of both interest and fee income. Our leases are generally underwritten
based upon several factors, including the experience and current financial
condition of the lessee, amount of the financing to appraised value, and general
conditions of the market.
Of our lease portfolio at March 31, 2000, $5.1 million, or 17.49%,
represented leases that Blue Valley Investment acquired on February 1, 1999 for
approximately $12 million from National Retailer Leasing ("NRL"), a tanker truck
leasing company involved in bankruptcy proceedings. These leases represent
leases of tanker trucks used to transport fuel. Many of these tanker trucks are
used at airports and similar locations. Of the total number of leases acquired
by Blue Valley Investment, approximately $8.7 million in principal amount
represented leases that satisfied the Bank's underwriting criteria for leases,
and were purchased by the Bank from Blue Valley Investment. The remaining NRL
assets held by Blue Valley
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Investment totaling $3.3 million represented leases that had defaults or
delinquencies at the time of purchase. However, as of March 31, 2000, the total
amount of these leases reflected on the balance sheet of Blue Valley Investment
has been paid down to $919,000 and is supported by lease paper which is now
current. In 1999, interest income from these leases was $1.4 million. We expect
our interest income from the NRL leases to decline over the next two years as
the portfolio matures.
The primary risks related to our lease portfolio are the value of the
underlying collateral and specific risks related to the business of each
borrower. To address these risks, we attempt to understand the business of each
borrower, value the underlying collateral appropriately and structure the loan
amortization to maintain the value of the collateral during the term of the
lease.
Residential mortgage loans. Our residential mortgage loan portfolio
consists primarily of first and second mortgage loans on residential properties.
As of March 31, 2000, $44.0 million, or 17.31%, of our loan portfolio
represented residential mortgage loans. In 1999, we originated approximately
$85.6 million of residential mortgage loans, of which we sold approximately
$82.4 million, or 96.26%, in the secondary market. The terms of these loans are
for 15, 20 or 30 years, and accrue interest at a fixed or variable rate. Due to
interest rate risk considerations, we generally sell our fixed rate residential
mortgage loans in the secondary market. For our own portfolio, we typically
originate fixed-rate loans with a balloon payment in 2-5 years with 15 to 30
year amortizations. By offering these products, we can offer credit to
individuals who are self-employed or have significant income from partnerships
or investments, who are often unable to satisfy the underwriting criteria
permitting the sale of their mortgages into the secondary market.
We originate conventional first mortgage loans primarily through referrals
from real estate brokers, builders, developers, prior customers and media
advertising. In addition, since 1999, we have offered customers the ability to
apply for mortgage loans and to pre-qualify for mortgage loans over the Internet
through our electronic banking service. To date, mortgage loans originated over
the Internet have not represented a material amount of our mortgage loan
originations. However, we expect Internet mortgage loan originations to increase
over the next several years at a more rapid rate than our overall mortgage loan
originations. The origination of a mortgage loan from the date of initial
application through closing normally takes 15 to 60 days. We acquire forward
commitments to sell mortgage loans on those that we intend to sell into the
secondary market to reduce market risk on mortgage loans in the process of
origination and those held for sale.
Our mortgage loan credit review process is consistent with the standards
set by traditional secondary market sources. We review appraised value and debt
service ratios, and we gather data during the underwriting process in accordance
with various laws and regulations governing real estate lending. We require
pre-approval from secondary market sources before we approve loans to be sold
into the secondary market. Our internal approval process is less stringent for
loans pre-approved by our secondary market sources, which we believe allows us
to be more responsive to the tight time commitments necessary for locking in
interest rates in the secondary market.
Loans originated by the Bank are sold with servicing released to increase
current income and reduce the costs associated with retaining servicing rights.
Commitments are obtained from the appropriate investor on a loan-by-loan basis
on a 30, 45 or 60 day delivery commitment. Interest rates are committed to the
borrower when a rate commitment is obtained from the investor. Loans are funded
by the Bank and purchased by the investor within 30 days following closing
pursuant to commitments obtained at the time of origination. We sell
conventional conforming loans and all loans that are non-conforming as to credit
quality to secondary market investors for cash on a non-recourse basis.
Consequently, foreclosure losses on all sold loans are generally the
responsibility of the investor and not that of the Bank.
As with other loans to individuals, the risks related to residential
mortgage loans include primarily the value of the underlying property and the
financial strength and employment stability of the borrower. We attempt to
manage these risks by performing a pre-funding quality control review that
consists of the verification of employment and utilizes a detailed checklist of
loan qualification requirements, including the source and amount of down
payments, bank accounts, existing debt and overall credit.
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Consumer and other loans. As of March 31, 2000, our consumer and other
loans totaled $42.6 million, or 16.76%, of our total loan portfolio.
Substantially all of this amount consisted of installment loans to individuals
in our market area. Installment lending offered directly by the Bank in our
market area includes automobile loans, recreational vehicle loans, home
improvement loans and unsecured lines of credit and other loans, to
professionals, people in education, industry and government, as well as retired
individuals and others. Since 1999, we have offered customers the ability to
apply for consumer loans, personal lines of credit and overdraft protection
lines of credit over the Internet through our electronic banking services. To
date, consumer loans originated over the Internet have not represented a
material amount of our consumer loan portfolio. Our consumer and other loans are
underwritten based on the borrower's income, current debt, past credit history
and collateral.
Consumer loans are subject to the same risks as other loans to individuals,
including the financial strength and employment stability of the borrower. In
addition, many consumer loans are subject to the additional risk that the loan
is not secured by collateral. For some of the loans that are secured, the
underlying collateral may be rapidly depreciating and not provide an adequate
source of repayment if we are required to repossess the collateral. We attempt
to mitigate these risks by requiring a down payment and carefully verifying and
documenting the borrower's credit quality, employment stability and monthly
income.
INVESTMENT ACTIVITIES
The objectives of our investment policy are to:
- secure the safety of principal;
- provide adequate liquidity;
- provide securities for use in pledging for public funds or repurchase
agreements; and
- maximize after-tax income consistent with servicing the Bank's
customers' needs.
We invest primarily in direct obligations of the United States, obligations
guaranteed as to principal and interest by the United States, obligations of
agencies of the United States and bank-qualified obligations of state and local
political subdivisions. In order to ensure the safety of principal, we typically
do not invest in mortgage-backed securities and other higher-yielding
instruments. We also may invest from time to time in corporate debt or other
securities as permitted by our investment policy. In addition, we enter into
federal funds transactions with our principal correspondent banks, and primarily
act as a net seller of these funds. The sale of federal funds are effectively
short-term loans from us to other banks.
Our investment accounts also include minimal equity investments in the
Federal Home Loan Bank ("FHLB"). We invest in FHLB in order to be a member,
which qualifies us to use their services, including FHLB borrowings. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources."
DEPOSIT SERVICES
The principal sources of funds for the Bank are core deposits from the
local market areas surrounding the Bank's offices, including demand deposits,
interest-bearing transaction accounts, money market accounts, savings deposits
and certificates of deposit of less than $100,000. Transaction accounts include
interest-bearing and non-interest-bearing accounts which provide the Bank with a
source of fee income and cross-marketing opportunities as well as a low-cost
source of funds. The Bank also offers two types of short-term investment
accounts. The Bank's money market account is a daily access account that has a
higher rate than a personal interest-bearing checking account and allows for
limited check-writing ability. A significant portion of our deposit growth
during 1999 is attributable to a new money market deposit product, our money
management account, or "short-term parking account," introduced by the Bank in
the fourth quarter of 1998. The money management account provides a hybrid of
the features available from a traditional money market account and a traditional
time deposit. The account requires a minimum balance
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of $10,000 and allows for daily deposits but limits withdrawals to the 15th and
last days of each month. This account pays a rate of interest which is higher
than a customer could receive on a traditional money market account but lower
than the rates generally available on certificates of deposit. We believe that
the trade-off to depositors between higher interest rates but more limited
access to withdrawals has proven to be an attractive product in our market areas
and provides us with a more attractive source of funds than other alternatives
such as Federal Home Loan Bank borrowings, due to our ability to cross-sell
additional services to these account holders. Time and savings accounts also
provide a relatively stable and low cost source of funding. In 1999, the Bank
changed its policy to allow for acceptance of brokered deposits which can be
utilized to support the growth of the Bank. As of March 31, 2000, the Bank had
$862,000 in brokered deposits, and the Bank does not anticipate brokered
deposits becoming a meaningful percentage of its deposit base. In pricing
deposit rates, management considers profitability, the matching of term lengths
with assets, the attractiveness to customers and rates offered by our
competitors.
INVESTMENT BROKERAGE SERVICES
In 1999, the Bank began offering investment brokerage services through an
unrelated broker-dealer. These services are currently offered at our Overland
Park, Shawnee and Olathe offices and will be offered at our full-service,
free-standing facility in Shawnee when it opens in the third quarter of 2000.
One of the individuals responsible for providing these services is a joint
employee of the Bank and the registered broker-dealer, and the second individual
is employed by the broker-dealer under contract to the Bank. Investment
brokerage services provide a source of fee income for the Bank. In 1999, the
amount of our fee income generated from investment brokerage services was
$30,000, but management anticipates that this will increase significantly in
future years.
TRUST SERVICES
We began offering trust services in 1996. Until 1999, the Bank's trust
services were offered exclusively through the employees of an unaffiliated trust
company. The Bank hired a full-time officer in 1999 to develop the Bank's trust
business. Trust customers are both existing Bank customers and new customers. We
believe that the ability to offer trust services as a part of our complement of
financial services to new customers of the Bank presents a significant
cross-marketing opportunity. The services currently offered by the Bank's trust
department include the administration of self-directed individual retirement
accounts, qualified retirement plans, custodial and directed trust accounts. The
Bank also offers investment advisory services with the assistance of the
unaffiliated trust company. As of March 31, 2000, the Bank's trust department
administered 85 accounts, with assets under management of approximately $23.0
million. Trust services provide the Bank with a source of fee income and
additional deposits. In 1999, the amount of our fee income from trust services
was $103,000, but management anticipates that this will increase significantly
in future years.
COMPETITION
We encounter competition primarily in seeking deposits and in obtaining
loan customers. The level of competition for deposits in our market area and
nationally is quite high. Our principal competitors for deposits are other
financial institutions within a few miles of our locations, including other
banks, savings institutions and credit unions. Competition among these
institutions is based primarily on interest rates offered, the quality of
service provided, and the convenience of banking facilities. Additional
competition for depositors' funds comes from U.S. government securities, private
issuers of debt obligations and suppliers of other investment alternatives for
depositors.
We compete in our lending, investment brokerage and trust activities with
other financial institutions, such as banks and thrift institutions, credit
unions, automobile financing companies, mortgage companies, securities firms,
investment companies and other finance companies. Many of our competitors are
not subject to the same extensive federal regulations that govern bank holding
companies and federally insured banks and state regulations governing state
chartered banks. As a result, these non-bank competitors have
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advantages over us in providing certain services. Many of the financial
institutions with which we compete are larger than us with greater financial
resources, name recognition and market presence.
EMPLOYEES
As of March 31, 2000, the Bank had approximately 122 full-time employees.
Blue Valley, Blue Valley Building and Blue Valley Investment do not have any
full-time employees. None of the employees of the Bank is subject to a
collective bargaining agreement. We consider the Bank's relationship with its
employees to be excellent.
LEGAL PROCEEDINGS
We are involved from time to time in routine litigation incidental to our
business. We do not believe that we are a party to any material pending
litigation that in our opinion is likely to have a material adverse effect on
our consolidated financial condition, results of operations or cash flows.
PROPERTIES
The Bank's principal office occupies 2.40 acres of ground on the corner of
119(th) and Riley streets in Overland Park, Kansas. The construction of the
building was completed in 1994 and consists of 38,031 square feet. The building
and land are subject to third-party mortgage indebtedness in the original
principal amount of $2.5 million. As of December 31, 1999, the outstanding
principal amount of this indebtedness was $1.9 million.
The Bank's Olathe, Kansas office occupies 0.93 acres of ground on the
corner of Santa Fe and Ridgeview Streets. The construction of the building was
completed in 1973, and consists of 4,116 square feet.
The Bank's Shawnee, Kansas office currently occupies 425 square feet in a
grocery store located at Highway K-7 and 55th Street. The Bank leases this space
from CMI, Inc. under a lease with a primary term through January 18, 2002. The
Bank expects that its permanent facility in Shawnee, Kansas will be completed
during the third quarter of 2000. When completed, the building will consist of
4,000 square feet and will occupy 0.85 acres of land.
In 1998, the Bank purchased approximately 1.34 acres of undeveloped land on
the corners of K68 and US 69 Highway in Louisburg, Kansas, just south of Johnson
County for potential future development as a full-service branch.
BVBC CAPITAL TRUST I
BVBC Trust is a Delaware business trust. BVBC Trust will exist solely to:
- issue and sell its common securities to us;
- issue and sell its trust preferred securities to the public;
- use the proceeds from the sale of its common securities and trust
preferred securities to purchase the junior subordinated debentures from
us;
- distribute the cash payments it receives on the junior subordinated
debentures it owns to the holders of the preferred and common
securities; and
- engage in other activities that are necessary or incidental to these
purposes.
REGULATION AND SUPERVISION
Blue Valley and its subsidiaries are extensively regulated under both
federal and state laws. Laws and regulations to which Blue Valley and the Bank
are subject govern, among other things, the scope of business, investments,
reserve levels, capital levels relative to operations, the nature and amount of
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collateral for loans, the establishment of branches, mergers and consolidations
and the payment of dividends. These laws and regulations are intended to protect
depositors, not stockholders. Any change in applicable laws or regulations may
have a material effect on Blue Valley's business and prospects, and legislative
and policy changes may affect Blue Valley's operations. Blue Valley cannot
predict the nature or the extent of the effects on its business and earnings
that fiscal or monetary policies, economic controls or new federal or state
legislation may have in the future.
The following references to statutes and regulations affecting Blue Valley
and the Bank are brief summaries only and do not purport to be complete and are
qualified in their entirety by reference to the statutes and regulations.
RECENT LEGISLATION
The enactment of legislation described below has significantly affected the
banking industry generally and will have an on-going effect on Blue Valley and
its subsidiaries in the future.
GRAMM-LEACH-BLILEY ACT. The President signed the Gramm-Leach-Bliley Act
into law on November 12, 1999. This major banking legislation expands the
permissible activities of bank holding companies such as Blue Valley by
permitting them to engage in activities, or affiliate with entities that engage
in activities, that are "financial in nature." Activities that the Act expressly
deems to be financial in nature include, among other things, securities and
insurance underwriting and agency, investment management and merchant banking.
The Federal Reserve and the Treasury Department, in cooperation with one
another, must determine what additional activities are "financial in nature."
With certain exceptions, the Gramm-Leach-Bliley Act similarly expands the
authorized activities of subsidiaries of national banks. The provisions of the
Gramm-Leach-Bliley Act authorizing the expanded powers became effective March
11, 2000.
Bank holding companies that intend to engage in the newly authorized
activities must elect to become "financial holding companies." Financial holding
company status is only available to a bank holding company if all of its
affiliated depository institutions are "well capitalized" and "well managed,"
based on applicable banking regulations, and have a Community Reinvestment Act
rating of at least "a satisfactory record of meeting community credit needs."
Financial holding companies and banks may continue to engage in activities that
are financial in nature only if they continue to satisfy the well capitalized
and well managed requirements. Bank holding companies that do not elect to be
financial holding companies or that do not qualify for financial holding company
status may engage only in non-banking activities deemed "closely related to
banking" prior to adoption of the Gramm-Leach-Bliley Act.
The Act also calls for "functional regulation" of financial services
businesses in which functionally regulated subsidiaries of bank holding
companies will continue to be regulated by the regulator that ordinarily has
supervised their activities. As a result, state insurance regulators will
continue to oversee the activities of insurance companies and agencies, and the
Securities and Exchange Commission will continue to regulate the activities of
broker-dealers and investment advisers, even where the companies or agencies are
affiliated with a bank holding company. Federal Reserve authority to examine and
adopt rules regarding functionally regulated subsidiaries is limited. The Act
repeals some of the exemptions enjoyed by banks under federal securities laws
relating to securities offered by banks and licensing of broker-dealers and
investment advisers.
The Gramm-Leach-Bliley Act imposes a new "affirmative and continuing"
obligation on all financial service providers (not just banks and their
affiliates) to safeguard consumer privacy and requires federal and state
regulators, including the Federal Reserve and the FDIC, to establish standards
to implement this privacy obligation. With certain exceptions, the Act prohibits
banks from disclosing to non-affiliated parties any non-public personal
information about customers unless the bank has provided the customer with
certain information and the customer has had the opportunity to prohibit the
bank from sharing the information with non-affiliates. The new privacy
obligations become effective six months after the federal banking agencies adopt
regulations establishing the privacy standards.
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Finally, the Act prevents companies engaged in commercial activities from
acquiring savings institutions, requires public disclosure of any agreements
between a depository institution and community groups regarding the
institution's Community Reinvestment Act record, adopts amendments designed to
modernize the Federal Home Loan Bank System and requires operators of automatic
teller machines to disclose any fees charged to non-customers that use the
machines.
The Gramm-Leach-Bliley Act will be the subject of extensive rule making by
federal banking regulators and others. The effects of this legislation will only
begin to be understood over the next several years and at this time cannot be
predicted with any certainty.
ECONOMIC GROWTH AND REGULATORY PAPERWORK REDUCTION ACT OF 1996. The
Economic Growth and Regulatory Paperwork Reduction Act of 1996 became law on
September 30, 1996. This Act streamlined the non-banking activities application
process for well-capitalized and well-managed bank holding companies by
permitting qualified bank holding companies to commence an approved non-banking
activity without prior notice to the Federal Reserve, although written notice is
required within 10 days after commencing the activity. Also, the Act reduced the
prior notice period to 12 days in the event of any non-banking acquisition or
share purchase, assuming the size of the acquisition does not exceed 10% of
risk-weighted assets of the acquiring bank holding company and the consideration
does not exceed 15% of a bank holding company's Tier 1 capital. Among other
matters, the Economic Growth and Regulatory Paperwork Reduction Act also:
- Provided for the recapitalization of the Savings Association Insurance
Fund of the FDIC (most of the members of which are, or were formerly,
savings associations or savings banks) in order to bring it into parity
with the FDIC's Bank Insurance Fund;
- Amended the Federal Fair Credit Reporting Act;
- Eliminated prior federal regulatory approval requirements for new
officers and directors for recently organized banks and banks that have
recently undergone a change of control;
- Amended the laws governing loans to bank insiders to permit them to
participate in employee-wide programs offered by the bank; and
- Amended laws governing officer and director interlocks among
unaffiliated depository institutions to permit such interlocks under a
greater number of circumstances.
RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994. The
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 authorized
bank holding companies to expand, by acquiring existing banks, into all states,
even those which had theretofore restricted entry. The legislation also provides
that a holding company may convert the banks it owns in different states to
branches of a single bank, unless a state has elected to prohibit these
interstate transactions. Statewide branching is permitted under Kansas law,
however, out of state banks may establish branches in Kansas only through
mergers with banks already located in Kansas. The federal legislation also
establishes limits on acquisitions by large banking organizations, providing
that no acquisition may be undertaken if it would result in the organization
having deposits exceeding either 10% of all bank deposits in the United States
or 30% of the bank deposits in the state in which the acquisition would occur.
BANK HOLDING COMPANY REGULATION
Blue Valley is a bank holding company registered under the Bank Holding
Company Act of 1956. Under the Bank Holding Company Act, Blue Valley is subject
to periodic examination by the Federal Reserve and is required to file periodic
reports of its operations and such additional information as the Federal Reserve
may require.
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INVESTMENTS AND ACTIVITIES. A bank holding company must obtain approval
from the Federal Reserve before:
- Acquiring, directly or indirectly, ownership or control of any voting
shares of another bank or bank holding company if, after the
acquisition, it would own or control more than 5% of the shares of the
bank or bank holding company (unless it already owns or controls the
majority of the shares);
- Acquiring all or substantially all of the assets of another bank or bank
holding company; or
- Merging or consolidating with another bank holding company.
The Federal Reserve will not approve any acquisition, merger or
consolidation that would have a substantially anticompetitive result unless the
anticompetitive effects of the proposed transaction are clearly outweighed by a
greater public interest in meeting the convenience and needs of the community to
be served. The Federal Reserve also considers capital adequacy and other
financial and managerial factors in reviewing acquisitions or mergers.
With certain exceptions, a bank holding company is also prohibited from:
- Acquiring or retaining direct or indirect ownership or control of more
than 5% of the voting shares of any company that is not a bank or bank
holding company; and
- Engaging, directly or indirectly, in any business other than that of
banking, managing and controlling banks or furnishing services to banks
and their subsidiaries.
Bank holding companies may, however, engage in businesses found by the
Federal Reserve to be closely related to the business of banking or of managing
or controlling banks. These activities include making or servicing loans and
certain types of leases, engaging in certain insurance and discount brokerage
activities, performing certain data processing services, acting in certain
circumstances as a fiduciary or investment or financial advisor, owning savings
associations and making investments in corporations or projects designed to
promote community welfare. Blue Valley would be authorized to engage in the
expanded activities permitted under the Gramm-Leach-Bliley Act if it elects to
become a "financial holding company" and otherwise qualifies for financial
holding company status.
Finally, subject to certain exceptions, the Bank Holding Company Act and
the Change in Bank Control Act, and the Federal Reserve's implementing
regulations, require Federal Reserve approval prior to any acquisition of
"control" of a bank holding company, such as Blue Valley. In general, a person
or company is presumed to have acquired control if it acquires 10% of the
outstanding shares of a bank or bank holding company and is conclusively
determined to have acquired control if it acquires 25% or more of the
outstanding shares of a bank or bank holding company.
SOURCE OF STRENGTH. The Federal Reserve expects Blue Valley to act as a
source of financial strength and support for the Bank and to take measures to
preserve and protect the Bank in situations where additional investments in the
Bank may not otherwise be warranted. The Federal Reserve may require a bank
holding company to terminate any activity or relinquish control of a non-bank
subsidiary (other than a non-bank subsidiary of a bank) upon the Federal
Reserve's determination that the activity or control constitutes a serious risk
to the financial soundness or stability of any subsidiary depository institution
of the bank holding company. Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to divest itself of any
bank or non-bank subsidiary if the agency determines that divestiture may aid
the depository institution's financial condition. Blue Valley Building is Blue
Valley's only direct subsidiary that is not a bank.
CAPITAL REQUIREMENTS. The Federal Reserve uses capital adequacy guidelines
in its examination and regulation of bank holding companies and banks. If the
capital falls below minimum guideline levels, a bank holding company, among
other things, may be denied approval to acquire or establish additional banks or
non-bank businesses. The Federal Reserve's capital guidelines establish a
risk-based requirement expressed as a percentage of total risk-weighted assets
and a leverage requirement expressed as a percentage of total assets. The
risk-based requirement consists of a minimum ratio of total capital to total
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risk-weighted assets of 8%, of which at least one-half must be Tier 1 capital
(which consists principally of stockholders' equity). The leverage requirement
consists of a minimum ratio of Tier 1 capital to total assets of 3%.
The risk-based and leverage standards presently used by the Federal Reserve
are minimum requirements, and higher capital levels may be required if warranted
by the particular circumstances or risk profiles of individual banking
organizations. Further, any banking organization experiencing or anticipating
significant growth would be expected to maintain capital ratios, including
tangible capital positions, which is Tier 1 capital less all intangible assets,
well above the minimum levels.
DIVIDENDS. The Federal Reserve has issued a policy statement concerning
the payment of cash dividends by bank holding companies. The policy statement
provides that a bank holding company experiencing earnings weaknesses should not
pay cash dividends exceeding its net income or which could only be funded in
ways that weakened the bank holding company's financial health, such as by
borrowing. Also, the Federal Reserve possesses enforcement powers over bank
holding companies and their non-bank subsidiaries to prevent or remedy actions
that represent unsafe or unsound practices or violations of applicable statutes
and regulations. Among these powers is the ability to proscribe the payment of
dividends by banks and bank holding companies.
BANK REGULATIONS
The Bank operates under a Kansas state bank charter and is subject to
regulation by the Kansas Banking Department and the FDIC. The Kansas Banking
Department and the FDIC regulate or monitor all areas of the Bank's operations,
including capital requirements, issuance of stock, declaration of dividends,
interest rates, deposits, record keeping, establishment of branches,
acquisitions, mergers, loans, investments, borrowing, security devices and
procedures and employee responsibility and conduct. The Kansas Banking
Department places limitations on activities of the Bank including the issuance
of capital notes or debentures and the holding of real estate and personal
property and requires the Bank to maintain a certain ratio of reserves against
deposits. The Kansas Banking Department requires the Bank to file a report
annually showing receipts and disbursements of the Bank, in addition to any
periodic report requested.
DEPOSIT INSURANCE. The FDIC, through its Bank Insurance Fund, insures the
Bank's deposit accounts to a maximum of $100,000 for each insured depositor. The
FDIC, through its Savings Association Insurance Fund, insures certain deposit
accounts acquired by the Bank in 1994 from a branch of a failed savings
institution. These deposit accounts are insured to a maximum of $100,000 for
each insured depositor. The FDIC bases deposit insurance premiums on the
perceived risk each bank presents to its deposit insurance fund and currently
range from zero (for banks in the lowest risk-based premium category) to 27
cents for each $100 of insured deposits (for banks in the highest risk-based
premium category). In addition, all Bank Insurance Fund-insured and Savings
Association Insurance Fund-insured institutions currently pay an assessment of
2.08 cents for each $100 of insured deposits to service debt issued by the
Financing Corporation, a federal agency established to finance the
recapitalization of the former Federal Savings and Loan Insurance Corporation.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management is not aware of any activity or condition
that could result in termination of the deposit insurance of the Bank.
CAPITAL REQUIREMENTS. The FDIC has established the following minimum
capital standards for state-chartered, insured non-member banks, such as the
Bank: (1) a leverage requirement consisting of a minimum ratio of Tier 1 capital
to total assets of 3%; and (2) a risk-based capital requirement consisting of a
minimum ratio of total capital to total risk-weighted assets of 8%, at least
one-half of which must be
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Tier 1 capital. These capital requirements are minimum requirements, and higher
capital levels may be required if warranted by the particular circumstances or
risk profiles of individual institutions.
The federal banking regulators also have broad power to take "prompt
corrective action" to resolve the problems of undercapitalized institutions. The
extent of the regulators' powers depends upon whether the institution in
question is "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Under the
prompt corrective action rules, an institution is:
- "Well-capitalized" if the institution has a total risk-based capital
ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater, and a leverage ratio of 5% or greater, and the institution is
not subject to an order, written agreement, capital directive, or prompt
corrective action directive to meet and maintain a specific capital
level for any capital measure;
- "Adequately capitalized" if the institution has a total risk-based
capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4%
or greater, and a leverage ratio of 4% or greater;
- "Undercapitalized" if the institution has a total risk-based capital
ratio that is less than 8%, a Tier 1 risk-based capital ratio that is
less than 4%, or a leverage ratio that is less than 4%;
- "Significantly undercapitalized" if the institution has a total
risk-based capital ratio that is less than 6%, a Tier 1 risk-based
capital ratio that is less than 3%, or a leverage ratio that is less
than 3%; and
- "Critically undercapitalized" if the institution has a ratio of tangible
equity to total assets that is equal to or less than 2%.
The federal banking regulators must take prompt corrective action with
respect to capital deficient institutions. Depending upon the capital category
to which an institution is assigned, the regulators' corrective powers include:
- Placing limits on asset growth and restrictions on activities, including
the establishing of new branches;
- Requiring the institution to issue additional capital stock (including
additional voting stock) or to be acquired;
- Restricting transactions with affiliates;
- Restricting the interest rate the institution may pay on deposits;
- Requiring that senior executive officers or directors be dismissed;
- Requiring the institution to divest subsidiaries;
- Prohibiting the payment of principal or interest on subordinated debt;
and
- Appointing a receiver for the institution.
Companies controlling an undercapitalized institution are also required to
guarantee the subsidiary institution's compliance with the capital restoration
plan subject to an aggregate limitation of the lesser of 5% of the institution's
assets at the time it received notice that it was undercapitalized or the amount
of the capital deficiency when the institution first failed to meet the plan.
The Federal Deposit Insurance Act generally requires the appointment of a
conservator or receiver within 90 days after an institution becomes critically
undercapitalized.
As of March 31, 2000, the Bank had capital in excess of the requirements
for a "well-capitalized" institution.
INSIDER TRANSACTIONS. The Bank is subject to restrictions on extensions of
credit to executive officers, directors, principal stockholders or any related
interest of these persons. Extensions of credit must be made on substantially
the same terms, including interest rates and collateral as the terms available
for third
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parties and must not involve more than the normal risk of repayment or present
other unfavorable features. The Bank is also subject to lending limits and
restrictions on overdrafts to these persons.
COMMUNITY REINVESTMENT ACT REQUIREMENTS. The Community Reinvestment Act of
1977 requires that, in connection with examinations of financial institutions
within their jurisdiction, the federal banking regulators must evaluate the
record of the financial institutions in meeting the credit needs of their local
communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of those banks. These factors are also considered
in evaluating mergers, acquisitions and applications to open a branch or
facility. In its most recent examination, the Bank received a rating of
"outstanding record of meeting community credit needs." This is the highest
rating a bank may receive.
STATE BANK ACTIVITIES. With limited exceptions, FDIC-insured state banks,
like the Bank, may not make or retain equity investments of a rate or in an
amount that are not permissible for national banks and also may not engage as a
principal in any activity that is not permitted for a national bank or its
subsidiary, respectively, unless the bank meets, and continues to meet, its
minimum regulatory capital requirements and the FDIC determines that the
activity would not pose a significant risk to the deposit insurance fund of
which the bank is a member.
REGULATIONS GOVERNING EXTENSIONS OF CREDIT. The Bank is subject to
restrictions on extensions of credit to Blue Valley and on investments in Blue
Valley's securities and using those securities as collateral for loans. These
regulations and restrictions may limit Blue Valley's ability to obtain funds
from the Bank for its cash needs, including funds for acquisitions and for
payment of dividends, interest and operating expenses. Further, the Bank Holding
Company Act and Federal Reserve regulations prohibit a bank holding company and
its subsidiaries from engaging in various tie-in arrangements in connection with
extensions of credit, leases or sales of property or furnishing of services.
RESERVE REQUIREMENTS. The Federal Reserve requires all depository
institutions to maintain reserves against their transaction accounts and
non-personal time deposits. Reserves of 3% must be maintained against net
transaction accounts of $44.3 million or less (subject to adjustment by the
Federal Reserve) and an initial reserve of $1,329,000 plus 10% (subject to
adjustment by the Federal Reserve to a level between 8% and 14%) must be
maintained against that portion of net transaction accounts in excess of this
amount. The balances maintained to meet the reserve requirements imposed by the
Federal Reserve may be used to satisfy liquidity requirements.
OTHER REGULATIONS
Interest and various other charges collected or contracted for by the Bank
are subject to state usury laws and other federal laws concerning interest
rates. The Bank's loan operations are also subject to federal laws applicable to
credit transactions. The federal Truth in Lending Act governs disclosures of
credit terms to consumer borrowers. The Home Mortgage Disclosure Act of 1975
requires financial institutions to provide information to enable the public and
public officials to determine whether a financial institution is fulfilling its
obligation to help meet the housing needs of the community it serves. The Equal
Credit Opportunity Act prohibits discrimination on the basis of race, creed or
other prohibited factors in extending credit. The Fair Credit Reporting Act of
1978 governs the use and provision of information to credit reporting agencies.
The Fair Debt Collection Act governs the manner in which consumer debts may be
collected by collection agencies. The various federal agencies charged with the
responsibility of implementing these federal laws have adopted various rules and
regulations. The deposit operations of the Bank are also subject to the Right to
Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial records, and the Electronic Funds Transfer
Act, and Regulation E issued by the Federal Reserve to implement that Act, which
govern automatic deposits to and withdrawals from the use of ATMs and other
electronic banking services.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Blue Valley board of directors is divided into three classes as nearly
equal in number as the total number of directors constituting the entire board
of directors permits. In order to implement this staggered board, at the 2000
annual meeting, the directors of class 1 were elected to hold office for a term
of one year, the directors of class 2 were elected to hold office for a term of
two years, and the directors of class 3 were elected to hold office for a term
of three years. Thereafter, at each succeeding annual meeting, the directors of
each class that are elected will serve a three-year term, and will continue to
hold office until their successors are elected and qualified. All of our
directors are also directors of the Bank, except Messrs. Henry and McDonnell.
Ms. Dotson and Messrs. Bodker and Stein are directors of the Bank, but not of
Blue Valley. Each of our directors has been elected for a term to expire at the
next annual meeting. None of our executive officers have employment contracts
assuring continued employment.
For each of our directors, the additional directors of the Bank and our
executive officers, we have set forth below their ages as of April 30, 2000, and
their principal positions with Blue Valley.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Directors
Robert D. Regnier.................... 51 President, Chief Executive Officer and Chairman of the
Board of Directors of Blue Valley; President, Chief
Executive Officer
and Director of the Bank
Donald H. Alexander.................. 61 Director of Blue Valley and the Bank
Wayne A. Henry, Jr................... 47 Director of Blue Valley
C. Ted McCarter...................... 63 Director of Blue Valley and Chairman of the Board of
Directors of the Bank
Thomas A. McDonnell.................. 54 Director of Blue Valley
Additional Directors of the Bank
Harvey S. Bodker..................... 64 Director of the Bank
Suzanne E. Dotson.................... 53 Director of the Bank
Stewart M. Stein..................... 49 Director of the Bank
Executive Officers who are not
Directors
John K. Doull........................ 39 Executive Vice President and Chief
Lending Officer of the Bank
Mark A. Fortino...................... 33 Senior Vice President and Chief
Financial Officer of the Bank;
Treasurer of Blue Valley
Nancy A. Taylor...................... 56 Senior Vice President - Mortgage
Banking of the Bank
Penny T. Hershman.................... 56 Senior Vice President - Retail
Banking and Director of Marketing
of the Bank
Bonnie M. McConnaughy................ 40 Vice President and Cashier of the
Bank
</TABLE>
Below we have provided information regarding the principal occupations and
business experience of each director and executive officer of Blue Valley and
the additional directors of the Bank named above.
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Unless otherwise indicated, each person has held the indicated positions for at
least the past five years. Except as otherwise indicated below, there are no
reportable family relationships among our directors and executive officers.
ROBERT D. REGNIER has been a director and the President and Chief Executive
Officer of Blue Valley and the Bank since their formation in 1989. He has also
been the sole director and President and Chief Executive Officer of Blue Valley
Investment since its formation in 1995, and of Blue Valley Building since its
formation in 1994. Prior to joining Blue Valley, Mr. Regnier held various
managerial positions with Boatmen's Bank and Trust and Boatmen's First National
Bank of Kansas City. Mr. Regnier has nearly 30 years of experience in a number
of banking areas, including lending, investments, personnel, administration,
trust, operations, new business development and mergers.
DONALD H. ALEXANDER has been a director of Blue Valley and member of its
Audit Committee since 1992. Mr. Alexander has also been a director of the Bank
since its formation in 1989. Mr. Alexander is a private investor with a
background in commercial banking. In addition to his positions with Blue Valley
and the Bank, Mr. Alexander has also been Chairman of Ventaire Corporation in
Tulsa, Oklahoma, a metal fabrication company, since 1989; Chairman of Tulsa
Power, LLC in Tulsa, Oklahoma, a machinery fabrication company, since 1988;
Chairman of Huebert Fiberboard Corp. in Boonville, Missouri, a manufacturing
company, since 1996; a director of BHA Group, Inc. in Raytown, Missouri, an air
pollution control equipment manufacturer, since 1986; and President and director
of Alexander & Associates, Inc. in Kansas City, Missouri, a private investment
company, since 1987.
WAYNE A. HENRY, JR. has been a director of Blue Valley since 1992. Mr.
Henry has also been the President and Treasurer and a director of Personal
Financial Designs, Inc. in Holden Missouri, a registered investment advisory
firm providing portfolio management and financial planning services, since 1986.
Mr. Henry is a licensed financial planning practitioner and has served on the
board of directors of the Kansas City Chapter of the International Association
of Financial Planning and as President and Chairman of the Heart of America
Society of the Institute of Certified Financial Planners.
C. TED MCCARTER has been a director of Blue Valley since 1992. Mr. Carter
has also been the Chairman of the board of directors of the Bank and a member of
the Loan Committee, Trust Committee and Audit Committee of the Bank since 1990.
He has served as the Chairman of Agency Premium Resource in Lenexa, Kansas, an
insurance premium finance company, since 1990; the Chairman and President of
Valley Investment Co. in Mission Woods, Kansas, a consulting company, since
1990; a director and co-owner of Huebert Fiberboard Co. in Boonville, Missouri,
a manufacturing company, since 1990; and a director and co-owner of Emco
Specialty Products, Inc. in Kansas City, Kansas, a manufacturing company, since
1990. Mr. McCarter has a background in commercial banking having served as
President, Chief Executive Officer, and director of Boatmen's Bank in Kansas
City from 1974 to 1990. He has also served as a director of Century Acceptance
Corporation of Kansas City and Boatmen's Bancshares of St. Louis.
THOMAS A. MCDONNELL has been a director of Blue Valley since 1996. Mr.
McDonnell has also served as Chief Executive Officer of DST Systems, Inc. in
Kansas City, Missouri, a transfer agent for mutual funds, stocks and bonds,
since 1984, and as a director of DST since 1971. From August 1983 to November
1995, Mr. McDonnell was Executive Vice President and a director of Kansas City
Southern Industries, Inc. in Kansas City, Missouri, a holding company and the
former parent of DST. Mr. McDonnell has also been a director of Informix Corp.
in Menlo Park, California, a developer, manufacturer and marketer of relational
database management systems, connectivity interfaces and gateways, since 1988; a
director of BHA Group, Inc. in Kansas City, Missouri, a manufacturer of
pollution control devices, since 1993; a director of Computer Sciences
Corporation in El Segundo, California, an information technology company, since
1997; a director of Euronet Services, Inc. in Budapest, Hungary, an operator of
automatic teller machines, since 1997; a director of Janus Capital Corporation
in Denver, Colorado, a registered investment advisor, since 1985.
HARVEY S. BODKER has been a director of the Bank since its formation in
1989. Mr. Bodker has been the President of Bodker Realty, Inc. in Prairie
Village, Kansas, a commercial real estate brokerage,
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management and development company, since 1971. He has also been the managing
partner of Rosewood Development Co. in Prairie Village, Kansas, a developer of
small office buildings since 1978. Mr. Bodker is very active in the community
having served on several boards including the Heart of America Boy Scout Board
for over 25 years, the Menorah Medical Center Board of Trustees, Cosmopolitan
Club of Johnson County, and Chairman of the Overland Park Civil Service
Commission. Mr. Bodker has also served on the Kansas Real Estate Commission
under two governors, the Overland Park Planning Commission, the Leawood Board of
Zoning Appeals, the Sunflower State Private Industry Council, and on the
Overland Park Chamber of Commerce.
SUZANNE E. DOTSON has been a director of the Bank since 1993. Ms. Dotson is
a community volunteer with a background in community banking. She has also been
a director of the Brain Injury Association of Kansas and Greater Kansas City in
Kansas City, Missouri, a non-profit association dedicated to brain injury
prevention, research, education and advocacy, since 1992; and a director of
Wayside Waifs in Kansas City, Missouri, an animal shelter and humane society
dedicated to humane education and providing temporary housing for lost,
abandoned, abused and unwanted animals, since 1998. Prior to joining the Bank in
1993, Ms. Dotson served as senior vice president of commercial lending at
Boatmen's First National Bank of Kansas City and executive vice president of
lending at First Continental Bank and Trust in the Kansas City area.
STEWART M. STEIN has been a director of the Bank since its formation in
1989. Mr. Stein is a real estate, commercial and collections attorney. He has
been a partner with the law firm of Morrison & Hecker LLP in Overland Park,
Kansas, since 1997. Mr. Stein was managing partner of the law firm of Buck, Bohm
& Stein, P.C. in Overland Park, Kansas, from 1981 to 1997.
JOHN K. DOULL is currently the Executive Vice President and Chief Lending
Officer of the Bank, and a member of the Bank's Discount Committee, Trust
Committee, Audit Committee, Risk Management Committee and Compliance Committee.
As such, he is primarily responsible for overseeing the lending function of the
Bank. He is also responsible for strategic planning, risk management, funds
management and developing future plans for the Bank. Mr. Doull has over 15 years
experience in banking. Prior to joining Blue Valley, he was a commercial loan
officer at Boatmen's First National Bank of Kansas City. Mr. Doull is also
currently the Board President and a member of the Administrative Team at Indian
Creek Community Church in Olathe, Kansas. He is also the past treasurer of the
Johnson County Housing Coalition.
MARK A. FORTINO has been Treasurer of Blue Valley, Blue Valley Investment
and Blue Valley Building, and Senior Vice President and Chief Financial Officer
of the Bank since May, 1998. As such, he is responsible for oversight of all
financial reporting and analysis for Blue Valley, as well as oversight of human
resources, technology and administrative functions. Mr. Fortino also serves on
the Technology Committee and Communications/Moral Committee of the Bank. Mr.
Fortino is a certified public accountant, and for ten years prior to joining
Blue Valley, served in various positions, including Audit Manager, at Baird,
Kurtz & Dobson, a public accounting firm in Kansas City, Missouri. His prior
experience includes bank consulting and auditing, bank mergers and acquisitions,
public securities offerings and periodic SEC reporting. Mr. Fortino is a member
of the Missouri Society of CPAs and the American Institute of CPAs. Mr. Fortino
is also a Board member and Chairman of the Finance Committee of the Girl Scouts
of Midcontinent Council and a member of the Associate Advisory Committee to the
University of Kansas Accounting and Information Systems Board.
NANCY A. TAYLOR has been Senior Vice President -- Mortgage Banking of the
Bank since 1989. As such, Ms. Taylor is responsible for mortgage loan
origination (both conforming and non-conforming), mortgage loan operations, the
sale of mortgage loans in the secondary market and consumer construction loans
for the Bank. Ms. Taylor has over 24 years of banking experience.
PENNY T. HERSHMAN has been the Senior Vice President of Retail Banking and
Director of Marketing of the Bank since 1997. As such, she directs the retail
functions for the Bank, including branching and marketing. Ms. Hershman has over
30 years of banking experience. From 1995 to 1997, Ms. Hershman served as
principal of at Tapco Consulting in Novato, California, a consulting firm, where
she specialized
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in banking, management and marketing. From 1984 to 1995, Ms. Hershman served in
various positions at Novato National Bank in Novato, California, including
President and Chief Executive Officer. Ms. Hershman began her career at Metcalf
Bank in Overland Park, Kansas, where she advanced from teller to director and
Senior Vice President and Cashier.
BONNIE M. MCCONNAUGHY has been Vice President, Cashier, Security Officer
and Bank Security Act Officer of the Bank, and a member of the Bank's Compliance
Committee, Technology Committee and Planning Committee, since 1990. As such, her
primary responsibilities include deposit operations, teller functions, and
developing and implementing new products for the Bank. Ms. McConnaughy has over
18 years of banking experience.
COMMITTEES OF THE BOARD OF DIRECTORS
The Blue Valley board of directors has a standing Audit Committee, which
reports to the full board of directors in discharging its responsibilities
relating to our accounting, reporting and financial control practices. The Audit
Committee has general responsibility for oversight of financial controls, as
well as our accounting, regulatory and audit activities, and annually reviews
the qualifications of our independent auditors. The current members of the Audit
Committee are Messrs. Alexander, McCarter, Henry and Stein.
The Blue Valley board of directors does not currently have a standing
Nominating Committee or Compensation Committee. The full Blue Valley board of
directors nominates persons to serve as directors of Blue Valley. The
compensation of the executive officers and employees of the Bank is determined
jointly by the full boards of directors of Blue Valley and the Bank.
COMPENSATION OF EXECUTIVE OFFICERS
The Summary Compensation Table below provides summary information
concerning compensation that we paid or accrued during 1999, 1998 and 1997 to or
on behalf of our Chief Executive Officer and the three other highest paid
executive officers whose salary and bonus for 1999 was in excess of $100,000:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
-----------------------------------------------
LONG-TERM
COMPENSATION
AWARDS
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMP.(2) OPTIONS COMP.(3)
---------------------------- ---- -------- ------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Robert D. Regnier.............................. 1999 $185,000 $85,000 $17,322 14,000 $ --
President, Chief Executive Officer and 1998 170,000 80,000 16,285 15,160 7,519
Chairman of the Board of Directors of Blue 1997 150,000 80,000 18,129 16,000 --
Valley; Chief Executive Officer and
Director of the Bank
John K. Doull.................................. 1999 $115,000 $80,000 $17,322 10,000 $ --
Executive Vice President and Chief Lending 1998 105,000 55,000 16,285 11,156 --
Officer of the Bank 1997 95,000 50,000 16,529 12,000 --
Mark A. Fortino................................ 1999 $ 82,500 $25,000 $ 7,172 4,000 $ --
Treasurer of Blue Valley; Senior Vice 1998 50,000 12,000 -- 6,800 --
President and Chief Financial Officer of 1997 -- -- -- -- --
the Bank
Nancy A. Taylor................................ 1999 $ 65,000 $40,000 $11,367 3,000 $ --
Senior Vice President -- Mortgage Banking 1998 60,000 35,000 9,948 2,800 2,077
of the Bank 1997 55,000 27,500 9,415 4,000 --
</TABLE>
---------------
(1) Annual compensation does not include the cost to us of benefits executive
officers receive in addition to salary and cash bonuses. The aggregate
amounts of these personal benefits, however, did not exceed the lesser of
either $50,000 or 10% of the total annual compensation of each named
executive officer.
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(2) Includes the amount of our contributions to our Profit Sharing Plan
allocated to the accounts of each of the named executive officers.
(3) Includes amounts paid for unused vacation.
GRANTS OF STOCK OPTIONS
The following table sets forth information with respect to the executive
officers identified in the prior table concerning the grants of options during
1999.
AGGREGATED OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM
------------------------------------------------- ---------------------------
(A) (B) (C) (D) (E) (F) (G)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5% ($) 10%($)
---- ---------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert D. Regnier....... 14,000 21.88% $14.375 12/16/2009 $126,560 $320,740
John K. Doull........... 10,000 15.63% $14.375 12/16/2009 $ 90,400 $229,100
Mark A. Fortino......... 4,000 6.25% $14.375 12/16/2009 $ 36,160 $ 91,640
Nancy A. Taylor......... 3,000 4.69% $14.375 12/16/2009 $ 27,120 $ 68,730
</TABLE>
EXERCISES OF STOCK OPTIONS
The following table sets forth information with respect to the executive
officers identified in the prior table concerning the exercise of options during
1999, and unexercised options held as of December 31, 1999.
AGGREGATED OPTION EXERCISES IN 1999 AND
1999 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF NUMBER OF IN-THE-MONEY OPTIONS
SHARES UNEXERCISED OPTIONS AT AT YEAR-END:
ACQUIRED YEAR-END: EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE(1)
---- ----------- -------------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Robert D. Regnier............... -- -- 29,160/-- $ 47,375/$--
John K. Doull................... -- -- --/21,156 $ --/$34,863
Mark A. Fortino................. -- -- --/6,800 $ --/$8,750
Nancy A. Taylor................. -- -- 4,000/5,800 $27,500/$8,750
</TABLE>
---------------
(1) The estimated fair value of our common stock at December 31, 1999 was
$14.375.
1998 EQUITY INCENTIVE PLAN
In April, 1998, our board of directors and stockholders approved the Blue
Valley Ban Corp 1998 Equity Incentive Plan (the "Plan"), which superceded our
1994 Stock Option Plan. The Plan is administered by our full board of directors.
The Plan authorizes our board of directors to grant equity awards to
substantially all of our employees and directors. The total number of shares of
our common stock reserved for awards under the Plan is 215,284. Awards granted
under the Plan may consist of any of the following:
- incentive stock options and nonqualified stock options, which entitle
the holder to purchase a stated number of shares of our common stock;
- restricted shares of our common stock, which are subject to forfeiture;
and
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<PAGE> 67
- deferred share units, which entitle the holder to receive a future cash
payment equal to the increase in the value of shares of our common
stock.
The period of any award granted under the Plan may not exceed ten years,
and awards vest based on the determination by our board of directors. The
exercise price of any incentive stock option granted under the Plan may not be
less than the fair market value of a share of our common stock on the date of
grant. The exercise price of any nonqualified stock option may be less than,
greater than or equal to the fair market value of a share of our common stock on
the grant date. The consideration to be received by Blue Valley in exchange for
any award of restricted shares may not be less than the minimum amount for which
our shares of common stock can be issued under Kansas law. The initial value of
a deferred share unit generally will equal the fair market value of a share of
our common stock on the grant date. The Plan provides for increases in the
number of shares and to the exercise price, if applicable, in the event of a
declaration of a stock dividend or any recapitalization resulting in a stock
split-up, combination or exchange of shares of our common stock.
The Plan further provides that in most instances unvested restricted share
or deferred share unit awards and any unexercised options are forfeited upon the
termination of the recipient's employment with Blue Valley for cause. If
employment is terminated due to an award recipient's death or disability,
unvested awards generally vest, and in the case of options, may be exercised
within 12 months thereafter. If employment is terminated for any other reason,
unvested options, restricted shares and deferred share units are generally
forfeited, and vested options may be exercised within three months after the
termination of employment.
DIRECTOR COMPENSATION
We pay each of our nonemployee directors a fee of $1,500 for each meeting
of our board of directors, and a fee of $350 for each committee meeting, that he
attends in person. Directors are also eligible to receive stock options,
restricted stock and deferred share unit grants under our 1998 Equity Incentive
Plan. In 1999, each nonemployee director of Blue Valley received options to
purchase 2,000 shares of our common stock. Mr. Regnier received options to
purchase 14,000 shares of our common stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All of our executive officers and employees are employed by the Bank and do
not receive separate compensation for positions held with Blue Valley, Blue
Valley Investment or Blue Valley Building. Executive compensation is determined
jointly by the full boards of directors of Blue Valley and the Bank. During
1999, Robert D. Regnier, who is a director of Blue Valley and the Bank, and
President and Chief Executive Officer of Blue Valley and the Bank, Mark A.
Fortino, who is Senior Vice President and Chief Financial Officer of the Bank
and Treasurer of Blue Valley, and John K. Doull who is Executive Vice
President -- Lending of the Bank, participated in the deliberations of the
boards of directors of Blue Valley and the Bank concerning executive
compensation. There are no other reportable compensation committee interlocks or
insider participation matters.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank periodically makes loans to our executive officers and directors,
the members of their immediate families and companies that they are affiliated
with. As of March 31, 2000, the Bank had aggregate loans to such persons of
approximately $2.4 million, which represented 12.21% of our stockholders' equity
of $19.6 million on that date. These loans:
- were made in the ordinary course of business;
- were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions
with other persons; and
- did not involve more than the normal risk of collectibility or present
other unfavorable features.
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<PAGE> 68
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
BENEFICIAL OWNERSHIP OF SECURITIES
The following table shows the common stock owned by directors and executive
officers of Blue Valley and persons known by Blue Valley to beneficially own
more than 5% of our outstanding common stock as of April 30, 2000. The address
of each person listed below is 11935 Riley, Overland Park, Kansas 66225-6128.
This information has been prepared based upon the SEC's "beneficial ownership"
rules. Under these rules a person is deemed to be a beneficial owner of a
security if that person has or shares voting power, which includes the power to
vote or to direct the voting of a security, or investment power, which includes
the power to dispose or to direct the disposition of a security. Unless
otherwise indicated, each of the following persons has sole voting and
investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
BENEFICIAL OWNER SHARES PERCENTAGE
---------------- --------- ----------
<S> <C> <C>
Robert D. Regnier........................................... 483,644(1) 21.72%
Donald H. Alexander......................................... 124,500 5.59
Wayne A. Henry, Jr.......................................... 93,880(1) 4.22
C. Ted McCarter............................................. 66,552(1) 2.99
Thomas A. McDonnell......................................... 127,920 5.75
John K. Doull............................................... 68,880 3.09
Mark A. Fortino............................................. 4,000 0.18
Nancy A. Taylor............................................. 32,820(1) 1.47
All directors and executive officers, 10 in number, as a
group..................................................... 1,014,196(1) 45.55
</TABLE>
---------------
(1) Includes options that are currently exercisable, or become exercisable
within 60 days of April 30, 2000, to purchase from us the number of shares
of common stock indicated for the following persons: Robert D. Regnier,
29,160; Wayne A. Henry, Jr. 5,500; C. Ted McCarter, 4,000; Nancy A. Taylor,
4,000; Penny T. Hershman, 4,000; and Bonnie M. McConnaughy, 8,000.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The trust preferred securities and the common securities will be issued
under the terms of the trust agreement of BVBC Trust. The trust agreement will
be qualified as an indenture under the Trust Indenture Act. Initially,
Wilmington Trust Company will be the property trustee and will act as trustee
for the purpose of complying with the Trust Indenture Act. The terms of the
trust preferred securities will include those stated in the trust agreement of
BVBC Trust and those made part of the trust agreement by the Trust Indenture
Act. The following is a summary of the material terms and provisions of the
trust preferred securities and the trust agreement. Prospective investors in the
trust preferred securities are urged to read all the provisions of the trust
agreement, including the definitions in the trust agreement, and the Trust
Indenture Act. The form of the trust agreement has been filed as an exhibit to
the registration statement of which this prospectus is a part.
GENERAL OVERVIEW
Under the terms of the trust agreement of BVBC Trust, the administrative
trustees will issue the trust preferred securities and the common securities,
collectively, the trust securities. The trust preferred securities will
represent preferred undivided beneficial interests in the assets of BVBC Trust.
In most circumstances, the holders of the trust preferred securities will be
entitled to a preference regarding distributions and amounts payable on
redemption or liquidation over the common securities of BVBC Trust, and other
benefits as described in the trust agreement.
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<PAGE> 69
The trust preferred securities and the common securities will rank equally
and be entitled to equal payment except as described under "Subordination of
Common Securities of BVBC Trust Held by Blue Valley" below.
Legal title to the junior subordinated debentures will be held by the
property trustee in trust for the benefit of the holders of the trust
securities. The trust preferred securities guarantee made by Blue Valley for the
benefit of the holders of the trust preferred securities will be a guarantee on
a subordinated basis and will not guarantee payment of distributions or amounts
payable on redemption or liquidation of the trust preferred securities if BVBC
Trust does not have funds on hand available to make the payments. See
"Description of Trust Preferred Securities Guarantee." If an event of default
under the indenture has occurred and is continuing and the default is
attributable to Blue Valley's failure to pay interest or principal on the junior
subordinated debentures on the due date, a holder of trust preferred securities
may sue Blue Valley directly for payment of principal and interest on the junior
subordinated debentures having a principal amount equal to the aggregate
liquidation amount of the trust preferred securities of the holder, which is
referred to as a direct action. See "Description of the Junior Subordinated
Debentures -- Enforcement of Rights by Holders of Trust Preferred Securities"
and "Relationship Among the Trust Preferred Securities, the Junior Subordinated
Debentures and the Trust Preferred Securities Guarantee."
QUARTERLY DISTRIBUTION PAYMENTS AND EXTENSIONS ON DISTRIBUTION PAYMENTS
PAYMENT OF DISTRIBUTIONS. Distributions on the trust preferred securities
will be payable at the annual rate of % of the stated liquidation amount of
$8, payable quarterly in arrears on March 31, June 30, September 30, and
December 31 of each year, beginning September 30, 2000. The amount of each
distribution due will include amounts accrued and unpaid through the date the
distribution is due. Distributions on the trust preferred securities will be
payable to the holders as they appear on the register of BVBC Trust on the
relevant record date. As long as the trust preferred securities are in
book-entry form, the relevant record date will be one business day prior to the
relevant distribution date. If the trust preferred securities are not in
book-entry form, the relevant record date will be the 15th day of the month in
which the relevant distribution date occurs. The right to receive distributions
will be cumulative from the date that BVBC Trust first issues the trust
preferred securities.
The amount of distributions payable for any period will be based on a
360-day year of twelve 30-day months. If any payment date is not a business day,
the distribution will be made on the next business day. No additional interest
or other payment will be due to the holders for this delay. If, however, the
next business day falls in the next calendar year, the distribution will be made
on the immediately preceding business day. As used in this prospectus, a
business day means any day other than a Saturday or a Sunday, or a day on which
banking institutions in Delaware or Kansas are authorized or required by law or
executive order to remain closed.
The only funds of BVBC Trust available for distribution to the holders of
its trust preferred securities will be payments by Blue Valley under the junior
subordinated debentures. See "Description of Junior Subordinated Debentures." If
Blue Valley does not make interest payments on the junior subordinated
debentures, the property trustee will not have funds available to pay
distributions on the trust preferred securities. Blue Valley has guaranteed BVBC
Trust's payment of distributions, if and to the extent BVBC Trust has legally
available funds and cash sufficient to make these payments. For further
information, see "Description of the Trust Preferred Securities Guarantee."
EXTENSION PERIOD. Unless a debenture event of default has occurred and is
continuing, Blue Valley has the right under the indenture to defer interest
payments on the junior subordinated debentures at any time for up to 20
consecutive quarters, which is referred to as an extension period. However, no
extension period may extend beyond the stated maturity of the junior
subordinated debentures. During any extension period, quarterly distributions on
the trust preferred securities will be also deferred by BVBC Trust.
Distributions to which holders of trust preferred securities are entitled will
accumulate additional amounts at the rate per year of %, compounded
quarterly from the relevant distribution date. As used in this prospectus, the
term "distributions" includes any additional accumulated amounts.
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<PAGE> 70
During any extension period, Blue Valley may not (1) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment regarding, any of its capital stock, which includes common
and preferred stock, or (2) make any payment of principal, interest or premium,
if any, on or repay, repurchase or redeem any debt securities of Blue Valley
that rank equally with or junior to the junior subordinated debentures or make
any payments regarding any other trust preferred securities guarantee that ranks
equally with or junior to the junior subordinated debentures. These restrictions
do not apply to:
- dividends or distributions in capital stock of Blue Valley;
- dividends concerning the implementation of a stockholders' rights plan,
or the issuance of stock under any plan of this type in the future, or
the redemption or repurchase of any rights pursuant to this type of
plan;
- payments under the trust preferred securities guarantee of Blue Valley;
or
- purchases of common stock for issuance under any contracts, benefit
plans or similar arrangements with or for its directors, officers,
employees or consultants.
Prior to the termination of any extension period, Blue Valley may further
extend the extension period, provided that the extension does not cause the
extension period to exceed 20 consecutive quarters or extend beyond the stated
maturity of the junior subordinated debentures. Upon the termination of any
extension period and the payment of all amounts then due, Blue Valley may begin
a new extension period, subject to the above limitations. There is no limit on
the number of times that Blue Valley may begin an extension period.
Blue Valley has no current intention of having any extension periods.
REDEMPTION -- MANDATORY AND OPTIONAL RIGHTS OF BLUE VALLEY
MANDATORY REDEMPTION OF TRUST PREFERRED SECURITIES. Upon the repayment or
redemption at any time, in whole or in part, of any junior subordinated
debentures, the property trustee will apply the proceeds to redeem a like amount
of the trust securities at the redemption price, as defined below. For more
information, see "Description of the Junior Subordinated
Debentures -- Redemption." If less than all of the junior subordinated
debentures are to be repaid or redeemed on a redemption date, then the property
trustee will redeem the trust preferred securities and common securities
proportionately.
OPTIONAL REDEMPTION OF JUNIOR SUBORDINATED DEBENTURES. Blue Valley will
have the right to redeem the junior subordinated debentures (1) beginning on
June 30, 2005, in whole or in part at any time or (2) at any time, in whole, but
not in part, if a tax event, an investment company event or a capital treatment
event, as defined in the following paragraphs occurs. The redemption price will
be equal to the accrued and unpaid interest on the redeemed junior subordinated
debentures, plus 100% of the principal amount. These payments will be subject to
the prior approval by the Federal Reserve if then required under applicable
capital guidelines or policies of the Federal Reserve. See "Description of the
Junior Subordinated Debentures -- Redemption."
TAX EVENT REDEMPTION, INVESTMENT COMPANY EVENT REDEMPTION, CAPITAL EVENT
REDEMPTION OR DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES. If a tax event,
an investment company event or a capital treatment event occurs after BVBC Trust
first issues the trust preferred securities and is continuing, Blue Valley may
redeem the junior subordinated debentures in whole, but not in part. If Blue
Valley redeems the junior subordinated debentures, BVBC Trust will be required
to redeem the trust preferred securities and common securities in whole at the
redemption price, as defined below, within 90 days following the occurrence of
any of these events. In each case the redemption would be subject to receipt of
prior approval by the Federal Reserve if then required under its applicable
capital guidelines or policies. If any of these events has occurred and is
continuing, and Blue Valley does not elect to redeem the junior subordinated
debentures and cause a mandatory redemption of the trust securities or to
liquidate BVBC Trust and cause the junior subordinated debentures to be
distributed to holders of the trust securities in
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<PAGE> 71
liquidation of BVBC Trust, the trust securities will remain outstanding. Also,
additional sums, as defined below, may be payable on the junior subordinated
debentures.
A tax event requires the receipt by Blue Valley and BVBC Trust of a legal
opinion to the effect that, as a result of any change or prospective change in
the laws or regulations of the United States or any political subdivision or
taxing authority of the United States, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying the
tax laws or regulations, there is more than an insubstantial risk that:
- BVBC Trust is, or will be within 90 days of the date of the opinion,
subject to United States federal income tax regarding income received or
accrued on the junior subordinated debentures;
- interest payable by Blue Valley on the junior subordinated debentures is
not, or within 90 days of the opinion, will not be, deductible by Blue
Valley, in whole or in part, for United States federal income tax
purposes; or
- BVBC Trust is, or will be within 90 days of the date of the opinion,
subject to more than a minimal amount of other taxes, duties,
assessments or other governmental charges.
An investment company event requires the receipt by Blue Valley and BVBC
Trust of a legal opinion to the effect that, as a result of any change in law or
regulation or a change in interpretation or application of law or regulation by
any legislative body, court, governmental agency or regulatory authority, BVBC
Trust is or will be considered an investment company required to be registered
under the Investment Company Act.
A capital treatment event requires the receipt by Blue Valley and BVBC
Trust of a legal opinion to the effect that, as a result of any change or
proposed change in the laws or regulations of the United States or any of its
political subdivisions, or as a result of any official action or judicial
decision interpreting the laws or regulations, there is more than an
insubstantial risk that Blue Valley's ability to treat the trust preferred
securities as Tier 1 capital or its equivalent for purposes of the Federal
Reserve capital adequacy guidelines is impaired. However, the inability of Blue
Valley to treat all or any portion of the liquidation amount of the trust
preferred securities as Tier 1 capital will not constitute the basis for a
capital treatment event if this inability results from Blue Valley having
cumulative preferred stock, minority interests in consolidated subsidiaries, or
any other class of security or interest which the Federal Reserve now or in the
future may accord Tier 1 capital treatment in excess of the amount which may
qualify for treatment as Tier 1 capital under applicable capital adequacy
guidelines of the Federal Reserve. In addition, the distribution of junior
subordinated debentures in connection with the dissolution of BVBC Trust will
not in and of itself constitute a capital treatment event.
Additional sums means any additional amounts that Blue Valley would be
required to pay on the junior subordinated debentures so that the amount of
distributions payable by BVBC Trust on the outstanding trust securities will not
be reduced as a result of any additional taxes, duties, assessments and other
governmental charges applicable to BVBC Trust.
Like amount means (1) regarding a redemption of trust securities, trust
securities having a liquidation amount, as defined below, equal to that portion
of the principal amount of junior subordinated debentures to be
contemporaneously redeemed under the indenture, allocated to the common
securities and to the trust preferred securities based upon the relative
liquidation amounts of these classes and the proceeds of which will be used to
pay the redemption price of the trust securities, and (2) regarding a
distribution of junior subordinated debentures to holders of trust securities in
connection with a dissolution or liquidation of BVBC Trust, junior subordinated
debentures having a principal amount equal to the liquidation amount of the
trust securities of the holder to whom the junior subordinated debentures are
distributed.
Liquidation amount means the stated amount of $8 per trust security.
Redemption price means, regarding any trust security, the liquidation
amount of the trust security, plus accumulated and unpaid distributions to the
redemption date, allocated proportionately based on liquidation amounts, among
the trust securities to be redeemed.
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DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
Subject to Blue Valley's having received prior approval of the Federal
Reserve, Blue Valley will have the right to liquidate BVBC Trust at any time
and, after payment of any liabilities of BVBC Trust as provided by applicable
law, cause the junior subordinated debentures to be distributed to the holders
of trust securities in liquidation of BVBC Trust. After the liquidation date
fixed for any distribution of junior subordinated debentures for trust preferred
securities:
- the trust preferred securities will no longer be deemed to be
outstanding;
- the depositary or its nominee, as the record holder of the trust
preferred securities, will receive a registered global certificate or
certificates representing the junior subordinated debentures to be
delivered upon the distribution; and
- any certificates representing trust preferred securities not held by the
depositary or its nominee will be deemed to represent the junior
subordinated debentures having a principal amount equal to the
liquidation amount of the trust preferred securities, and bearing
interest equal to the accrued and unpaid distributions on the trust
preferred securities, until the certificates are presented to the
administrative trustees or their agent for reissuance.
Blue Valley cannot assure you as to the market prices for the trust
preferred securities or the junior subordinated debentures that may be
distributed in exchange for the trust preferred securities if BVBC Trust is
dissolved. Accordingly, the trust preferred securities that you may purchase, or
the junior subordinated debentures that you may receive if BVBC Trust is
dissolved, may trade at a price that is less than the price you paid to purchase
the trust preferred securities. If the junior subordinated debentures are
distributed, Blue Valley is required to use its best efforts to list them on a
national securities exchange or quotation system, but this requirement will not
prevent Blue Valley from partially redeeming the junior subordinated debentures.
If Blue Valley partially redeems the junior subordinated debentures, they may
not qualify for listing on a national securities exchange or quotation system.
REDEMPTION PROCEDURES
Trust preferred securities redeemed on each redemption date will be
redeemed at the redemption price with the proceeds from the contemporaneous
redemption of the junior subordinated debentures. Redemptions of the trust
preferred securities will be made and the redemption price will be payable on
each redemption date only to the extent that BVBC Trust has funds on hand
available for the payment of the redemption price. See "-- Subordination of
Common Securities of BVBC Trust Held by Blue Valley" and "Description of the
Trust Preferred Securities Guarantee."
Notice of any redemption will be mailed between 30 and 60 days before the
redemption date to each holder of trust securities at the holder's registered
address. Unless BVBC Trust defaults in payment of the applicable redemption
price, on and after the redemption date, distributions will cease to accrue on
the trust preferred securities called for redemption.
If BVBC Trust gives a notice of redemption regarding the trust preferred
securities, then, by 10:00 a.m., Delaware time, on the redemption date, the
property trustee will pay the redemption price to the depositary, as the record
holder of the trust preferred securities. The depositary will credit the
redemption price to the participants for whom it holds the trust preferred
securities. If the trust preferred securities are no longer in book-entry form,
the property trustee will deposit with the paying agent for the trust preferred
securities funds sufficient to pay the aggregate redemption price if it has
funds available. The property trustee will give the paying agent irrevocable
instructions and authority to pay the redemption price upon surrender of
certificates evidencing the trust preferred securities. However, distributions
payable on or prior to the redemption date will be payable to the holders of the
trust preferred securities on the relevant record dates for the related
distribution dates. If notice of redemption has been given and funds deposited
as required, then upon the date of the deposit, all rights of the holders of the
trust preferred securities will cease, except the right of the holders of the
trust preferred securities to receive the redemption price, but without interest
on the redemption price, and the trust preferred securities will cease
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to be outstanding. If any date fixed for redemption of the trust preferred
securities is not a business day, then payment of the redemption price payable
on the date will be made on the next business day and without any interest or
other payment for the delay. If, however, the next business day falls in the
next calendar year, the payment will be made on the immediately preceding
business day. If payment of the redemption price in respect of trust preferred
securities called for redemption is improperly withheld or refused and not paid
either by BVBC Trust or by Blue Valley under the trust preferred securities
guarantee, distributions on the trust preferred securities will continue to
accrue at the then applicable rate, from the redemption date originally
established by BVBC Trust for the trust preferred securities to the date the
redemption price is actually paid. In this case the actual payment date will be
the date fixed for redemption for purposes of calculating the redemption price.
See "Description of the Trust Preferred Securities Guarantee."
Subject to applicable law, including federal securities laws, Blue Valley
may at any time purchase outstanding trust preferred securities by tender, in
the open market or by private agreement.
Payment of the redemption price on the trust preferred securities and any
distribution of junior subordinated debentures to holders of trust preferred
securities will be made to the applicable record holders as they appear on the
register of the trust preferred securities on the relevant record date, which
will be one business day prior to the relevant redemption date, unless any trust
preferred securities are not in book-entry form. If the trust preferred
securities are not in book-entry form, the relevant record date for them will be
a date at least 15 days prior to the redemption date. In the case of a
liquidation, the record date will be established by the property trustee and be
no more than 45 days before the liquidation date.
If less than all of the trust securities are to be redeemed on a redemption
date, then the aggregate redemption price for the trust securities to be
redeemed will be allocated proportionately to the trust preferred securities and
common securities based upon the relative liquidation amounts of these classes.
The particular outstanding trust preferred securities to be redeemed will be
selected by any method that the property trustee deems fair and appropriate.
This method may provide for the selection for redemption of portions equal to $8
or an integral multiple of $8 of the liquidation amount of trust preferred
securities. The property trustee will promptly notify the trust securities
registrar in writing of the trust preferred securities selected for redemption
and, in the case of any trust preferred securities selected for partial
redemption, the liquidation amount to be redeemed. For all purposes of the trust
agreement, unless the context otherwise requires, all provisions relating to the
redemption of trust preferred securities will relate to the portion of the
aggregate liquidation amount of trust preferred securities which has been or is
to be redeemed.
SUBORDINATION OF COMMON SECURITIES OF BVBC TRUST HELD BY BLUE VALLEY
Payment of distributions on, and the redemption price of, the trust
preferred securities and common securities will be made proportionately based on
the liquidation amounts of these securities. However, if on any distribution
date or redemption date a debenture event of default has occurred and is
continuing, no distributions on or redemption of the common securities will be
made. Also, no other payment on account of the redemption, liquidation or other
acquisition of the common securities will be made unless payment in full in cash
of all distributions payable on all of the outstanding trust preferred
securities are made, or in the case of redemption the full redemption price on
all of the outstanding trust preferred securities then called for redemption,
has been made or provided for. All funds available to the property trustee will
first be applied to the payment in full in cash of all distributions on, or
redemption price of, the trust preferred securities then due and payable.
In the case of any event of default under the trust agreement resulting
from a debenture event of default, Blue Valley as holder of the common
securities will be deemed to have waived any right to act regarding any event of
default until the effects of all events of default have been cured, waived or
otherwise eliminated. Until any events of default have been cured, waived or
otherwise eliminated, the property trustee will act solely on behalf of the
holders of the trust preferred securities and not on behalf
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of Blue Valley as holder of the common securities, and only the holders of the
trust preferred securities will have the right to direct the property trustee to
act on their behalf.
LIQUIDATION DISTRIBUTIONS UPON DISSOLUTION
Blue Valley may at any time elect to dissolve BVBC Trust and cause the
junior subordinated debentures to be distributed to the holders of the trust
preferred securities. Before doing so, Blue Valley may need to obtain the prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. See "Distribution of the Junior
Subordinated Debentures" above.
In addition, under the trust agreement, BVBC Trust will automatically
dissolve at the expiration of its term and will dissolve earlier if one of the
following events occurs: (1) events of bankruptcy, dissolution or liquidation of
Blue Valley; (2) delivery by Blue Valley of written direction to the property
trustee to dissolve BVBC Trust, which direction is optional and entirely within
the discretion of Blue Valley; (3) redemption of all of the trust preferred
securities as described under "-- Redemption -- Mandatory and Optional Rights of
Blue Valley"; and (4) the entry of an order for the dissolution of BVBC Trust by
a court (each, an "early termination").
If an early termination occurs as described in clause (1), (2) or (4) above
or at the end of the term of BVBC Trust, it will be liquidated by the trustees
as expeditiously as the trustees determine to be possible. The liquidation will
be made after payment of any creditors of BVBC Trust as provided by Section
3808(e) of the Delaware Business Trust Act and any other applicable law. In the
liquidation, holders of the trust securities will receive a like amount of the
junior subordinated debentures, unless this distribution is determined by the
property trustee not to be practical. If the property trustee determines that a
distribution of the junior subordinated debentures is not practical, then the
holders of trust preferred securities will be entitled to receive an amount
equal to the liquidation amount of $8 per trust security plus accrued and unpaid
distributions thereon to the date of payment. This amount, payable out of the
assets of BVBC Trust available for distribution, is referred to as the
liquidation distribution. If the liquidation distribution can be paid only in
part because BVBC Trust has insufficient assets available to pay the full
aggregate liquidation distribution, then the amounts payable directly by BVBC
Trust on the trust preferred securities will be paid on a proportionate basis.
If a liquidation occurs, the holders of the common securities will be entitled
to receive distributions proportionately with the holders of the trust preferred
securities, unless a debenture event of default has occurred and is continuing.
In that case, the trust preferred securities will have a priority over the
common securities.
Under current United States federal income tax law and interpretations and
assuming, as expected, BVBC Trust is treated as a grantor trust, a distribution
of the junior subordinated debentures should not be a taxable event to holders
of the trust preferred securities. If there has been a change in law, a change
in legal interpretation, a tax event or other circumstances, the distribution
could be a taxable event to holders of the trust preferred securities. See
"Material Federal Income Tax Consequences." If Blue Valley elects neither to
redeem the junior subordinated debentures prior to maturity nor to liquidate
BVBC Trust and distribute the junior subordinated debentures to holders of the
trust preferred securities, the trust preferred securities will remain
outstanding until the repayment of the junior subordinated debentures.
If Blue Valley elects to dissolve BVBC Trust and cause the junior
subordinated debentures to be distributed to holders of the trust preferred
securities in liquidation of BVBC Trust, Blue Valley will continue to have the
right to shorten the maturity of the junior subordinated debentures under most
circumstances. See "Description of the Junior Subordinated Debentures -- General
Overview."
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EVENTS OF DEFAULT; NOTICE
Any one of the following events that has occurred and is continuing
constitutes an event of default under the trust agreement:
- the occurrence of a debenture event of default under the indenture, see
"Description of the Junior Subordinated Debentures -- Indenture Events
of Default"; or
- default by BVBC Trust in the payment of any distribution when it becomes
due and payable, and continuation of the default for a period of 30
days; or
- default by BVBC Trust in the payment of any redemption price of any
trust security when it becomes due and payable; or
- default in the performance, or breach, in any material respect, of any
covenant or warranty of the property trustee in the trust agreement,
other than a default or breach in the performance of a covenant or
warranty which is addressed in the previous two points above, and
continuation of the default or breach, for a period of 60 days after
there has been given, by registered or certified mail, to the property
trustee by the holders of at least 25% in aggregate liquidation amount
of the outstanding trust preferred securities, a written notice
specifying the default or breach and requiring it to be remedied and
stating that the notice is a "Notice of Default" under the trust
agreement; or
- the occurrence of events of bankruptcy or insolvency regarding the
property trustee and the failure by Blue Valley to appoint a successor
property trustee within 60 days.
Within five business days after the property trustee learns that any event
of default has occurred, the property trustee is required to transmit notice of
the event of default to the holders of the trust preferred securities, the
administrative trustees and Blue Valley, unless the event of default has been
cured or waived. Blue Valley and the administrative trustees are required to
file annually with the property trustee a certificate as to whether they are in
compliance with all the conditions and covenants applicable to them under the
trust agreement.
If a debenture event of default has occurred and is continuing, the trust
preferred securities will have a preference over the common securities upon
termination of BVBC Trust as described above. See "-- Liquidation Distribution
Upon Termination." Upon a debenture event of default, unless the principal of
all the junior subordinated debentures has already become due and payable,
either the property trustee or the holders of not less than 25% in aggregate
principal amount of outstanding junior subordinated debentures may declare all
of the junior subordinated debentures to be due and payable immediately. Written
notice must be given to Blue Valley, and to the property trustee, if given by
holders of the junior subordinated debentures. If the property trustee or the
holders of the junior subordinated debentures fail to declare the principal of
all of the junior subordinated debentures due and payable upon a debenture event
of default, the holders of at least 25% in liquidation amount of the trust
preferred securities then outstanding will have the right to declare the junior
subordinated debentures immediately due and payable. In either event, payment of
principal and interest on the junior subordinated debentures will remain
subordinated to the extent provided in the indenture. In addition, holders of
the trust preferred securities have the right to bring a direct action as
discussed below. See "Description of the Junior Subordinated
Debentures -- Enforcement of Rights by Holders of Trust Preferred Securities."
REMOVAL OF TRUSTEES
Unless a debenture event of default has occurred and is continuing, any
trustee may be removed at any time by the holder of the common securities of
BVBC Trust. If a debenture event of default has occurred and is continuing, the
property trustee, Delaware trustee or both may be removed by the holders of a
majority in liquidation amount of the outstanding trust preferred securities. In
no event will the holders of the trust preferred securities have the right to
vote to appoint, remove or replace the administrative trustees. Only Blue Valley
as the holder of the common securities has these rights. No
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resignation or removal of a trustee and no appointment of a successor trustee
will be effective until the acceptance of appointment by the successor trustee
in accordance with the provisions of the trust agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEES
Unless an event of default has occurred and is continuing, at any time, for
the purpose of meeting the legal requirements of the Trust Indenture Act or of
any jurisdiction in which any part of trust property may at the time be located,
the holders of the common securities and the administrative trustees have power
to appoint one or more persons either to act as (1) a co-trustee, jointly with
the property trustee, of all or any part of the trust property, or (2) to act as
separate trustee of any trust property. In either case, these trustees will have
the powers which may be provided in the instrument appointing them, and will
have vested in them any property, title, right or power deemed necessary or
desirable, subject to the provisions of the trust agreement. In case a debenture
event of default has occurred and is continuing, the property trustee alone will
have power to make the appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Generally, any person or successor to any of the trustees of BVBC Trust may
be a successor trustee to any of the trustees, including a successor resulting
from a merger or consolidation. However, any successor trustee must meet all of
the qualifications and eligibility standards to act as a trustee to BVBC Trust.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF BVBC TRUST
BVBC Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any trust or other person, except as described
below. BVBC Trust may, at the request of Blue Valley, with the consent of the
administrative trustees and without the consent of the holders of the trust
preferred securities, the property trustee or the Delaware trustee, engage in
transactions described above if:
- the successor entity either (1) expressly assumes all of the obligations
of BVBC Trust regarding the trust preferred securities or (2)
substitutes for the trust preferred securities other securities having
substantially the same terms as the trust preferred securities, so long
as the successor securities rank the same as the trust preferred
securities rank in priority regarding distributions and payments upon
liquidation, redemption and otherwise;
- Blue Valley expressly appoints a trustee of the successor entity
possessing substantially the same powers and duties as the property
trustee as the holder of the junior subordinated debentures;
- any transaction of this kind does not adversely affect the rights,
preferences and privileges of the holders of the trust preferred
securities, including any successor securities, in any material respect;
- the successor entity has a purpose identical to that of BVBC Trust;
- the successor securities will be listed or traded on any national
securities exchange or other organization on which the trust preferred
securities may then be listed;
- prior to the transaction, Blue Valley has received a legal opinion from
qualified, independent counsel to BVBC Trust to the effect that (1) the
transaction does not adversely affect the rights, preferences and
privileges of the holders of the trust preferred securities, including
any successor securities, in any material respect, and (2) following any
transaction of this kind, neither BVBC Trust nor the successor entity
will be required to register as an investment company under the
Investment Company Act; and
- Blue Valley or any permitted successor or designee owns all of the
common securities of the successor entity and guarantees the obligations
of the successor entity under the successor securities at least to the
extent provided by the trust preferred securities guarantee. However,
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BVBC Trust will not, except with the consent of holders of 100% in
liquidation amount of the trust preferred securities, enter into any
transaction of this kind, or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it, if the transaction would
cause BVBC Trust or the successor entity to be classified as other than a
grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except in certain limited circumstances described below and under
"Description of the Trust Preferred Securities Guarantee -- Amendments and
Assignment", in general, the holders of the trust preferred securities will have
no voting rights.
The trust agreement may be amended from time to time by Blue Valley and the
trustees, without the consent of the holders of the trust securities:
- to cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to make
any other provisions regarding matters or questions arising under the
trust agreement, which are not inconsistent with the other provisions of
the trust agreement; or
- to modify, eliminate or add to any provisions of the trust agreement to
the extent that is necessary to ensure that BVBC Trust will be
classified for United States federal income tax purposes as a grantor
trust at all times that any trust securities are outstanding or to
ensure that BVBC Trust will not be required to register as an investment
company under the Investment Company Act.
However, the action described in the first point above will not be
permitted if it would adversely affect in any material way the interests of any
holder of trust securities. Any amendments of the trust agreement will become
effective when notice is given to the holders of the trust securities.
The trust agreement may be amended by the trustees and Blue Valley (1) with
the consent of holders representing not less than a majority of the aggregate
liquidation amount of the outstanding trust securities, and (2) upon receipt by
the trustees of an opinion of counsel to the effect that the amendment or the
exercise of any power granted to the trustees in accordance with the amendment
will not affect BVBC Trust's status as a grantor trust for United States federal
income tax purposes or BVBC Trust's exemption from status as an investment
company under the Investment Company Act. However, without the consent of each
holder of trust securities, the trust agreement may not be amended to (1) change
the amount or timing of any distribution on the trust securities or otherwise
adversely affect the amount of any distribution required to be made in respect
of the trust securities as of a specified date or (2) restrict the right of a
holder of trust securities to institute suit for the enforcement of any payment
of distributions afterwards.
For the time that any junior subordinated debentures are held by the
property trustee, the trustees will not:
- direct the time, method and place of conducting any proceeding for any
remedy available to the indenture trustee, or executing any trust or
power conferred on the indenture trustee regarding the junior
subordinated debentures;
- waive any past default that is waiveable under the indenture;
- exercise any right to rescind or annul a declaration that the principal
of all the junior subordinated debentures will be due and payable; or
- consent to any amendment, modification or termination of the indenture
or the junior subordinated debentures, where this consent is required,
without, in each case, obtaining the prior approval of the holders of a
majority in aggregate liquidation amount of all outstanding trust
preferred securities. However, where a consent under the indenture would
require the consent of each affected holder of junior subordinated
debentures, this consent may not be given by the property
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trustee without the prior consent of each holder of the trust preferred
securities. The trustees will not revoke any action previously
authorized or approved by a vote of the holders of the trust preferred
securities except by subsequent vote of the holders of the trust
preferred securities. The property trustee will notify each holder of
the trust preferred securities of any notice of default regarding the
junior subordinated debentures. In addition to obtaining these approvals
of the holders of the trust preferred securities, prior to taking any of
the above actions, the trustees will obtain an opinion of counsel
stating that BVBC Trust will not, as a consequence of the proposed
action by the property trustee, cease to be classified as a grantor
trust and will not be classified as an association taxable as a
corporation for United States federal income tax purposes on account of
the action.
Any required approval of holders of the trust preferred securities may be
given at a meeting of holders of trust preferred securities convened for this
purpose or under written consent. The property trustee will cause a notice of
any meeting at which holders of the trust preferred securities are entitled to
vote, or of any matter upon which action by written consent of the holders is to
be taken, to be given to each holder of record of the trust preferred securities
in the manner described in the trust agreement.
No vote or consent of the holders of the trust preferred securities will be
required for BVBC Trust to redeem and cancel the trust preferred securities in
accordance with the trust agreement.
Any of the trust preferred securities that are owned by Blue Valley, the
trustees or any affiliate of Blue Valley or any trustees, will, for purposes of
the vote or consent, be treated as if they were not outstanding.
GLOBAL TRUST PREFERRED SECURITIES
The trust preferred securities will be represented by one or more global
certificates registered in the name of the depositary or its nominee. Beneficial
interests in the trust preferred securities will be shown on, and transfers will
be effected only through, records maintained by participants in the depositary.
Except as described below, trust preferred securities in certificated form will
not be issued in exchange for the global certificates.
A global security will be exchangeable for trust preferred securities
registered in the names of persons other than the depositary or its nominee only
if:
- the depositary notifies Blue Valley that it is unwilling or unable to
continue as a depositary for the global security and no successor
depositary has been appointed, or if at any time the depositary ceases
to be a clearing agency registered under the Securities Exchange Act of
1934, at a time when the depositary is required to be registered under
that Act to act as a depositary;
- Blue Valley in its sole discretion determines that the global security
will be so exchangeable; or
- there has occurred and is continuing an event of default under the
indenture.
Any global security that is exchangeable under the preceding sentence will be
exchangeable for definitive certificates registered in the names which the
depositary directs. It is expected that the instructions will be based upon
directions received by the depositary regarding ownership of beneficial
interests in the global security. In the event that trust preferred securities
are issued in certificated form, they will be in denominations of $8 or integral
multiples of $8 and may be transferred or exchanged at the offices described
below.
Unless and until it is exchanged in whole or in part for the individual
trust preferred securities, the global trust preferred security may not be
transferred except (1) as a whole by the depositary to a nominee of the
depositary or by a nominee of the depositary to the depositary, (2) to another
nominee of the depositary or (3) by the depositary or any nominee to a successor
depositary or any nominee of the successor.
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Payments on trust preferred securities represented by a global security
will be made to the depositary, as the depositary for the trust preferred
securities. If the trust preferred securities are issued in certificated form,
distributions will be payable, the transfer of the trust preferred securities
will be registrable, and trust preferred securities will be exchangeable for
trust preferred securities of other denominations of a like aggregate
liquidation amount, at the corporate office of the property trustee, or at the
offices of any paying agent or transfer agent appointed by the administrative
trustees. However, payment of any distribution may be made at the option of the
administrative trustees by check mailed to the address of the persons entitled
to payments or by wire transfer. In addition, if the trust preferred securities
are issued in definitive form, the record dates for payment of distributions
will be the 15th day of the month in which the relevant distribution date
occurs.
When a global trust preferred security is issued, and the global trust
preferred security is deposited with or on behalf of the depositary, the
depositary will credit, on its book-entry registration and transfer system, the
respective aggregate liquidation amounts of the individual trust preferred
securities represented by the global trust preferred security to persons that
have accounts with the depositary. The accounts will be designated by the
dealers, underwriters or agents regarding the trust preferred securities.
Ownership of beneficial interests in a global trust preferred security will be
limited to participants or persons that may hold interests through participants.
Ownership of beneficial interests in the global trust preferred security will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the depositary or its nominee and the records of
participants regarding interests of persons who hold through participants. The
laws of some states require that some purchasers of securities in those states
take physical delivery of the securities in certificated form. The limits, under
these laws, may impair the ability to transfer beneficial interests in a global
trust preferred security.
For the time that the depositary for a global trust preferred security, or
its nominee, is the registered owner of the global trust preferred security,
this registered owner will be considered the sole owner or holder of the trust
preferred securities represented by the global trust preferred security for all
purposes under the trust agreement of BVBC Trust. Except as provided below,
owners of beneficial interests in a global trust preferred security will not be
entitled to have any of the individual trust preferred securities represented by
the global trust preferred security registered in their names, will not receive
or be entitled to receive physical delivery of any the trust preferred
securities in certificated form and will not be considered the owners or holders
thereof.
Blue Valley, the property trustee, any paying agent, and the securities
registrar for the trust preferred securities will not have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests of the global trust preferred security or for
maintaining, supervising or reviewing any records relating to the beneficial
ownership interests.
Blue Valley expects that the depositary, upon receipt of any payment of the
liquidation amount or distributions in respect of a permanent global trust
preferred security, immediately will credit participants' accounts with payments
in amounts proportionate to their respective beneficial interest in the
aggregate liquidation amount of the global trust preferred security as shown on
the records of the depositary or its nominee. Blue Valley also expects that
payments by participants to owners of beneficial interests in the global trust
preferred security held through the participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in street name. The
payments will be the responsibility of the participants.
If the depositary for the trust preferred securities is at any time
unwilling, unable or ineligible to continue as depositary and a successor
depositary is not appointed by Blue Valley within 90 days, BVBC Trust will issue
individual trust preferred securities in exchange for the global trust preferred
security. In addition, BVBC Trust may at any time in its sole discretion,
subject to any limitations described in this prospectus relating to the trust
preferred securities, determine not to have any trust preferred securities
represented by one or more global trust preferred securities. If this occurs,
Blue Valley will issue individual trust preferred securities in exchange for the
global trust preferred security or securities representing the trust preferred
securities. Further, if BVBC Trust specifies, an owner of a beneficial interest
in a global
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trust preferred security representing trust preferred securities may receive
individual trust preferred securities in exchange for the beneficial interests,
subject to any limitations described in this prospectus. In any such instance, a
beneficial interest owner in a global trust preferred security will be entitled
to physical delivery of individual trust preferred securities represented by the
global trust preferred security equal in liquidation amount to the beneficial
interest, and to have the trust preferred securities registered in its name.
Individual trust preferred securities issued will be issued in denominations,
unless otherwise specified by BVBC Trust, of $8 and integral multiples of $8.
PAYMENT AND PAYING AGENCY
Payments on the trust preferred securities will be made to the depositary,
which will credit the relevant accounts at the depositary on the applicable
distribution dates. However, if any of the trust preferred securities are not
held by the depositary, the payments will be made by check mailed to the address
of the holder as the address appears on the register. The paying agent will
initially be the property trustee and any co-paying agent chosen by the property
trustee and acceptable to the administrative trustees and Blue Valley. The
paying agent will be permitted to resign as paying agent upon 30 days' written
notice to the administrative trustees, the property trustee and Blue Valley. If
the property trustee is no longer the paying agent, the administrative trustees
will appoint a successor paying agent, which will be a bank or trust company
acceptable to the property trustee and Blue Valley.
REGISTRAR AND TRANSFER AGENT
The property trustee will act as registrar and transfer agent for the trust
preferred securities. Registration of transfers of the trust preferred
securities will be effected without charge by or on behalf of BVBC Trust, but
the registrar may require payment to cover any tax or other governmental charges
that may be imposed in connection with any transfer or exchange. BVBC Trust will
not be required to register or cause to be registered the transfer of the trust
preferred securities after the trust preferred securities have been called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee, other than upon the occurrence and during the
continuance of an event of default, undertakes to perform only the duties which
are specifically described in the trust agreement. After an event of default,
the property trustee must exercise the same degree of care and skill as a
prudent person would exercise or use in the conduct of his or her own affairs.
Subject to this provision, the property trustee is under no obligation to
exercise any of its powers under the trust agreement at the request of any
holder of trust preferred securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred. If no event
of default has occurred and is continuing and the property trustee is required
to decide between alternative causes of action, construe ambiguous provisions in
the trust agreement or is unsure of the application of any provision of the
trust agreement, and the matter is not one on which holders of the trust
preferred securities are entitled under the trust agreement to vote, then the
property trustee will take action as directed by Blue Valley. If Blue Valley
does not direct the property trustee, it will take action as it deems advisable
and in the best interests of the holders of the trust securities and will have
no liability under the trust agreement except for its own bad faith, negligence
or willful misconduct.
MISCELLANEOUS
The administrative trustees are authorized and directed to conduct the
affairs of and to operate BVBC Trust in such a way that BVBC Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the junior
subordinated debentures will be treated as indebtedness of Blue Valley for
United States federal income tax purposes. Blue Valley and the administrative
trustees are authorized to take any lawful action not inconsistent with the
certificate of trust of BVBC Trust or the trust agreement, that they determine
in their discretion to be necessary or desirable
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for these purposes, as long as the action does not materially adversely affect
the interests of the holders of the related trust preferred securities. Holders
of the trust preferred securities have no preemptive or similar rights.
For so long as the trust securities are outstanding, Blue Valley is
required to fulfill all reporting and filing obligations under the Securities
Exchange Act, as applicable to a company having a class of securities registered
under that Act. The administrative trustees are required to use their best
efforts to maintain the listing of the trust preferred securities on The
American Stock Exchange or another national securities exchange or quotation
system, but this requirement does not prevent BVBC Trust from redeeming all or a
portion of the trust securities in accordance with the trust agreement.
BVBC Trust may not borrow money or issue debt or mortgage or pledge any of
its assets.
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DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The junior subordinated debentures will be issued under a subordinated
indenture between Blue Valley and Wilmington Trust Company, as the indenture
trustee. The following is a summary of the material terms and provisions of the
junior subordinated debentures and the indenture. Prospective investors are
urged to read the indenture, which has been filed as an exhibit to the
registration statement of which this prospectus forms a part. Wherever
particular defined terms of the indenture are referred to but not defined in
this prospectus, these defined terms have the same meanings as in the indenture.
The indenture is qualified under the Trust Indenture Act.
Concurrently with the issuance of the trust preferred securities, BVBC
Trust will invest the proceeds from the sale of the trust preferred securities,
together with the consideration paid by Blue Valley for the common securities,
in junior subordinated debentures issued by Blue Valley. The junior subordinated
debentures will be issued as unsecured debt under the indenture.
GENERAL OVERVIEW
The junior subordinated debentures will bear interest at the rate of %
per year of their principal amount, payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, beginning September 30,
2000, to the person in whose name each junior subordinated debenture is
registered, subject to minor exceptions, at the close of business on the
business day next preceding the interest payment date. However, if either (1)
the junior subordinated debentures are held by the property trustee and the
trust preferred securities are no longer in book-entry only form or (2) the
junior subordinated debentures are not represented by a global subordinated
debenture, then the record date for the interest payment will be the 15th day of
the month in which the payment is made. The amount of each interest payment due
regarding the junior subordinated debentures will include amounts accrued and
unpaid through the date the interest payment is due. It is anticipated that,
until the liquidation, if any, of BVBC Trust, each junior subordinated debenture
will be held in the name of the property trustee in trust for the benefit of the
holders of the trust preferred securities. The amount of interest payable for
any period will be computed on the basis of a 360-day year of twelve 30-day
months. If any date on which interest is payable on the junior subordinated
debentures is not a business day, then payment of the interest payable on that
date will be made on the next business day. If, however, the next business day
falls in the next calendar year, the payment will be made on the immediately
preceding business day. Accrued interest that is not paid on the applicable
interest payment date will bear additional interest at the rate per year
of % compounded quarterly. The term interest as used in this prospectus
includes quarterly interest payments, interest on quarterly interest payments
not paid on the applicable interest payment date and additional sums, as defined
below, as applicable.
The junior subordinated debentures will mature on June 30, 2030. This date,
as it may be shortened as described below, is the stated maturity. This date may
be shortened once at any time by Blue Valley before the day which is 90 days
before the scheduled maturity date to any date not earlier than June 30, 2005,
but Blue Valley would have to receive prior approval of the Federal Reserve if
then required under applicable capital guidelines or policies of the Federal
Reserve. If Blue Valley shortens the stated maturity of the junior subordinated
debentures, it will give at least 90 days prior notice to the registered holders
of the junior subordinated debentures, the property trustee and the indenture
trustee. The property trustee must give notice to the holders of the trust
securities of the shortening of the stated maturity.
The junior subordinated debentures will be unsecured and will rank junior
and be subordinate in right of payment to all senior and subordinated debt, as
defined in the indenture, of Blue Valley. As of April 30, 2000, Blue Valley had
$9.1 million of indebtedness that ranked senior in right of payment to the
junior subordinated debentures. After giving effect to the use of the proceeds
of this offering as described under "Use of Proceeds," as of that date Blue
Valley would have had $1.9 million of indebtedness that ranked senior in right
of payment to the junior subordinated debentures. Because Blue Valley is a
holding company, the right of Blue Valley to participate in any distribution of
assets of the Bank or any other subsidiary, or upon the Bank's or any other
subsidiary's liquidation or reorganization or otherwise, and thus
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the ability of holders of the junior subordinated debentures to benefit
indirectly from the distribution, is subject to the prior claims of creditors of
that subsidiary, except to the extent that Blue Valley may itself be recognized
as a creditor of that subsidiary. As a result, the junior subordinated
debentures will be effectively subordinated to all existing and future
liabilities of Blue Valley's subsidiaries, and holders of junior subordinated
debentures should look only to the assets of Blue Valley for payments on the
junior subordinated debentures. The indenture does not limit the incurrence or
issuance of other secured or unsecured debt of Blue Valley, including senior and
subordinated debt, whether under the indenture or any existing or other
indenture that Blue Valley may enter into in the future or otherwise. See
"Subordination" below.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
If no debenture event of default has occurred and is continuing, Blue
Valley has the right under the indenture at any time during the term of the
junior subordinated debentures to defer interest payments at any time for a
period not exceeding 20 consecutive quarters. However, no extension period may
extend beyond the stated maturity of the junior subordinated debentures. At the
end of an extension period, Blue Valley must pay all interest then accrued and
unpaid, together with interest at the rate of % per year, compounded
quarterly. During an extension period, interest will continue to accrue and
holders of junior subordinated debentures will be required to accrue interest
income for United States federal income tax purposes. See "Material Federal
Income Tax Consequences -- Interest Income and Original Issue Discount."
During any extension period, Blue Valley may not (1) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment regarding, any of Blue Valley's capital stock or (2) make
any payment of principal, interest or premium, if any, on or repay, repurchase
or redeem any debt securities of Blue Valley, including other junior
subordinated debentures, that rank equally with or junior to the junior
subordinated debentures or make any payments regarding any other trust preferred
securities guarantee by Blue Valley if the other trust preferred securities
guarantee ranks equally with or junior to the junior subordinated debentures.
These restrictions do not apply to:
- dividends or distributions in capital stock of Blue Valley;
- dividends concerning the implementation of a stockholders' rights plan,
or the issuance of stock under any plan in the future, or the
redemption or repurchase of any rights pursuant to this type of plan;
- payments under the trust preferred securities guarantee; or
- purchases of common stock for issuance under any contracts, benefit
plans or similar arrangements with or for its directors, officers,
employees or consultants.
Prior to the termination of any extension period, Blue Valley may further
extend the extension period if the extension would not cause the extension
period to exceed 20 consecutive quarters or extend beyond the stated maturity of
the junior subordinated debentures. Upon the termination of any extension period
and the payment of all amounts then due on any interest payment date, Blue
Valley may begin a new extension period subject to the above requirements. No
interest will be due and payable during an extension period, except at the end
of the extension period.
If the property trustee is the only registered holder of the junior
subordinated debentures, Blue Valley must give the property trustee, the
administrative trustees and the indenture trustee notice of its election of any
extension period at least five business days prior to the earlier of (1) the
date the distributions on the trust preferred securities would have been payable
except for the election to begin or extend the extension period or (2) the date
the administrative trustees are required to give notice to the holders of the
trust preferred securities of the record date or the date the distributions are
payable, but in any event not less than five business days prior to the record
date. The indenture trustee will give notice of Blue Valley's election to begin
or extend a new extension period to the administrative trustees who, in turn,
will give
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notice to the holders of the trust preferred securities. There is no limitation
on the number of times that Blue Valley may begin an extension period.
ADDITIONAL SUMS TO BE PAID AS A RESULT OF ADDITIONAL TAXES
If BVBC Trust or the property trustee is required to pay any additional
taxes, duties, assessments or other governmental charges as a result of a tax
event, Blue Valley will pay as additional amounts on the junior subordinated
debentures any amounts which will be required so that the distributions payable
by BVBC Trust will not be reduced as a result of any additional taxes, duties or
other governmental charges. See "Description of the Trust Preferred
Securities -- Redemption -- Mandatory and Optional Rights of Blue Valley" for a
definition of tax event.
REDEMPTION
If Blue Valley has received prior approval of the Federal Reserve, if then
required under applicable capital guidelines or policies of the Federal Reserve,
the junior subordinated debentures are redeemable prior to maturity at the
option of Blue Valley (1) beginning June 30, 2005, in whole or in part at any
time, or (2) at any time in whole, but not in part, if a tax event, an
investment company event or a capital treatment event occurs. In each case, the
redemption price is equal to the accrued and unpaid interest on the junior
subordinated debentures redeemed to the date fixed for redemption, plus 100% of
the principal amount of the junior subordinated debentures. See "Description of
the Trust Preferred Securities -- Redemption -- Mandatory and Optional Rights of
Blue Valley" for definitions of tax event, investment company event and capital
treatment event.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of junior subordinated
debentures to be redeemed at the holder's registered address. Unless Blue Valley
defaults in payment of the redemption price, on and after the redemption date
interest will cease to accrue on the junior subordinated debentures or portions
of the junior subordinated debentures called for redemption.
The junior subordinated debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Trust Preferred Securities
-Liquidation Distribution upon Termination," under circumstances involving the
dissolution of BVBC Trust, the junior subordinated debentures may be distributed
to the holders of the trust preferred securities and common securities in
liquidation of BVBC Trust after liabilities of BVBC Trust have been paid. If
distributed to holders of the trust preferred securities in liquidation, the
junior subordinated debentures will initially be issued in the form of one or
more global securities and the depositary, or any successor depositary for the
trust preferred securities, will act as depositary for the junior subordinated
debentures. It is anticipated that the depositary arrangements for the junior
subordinated debentures would be substantially identical to those for the trust
preferred securities. If the junior subordinated debentures are distributed to
the holders of trust preferred securities upon the dissolution of BVBC Trust,
Blue Valley cannot assure you as to the market price of any junior subordinated
debentures that may be distributed to the holders of trust preferred securities.
If the junior subordinated debentures are distributed, Blue Valley is required
to use its best efforts to list them on a national securities exchange or
quotation system, but this requirement will not prevent Blue Valley from
redeeming any or all of the junior subordinated debentures.
RESTRICTIONS ON PAYMENTS
Blue Valley has restrictions on paying dividends or making payments on debt
that is equal to or junior in rank if:
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- Blue Valley learns of any event that has occurred that (a) with the
giving of notice or the lapse of time, or both, would constitute a
debenture event of default and (b) Blue Valley has not taken reasonable
steps to cure; or
- Blue Valley has given notice of its election of an extension period as
provided in the indenture regarding the junior subordinated debentures
and has not rescinded the notice, or the extension period, or any
extension of the extension period, is continuing; or
- while the junior subordinated debentures are held by BVBC Trust, Blue
Valley is in default regarding its payment of any obligation under the
trust preferred securities guarantee.
If any of the events above have occurred, Blue Valley will not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment regarding, any of Blue Valley's
capital stock; or
- make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of Blue Valley, including other
junior subordinated debt, that rank equally with or junior to the junior
subordinated debentures or make any payments on any other trust
preferred securities guarantee if the other trust preferred securities
guarantee ranks equally or junior to the junior subordinated debentures.
However, Blue Valley may (1) declare and pay dividends or distributions in
common stock, (2) declare a dividend concerning the implementation of a
stockholders' rights plan, or the issuance of stock under this type of plan in
the future or the redemption or repurchase of any rights under this type of
plan, (3) make payments under the trust preferred securities guarantee and (4)
make purchases of common stock related to the issuance of common stock or rights
under any of Blue Valley's benefit plans for its directors, officers or
employees.
SUBORDINATION OF JUNIOR SUBORDINATED DEBENTURES TO SENIOR AND SUBORDINATED DEBT
OF BLUE VALLEY
In the indenture, Blue Valley has agreed that any junior subordinated
debentures will be subordinate and junior in right of payment to all senior and
subordinated debt to the extent provided in the indenture. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution, winding
up, reorganization or any bankruptcy, or similar proceedings in connection with
any insolvency or bankruptcy proceeding of Blue Valley, the holders of senior
and subordinated debt will first be entitled to receive payment in full of
principal, interest and premium, if any, on the senior and subordinated debt
before the holders of junior subordinated debentures will be entitled to receive
principal or interest payments on the junior subordinated debentures.
If the maturity date of any junior subordinated debentures is accelerated,
the holders of all senior and subordinated debt then outstanding will first be
entitled to receive payment in full of all amounts due to them, including any
amounts due upon acceleration, before the holders of junior subordinated
debentures will be entitled to receive any principal or interest payments on the
junior subordinated debentures. However, holders of subordinated debt will not
be entitled to receive payment of any of these amounts to the extent that the
subordinated debt is by its terms subordinated to trade creditors.
No principal or interest payments on the junior subordinated debentures may
be made if there has occurred and is continuing a default in any payment
regarding senior and subordinated debt or an event of default regarding any
senior and subordinated debt resulting in the acceleration of the maturity of
senior and subordinated debt, or if any judicial proceeding is pending regarding
any of this type of default.
Debt as used in this discussion means regarding any person, whether
recourse is to all or a portion of the assets of the person and whether or not
contingent:
- every obligation of the person for money borrowed;
- every obligation of the person evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses;
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- every reimbursement obligation of the person regarding letters of
credit, bankers' acceptances or similar facilities issued for the
account of the person;
- every obligation of the person issued or assumed as the deferred
purchase price of property or services, but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of
business;
- every capital lease obligation of the person; and
- every obligation of the type referred to in all of the points
immediately above of another person and all dividends of another person
the payment of which, in either case, the person has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise.
Senior and subordinated debt means the principal of and premium, if any,
and interest, if any, on debt of Blue Valley, including interest accruing at the
time of the filing of any petition in bankruptcy or for reorganization relating
to Blue Valley, whether incurred on or prior to the date of the indenture or
thereafter incurred, unless, in the instrument creating or evidencing the debt
or under which the debt is outstanding, it is provided that the obligations are
not superior in right of payment to the junior subordinated debentures or to
other debt which is equal with, or subordinated to, the junior subordinated
debentures.
However, senior and subordinated debt will not include:
- any debt of Blue Valley which when incurred and without respect to any
election under section 1111(b) of the United States Bankruptcy Code was
without recourse to Blue Valley;
- any debt to any employee of Blue Valley;
- any debt which by its terms is subordinated to trade accounts payable or
accrued liabilities arising in the ordinary course of business to the
extent that payments made to the holders of the debt by the holders of
the junior subordinated debentures as a result of the subordination
provisions of the indenture would be greater than they otherwise would
have been as a result of any obligation of the holders to pay amounts
over to the obligees on the trade accounts payable or accrued
liabilities arising in the ordinary course of business as a result of
subordination provisions to which the debt is subject;
- the trust preferred securities guarantee; and
- any other debt securities issued under the indenture.
The indenture places no limitation on the amount of additional senior and
subordinated debt that may be incurred by Blue Valley. Blue Valley expects to
incur additional indebtedness constituting senior and subordinated debt.
DENOMINATIONS, REGISTRATION AND TRANSFER
It is anticipated that, until the liquidation, if any, of BVBC Trust, each
junior subordinated debenture will be held in the name of the property trustee
in trust for the benefit of the holders of the trust preferred securities.
However, if either a tax event, investment company event or capital treatment
event occurs, the junior subordinated debentures in certificated form may be
exchanged and represented by global certificates registered in the name of the
depositary or its nominee. If this type of exchange occurs, beneficial interests
in the junior subordinated debentures will be shown on, and transferable
through, records maintained by the depositary. Except as described below, junior
subordinated debentures in certificated form will not be issued in exchange for
the global certificates.
Unless a global subordinated debenture is exchanged in whole or in part for
the individual junior subordinated debentures, it may not be transferred except
(1) as a whole by the depositary for the global subordinated debenture to a
nominee of the depositary, (2) by the depositary to a successor depositary
selected or approved by Blue Valley or (3) to any nominee of the successor.
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A global security will be exchangeable for junior subordinated debentures
registered in the names of persons other than the depositary or its nominee only
if (1) the depositary notifies Blue Valley that it is unwilling or unable to
continue as a depositary for the global security and no successor depositary has
been appointed, or if at any time the depositary ceases to be a clearing agency
registered under the Securities Exchange Act of 1934 at a time when the
depositary is required to be registered under that Act or (2) Blue Valley in its
sole discretion determines that the global security will be exchangeable. Any
global security that is exchangeable under the preceding sentence will be
exchangeable for definitive certificates registered in the names which the
depositary directs. It is expected that the instructions will be based upon
directions received by the depositary from its participants regarding ownership
of beneficial interests in the global security. If junior subordinated
debentures are issued in definitive form, the junior subordinated debentures
will be in denominations of $8 and integral multiples of $8 and may be
transferred or exchanged at the offices described below.
Payments on junior subordinated debentures represented by a global security
will be made to the depositary for the junior subordinated debentures. If junior
subordinated debentures are issued in definitive form, principal and interest
will be payable, the transfer of the junior subordinated debentures will be
registrable, and junior subordinated debentures will be exchangeable for junior
subordinated debentures of other denominations of a like aggregate principal
amount, at the corporate office of the indenture trustee, or at the offices of
any paying agent or transfer agent appointed by Blue Valley. However, interest
payments may be made at the option of Blue Valley by check mailed to the address
of the persons entitled to payments or by wire transfer. In addition, if the
junior subordinated debentures are issued in certificated form, the record dates
for interest payments will be the 15th day of the month in which the payment is
to be made.
Blue Valley will appoint the indenture trustee as securities registrar
under the indenture. Junior subordinated debentures may be presented for
exchange as provided above, and may be presented for registration of transfer
with the form of transfer endorsed, or a satisfactory written instrument of
transfer, duly executed, at the office of the securities registrar. Blue Valley
may at any time rescind the designation of any registrar or approve a change in
the location through which any registrar acts, as long as Blue Valley maintains
a registrar in the place of payment. Blue Valley may at any time designate
additional registrars regarding the junior subordinated debentures.
If any redemption of less than all of the junior subordinated debentures
occurs, Blue Valley and the indenture trustee will not be required to issue,
exchange or register the transfer of less than all of the junior subordinated
debentures during a period beginning at the opening of business 15 days before
the day of mailing of a notice of redemption selecting for redemption less than
all of the junior subordinated debentures and ending at the close of business on
the day of mailing of the relevant notice of redemption.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the junior subordinated
debentures will be made at the office of the indenture trustee, except that at
the option of Blue Valley payment of any interest may be made, except in the
case of a global subordinated debenture, by check mailed to the address of the
person entitled to payment as the person's address appears in the securities
register. Payment of any interest on junior subordinated debentures will be made
to the person in whose name the junior subordinated debenture is registered at
the close of business on the regular record date for the interest payment. Blue
Valley may at any time designate additional paying agents or rescind the
designation of any paying agent. However, Blue Valley will at all times be
required to maintain a paying agent in each place of payment for the junior
subordinated debentures.
Any moneys deposited with the indenture trustee or any paying agent, or
then held by Blue Valley in trust, for the payment of the principal of or
interest on the junior subordinated debentures that are not applied and remain
unclaimed for two years after the principal or interest has become due and
payable will, at the request of Blue Valley, be repaid to Blue Valley. After
that time, the holder of the junior subordinated debenture will look, as a
general unsecured creditor, only to Blue Valley for payment.
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MODIFICATION OF INDENTURE
From time to time Blue Valley and the indenture trustee may, without the
consent of the holders of the junior subordinated debentures, amend, waive or
supplement the indenture for specified purposes. These purposes may include,
among other things, curing ambiguities, defects or inconsistencies, as long as
this action does not materially adversely affect the interests of the holders of
the junior subordinated debentures or the trust preferred securities while they
remain outstanding, and qualifying, or maintaining the qualification of, the
indenture under the Trust Indenture Act. The indenture contains provisions
permitting Blue Valley and the indenture trustee, with the consent of the
holders of not less than a majority in aggregate principal amount of the
outstanding junior subordinated debentures, to modify the indenture in a manner
affecting the rights of the holders of the junior subordinated debentures, but
the modification may not, without the consent of the holder of each outstanding
junior subordinated debenture:
- change the stated maturity of the junior subordinated debentures or
extend the time of payment of interest on them, except as described
under "Description of the Junior Subordinated Debentures -- General
Overview" and "-- Option to Extend Interest Payment Period," or reduce
the principal amount or the rate of interest on them; or
- reduce the percentage of principal amount of junior subordinated
debentures, the holders of which are required to consent to any such
modification of the indenture.
However, while any of the trust preferred securities remain outstanding,
(1) no modification may be made that adversely affects the holders of the trust
preferred securities in any material respect, (2) no termination of the
indenture may occur, and (3) no waiver of any debenture event of default or
compliance with any covenant under the indenture may be effective, without the
prior consent of the holders of at least a majority of the aggregate liquidation
amount of the trust preferred securities, until the principal and interest of
the junior subordinated debentures have been paid in full and other conditions
are satisfied.
CO-TRUSTEES AND SEPARATE TRUSTEES
Unless an event of default under the indenture has occurred and is
continuing, at any time, for the purpose of meeting the legal requirements of
any applicable jurisdiction, Blue Valley and the indenture trustee have the
power to appoint one or more persons either to act as (1) a co-trustee, jointly
with the indenture trustee, or (2) a separate trustee under the indenture. In
either case, these trustees will have the powers which may be provided in the
instrument of appointment, and will have vested in them any property, title,
right or power deemed necessary or desirable, subject to the provisions of the
indenture. In case an event of default under the indenture has occurred and is
continuing, the indenture trustee alone will have the power to make the
appointment.
INDENTURE EVENTS OF DEFAULT
Under the indenture, any one or more of the following events that has
occurred and is continuing constitutes a debenture event of default:
- failure for 30 days to pay any interest on the junior subordinated
debentures, when due, except for the deferral of any due date in the
case of an extension period;
- failure to pay any principal on the junior subordinated debentures when
due whether at maturity, upon redemption, by declaration or otherwise,
but a valid extension period under the indenture will not constitute a
debenture event of default;
- failure by Blue Valley to observe or perform in any material respect any
of its other covenants or agreements contained in the indenture for 90
days after written notice to Blue Valley from the indenture trustee or
to Blue Valley and the indenture trustee by the holders of at least 25%
in aggregate outstanding principal amount of the junior subordinated
debentures; or
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- the bankruptcy, insolvency or reorganization of Blue Valley, including
the voluntary commencement of bankruptcy proceedings, entry of an order
for relief against Blue Valley in a bankruptcy proceeding, appointment
of a custodian over substantially all of Blue Valley's property, a
general assignment for the benefit of creditors, or a court order for
liquidation of Blue Valley.
The holders of a majority in aggregate outstanding principal amount of the
junior subordinated debentures may direct the time, method and place of
conducting any proceeding for any remedy available to the indenture trustee. The
indenture trustee or the holders of not less than 25% in aggregate outstanding
principal amount of the junior subordinated debentures may declare the principal
due and payable immediately upon a debenture event of default. The holders of a
majority in aggregate outstanding principal amount of the junior subordinated
debentures may rescind and annul the declaration and waive the default if the
default, other than the non-payment of the principal of the junior subordinated
debentures which has become due solely by the acceleration, has been cured and a
sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the indenture trustee. If
the holders of the junior subordinated debentures fail to cancel the declaration
and waive the default, the holders of a majority in aggregate liquidation amount
of the trust preferred securities will have the right to do so. In case a
debenture event of default occurs and is continuing, the property trustee will
have the right to declare the principal of and the interest on the junior
subordinated debentures, and any other amounts payable under the indenture, to
be due and payable and to enforce its other rights as a creditor.
Blue Valley is required to file annually with the indenture trustee a
certificate as to whether Blue Valley is in compliance with all the conditions
and covenants applicable to it under the indenture.
ENFORCEMENT OF RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If an event of default under the indenture has occurred and is continuing
and the default is attributable to Blue Valley's failure to pay interest or
principal on the junior subordinated debentures on the due date, a holder of
trust preferred securities may sue Blue Valley directly for payment of principal
and interest on the junior subordinated debentures having a principal amount
equal to the aggregate liquidation amount of the trust preferred securities of
the holder. This action is referred to in this discussion as a direct action. If
the right to bring a direct action is removed, BVBC Trust may become subject to
the reporting obligations under the Securities Exchange Act of 1934. Blue Valley
will have the right under the indenture to set-off any payment made to the
holder of trust preferred securities by Blue Valley in connection with a direct
action.
The holders of the trust preferred securities will not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the junior subordinated debentures unless there has
been an event of default under the trust agreement. See "Description of the
Trust Preferred Securities -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The indenture provides that Blue Valley will not consolidate with or merge
into any other person or convey, transfer or lease its properties and assets
substantially as an entirety to any person, and no person will consolidate with
or merge into Blue Valley or convey, transfer or lease its properties and assets
substantially as an entirety to Blue Valley, unless:
- in case Blue Valley consolidates with or merges into another person or
conveys or transfers its properties and assets substantially as an
entirety to any person, the successor person is organized under the laws
of the United States or any state or the District of Columbia, and the
successor person expressly assumes Blue Valley's obligations on the
junior subordinated debentures issued under the indenture;
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- immediately after giving effect to this type of transaction, no
debenture event of default, and no event which, after notice or lapse of
time or both, would become a debenture event of default, has occurred
and is continuing; and
- other conditions as prescribed in the indenture are met.
The provisions of the indenture do not give holders of the junior
subordinated debentures protection in the event of a highly leveraged or other
transaction involving Blue Valley that may adversely affect holders of the
junior subordinated debentures.
SATISFACTION AND DISCHARGE
Under the indenture, Blue Valley will have satisfied and discharged the
indenture when all junior subordinated debentures not previously delivered to
the indenture trustee for cancellation (1) have become due and payable or (2)
will become due and payable at their stated maturity within one year, and Blue
Valley deposits in trust with the indenture trustee sufficient funds to pay and
discharge the entire indebtedness on the junior subordinated debentures to the
deposit date or to the stated maturity, as the case may be. This satisfaction
and discharge will not apply to Blue Valley's obligations to pay all other sums
due under the indenture and to provide the officers' certificates and opinions
of counsel described in the indenture.
GOVERNING LAW
The indenture and the junior subordinated debentures will be governed by
and construed in accordance with the laws of the State of Kansas.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The indenture trustee will have and be subject to all the duties and
responsibilities specified for an indenture trustee under the Trust Indenture
Act. Subject to these provisions, the indenture trustee is under no obligation
to exercise any of its powers under the indenture at the request of any holder
of junior subordinated debentures, unless offered reasonable indemnity by the
holder against the costs, expenses and liabilities which might be incurred. The
indenture trustee is not required to expend or risk its own funds or otherwise
incur personal financial liability in the performance of its duties if the
indenture trustee reasonably believes that repayment or adequate indemnity is
not reasonably assured to it.
COVENANTS OF BLUE VALLEY
Blue Valley will covenant in the indenture, as to the junior subordinated
debentures, that during the time that (1) BVBC Trust is the holder of all junior
subordinated debentures, (2) a tax event in respect of BVBC Trust has occurred
and is continuing and (3) Blue Valley has elected, and has not revoked the
election, to pay additional sums, as defined under "Description of the Trust
Preferred Securities -- Redemption -- Mandatory and Optional Rights of Blue
Valley," in respect of the trust preferred securities, Blue Valley will pay to
BVBC Trust these additional sums. Blue Valley will also covenant, as to the
junior subordinated debentures:
- to maintain directly or indirectly 100% ownership of the common
securities of BVBC Trust to which junior subordinated debentures have
been issued, but successors which are permitted under the indenture may
succeed to Blue Valley's ownership of the common securities;
- to not voluntarily dissolve BVBC Trust, except upon approval of the
Federal Reserve if then required, and to use its reasonable efforts to
cause BVBC Trust to remain a business trust, except (a) in connection
with a distribution of junior subordinated debentures to the holders of
the trust preferred securities in liquidation of BVBC Trust, (b) the
redemption of all of the trust securities or (c) in connection with
mergers, consolidations, or amalgamations permitted by the trust
agreement;
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- to use its reasonable efforts to cause each holder of trust securities
to be treated as owning an individual beneficial interest in the junior
subordinated debentures; and
- to fulfill all filing and reporting obligations under the Securities
Exchange Act, as applicable to a company having a class of securities
registered under that Act, for so long as the junior subordinated
debentures are outstanding.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES GUARANTEE
Blue Valley and Wilmington Trust Company will make the preferred securities
guarantee concurrently with the issuance of the trust preferred securities. The
trust preferred securities guarantee will be for the benefit of the holders of
the trust preferred securities. Wilmington Trust Company will act as trustee
under the trust preferred securities guarantee for the purposes of compliance
with the Trust Indenture Act, and the trust preferred securities guarantee will
be qualified under the Trust Indenture Act. The following is a summary of the
material provisions of the trust preferred securities guarantee. Prospective
investors are urged to read the form of the trust preferred securities guarantee
which has been filed as an exhibit to the registration statement of which this
prospectus forms a part. The guarantee trustee will hold the trust preferred
securities guarantee for the benefit of the holders of the trust preferred
securities.
GENERAL OVERVIEW
The trust preferred securities guarantee is an irrevocable guarantee on a
subordinated basis of all of BVBC Trust's obligations to make payments under the
trust preferred securities, but will apply only if BVBC Trust has funds
sufficient to make the payments. The trust preferred securities guarantee is not
a guarantee of collection.
Blue Valley will irrevocably and unconditionally agree to pay in full on a
subordinated basis, to the extent set forth in this prospectus, the trust
preferred securities guarantee payments, as defined below, to the holders of the
trust preferred securities, as and when due, regardless of any defense, right of
set-off or counterclaim that BVBC Trust may have or assert other than the
defense of payment. The following payments regarding the trust preferred
securities, to the extent not paid by or on behalf of BVBC Trust, will be
subject to the trust preferred securities guarantee of Blue Valley:
- any accrued and unpaid distributions required to be paid on the
trust preferred securities if BVBC Trust has available funds on hand
at the time;
- the redemption price regarding any trust preferred securities called
for redemption if BVBC Trust has available funds on hand at the
time; and
- upon a voluntary or involuntary dissolution of BVBC Trust, unless the
junior subordinated debentures are distributed to holders of the trust
preferred securities.
The amount of the trust preferred securities guarantee will be the lesser
of (a) the liquidation distribution and (b) the amount of assets of BVBC Trust
remaining available for distribution to holders of trust preferred securities.
Blue Valley may pay directly the required amounts to the holders of the trust
preferred securities or cause BVBC Trust to pay these amounts to the holders.
If Blue Valley does not make interest payments on the junior subordinated
debentures held by BVBC Trust, BVBC Trust will not be able to pay distributions
on the trust preferred securities and will not have funds legally available to
pay distributions. The trust preferred securities guarantee will rank
subordinate and junior in right of payment to all senior and subordinated debt
of Blue Valley. See "- Status of the Trust Preferred Securities Guarantee"
below. Because Blue Valley is a holding company, the right of Blue Valley to
participate in any distribution of assets of any subsidiary upon the
subsidiary's liquidation or reorganization or otherwise, is subject to the prior
claims of creditors of that subsidiary, except to the extent Blue Valley may
itself be recognized as a creditor of that subsidiary. Accordingly, Blue
Valley's obligations under the trust preferred securities guarantee will be
effectively subordinated to all existing and future liabilities of Blue Valley's
subsidiaries, and you should look only to the assets of Blue Valley for
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payments under the trust preferred securities guarantee. Except as otherwise
described in this prospectus, the trust preferred securities guarantee does not
limit the incurrence or issuance of other secured or unsecured debt of Blue
Valley, including senior and subordinated debt whether under the indenture, any
other indenture that Blue Valley may enter into in the future, or otherwise.
Blue Valley has, through the trust preferred securities guarantee, the
trust agreement, the junior subordinated debentures, the indenture and the
expense agreement relating to BVBC Trust, taken together, fully, irrevocably and
unconditionally guaranteed on a subordinated basis all of BVBC Trust's
obligations under the trust preferred securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes this trust preferred securities guarantee. It is only the combined
operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee on a subordinated basis of all of BVBC
Trust's obligations under the trust preferred securities. See "Relationship
Among the Trust Preferred Securities, the Junior Subordinated Debentures and the
Trust Preferred Securities Guarantee."
STATUS OF THE TRUST PREFERRED SECURITIES GUARANTEE
The trust preferred securities guarantee will constitute an unsecured
obligation of Blue Valley and will rank subordinate and junior in right of
payment to all senior and subordinated debt in the same manner as the junior
subordinated debentures. As of April 30, 2000, Blue Valley had $9.1 million of
indebtedness that ranked senior in right of payment to its obligations under the
trust preferred securities guarantee. After giving effect to the use of the
proceeds of this offering as described under "Use of Proceeds," as of that date
Blue Valley would have had $1.9 million of indebtedness that ranked senior in
right of payment to its obligations under the trust preferred securities
guarantee.
The trust preferred securities guarantee will constitute a guarantee of
payment and not of collection. The guaranteed party may sue Blue Valley directly
to enforce its rights under the trust preferred securities guarantee without
first suing any other person or entity. The trust preferred securities guarantee
will be held for the benefit of the holders of the trust preferred securities.
The trust preferred securities guarantee does not place a limitation on the
amount of additional senior and subordinated debt that may be incurred by Blue
Valley. Blue Valley expects to incur additional indebtedness constituting senior
and subordinated debt.
AMENDMENTS AND ASSIGNMENT
Except for any changes which do not materially adversely affect the rights
of holders of the trust preferred securities, in which case no consent will be
required, the trust preferred securities guarantee may not be amended without
the prior approval of the holders of at least a majority of the aggregate
liquidation amount of the outstanding trust preferred securities. No amendment
that affects the rights, powers, duties, obligations or immunities of the
guarantee trustee will be effective unless approved by the guarantee trustee.
See "Description of the Trust Preferred Securities -- Voting Rights; Amendment
of the Trust Agreement." All guarantees and agreements contained in the trust
preferred securities guarantee will bind the successors, assigns, receivers,
trustees and representatives of Blue Valley and will be for the benefit of the
holders of the trust preferred securities then outstanding.
EVENTS OF DEFAULT
An event of default under the trust preferred securities guarantee will
occur upon the failure of Blue Valley to perform any of its payment or other
obligations under the trust preferred securities guarantee. The holders of at
least a majority in aggregate liquidation amount of the trust preferred
securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the guarantee trustee regarding the trust
preferred securities guarantee or to direct the exercise of any trust or power
conferred upon the guarantee trustee under the trust preferred securities
guarantee.
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Any holder of trust preferred securities may sue Blue Valley directly to
enforce the holder's rights under the trust preferred securities guarantee
without first suing BVBC Trust, the guarantee trustee or any other person or
entity.
Blue Valley, as guarantor, is required to file annually with the guarantee
trustee a certificate as to whether Blue Valley is in compliance with all the
conditions and covenants applicable to it under the trust preferred securities
guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee, other than during the occurrence and continuance of
a default by Blue Valley in performance of the trust preferred securities
guarantee, will perform only the duties which are specifically described in the
trust preferred securities guarantee. After default regarding the trust
preferred securities guarantee, the guarantee trustee must exercise the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this limitation, the guarantee
trustee is under no obligation to exercise any of its rights or powers under the
trust preferred securities guarantee at the request or direction of any holder
of the trust preferred securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred.
TERMINATION OF THE TRUST PREFERRED SECURITIES GUARANTEE
The trust preferred securities guarantee will terminate and be of no
further force and effect upon full payment of the redemption price of the trust
preferred securities, upon full payment of the amounts payable upon liquidation
of BVBC Trust or upon distribution of junior subordinated debentures to the
holders of the trust preferred securities. The trust preferred securities
guarantee will continue to be effective or will be reinstated if at any time any
holder of the trust preferred securities must restore payment of any sums paid
under the trust preferred securities or the trust preferred securities
guarantee.
GOVERNING LAW
The trust preferred securities guarantee will be governed by and construed
in accordance with the laws of the State of Kansas.
DESCRIPTION OF THE EXPENSE AGREEMENT
Under the agreement as to expenses and liabilities between Blue Valley and
BVBC Trust, Blue Valley will irrevocably and unconditionally guarantee to each
person or entity to whom BVBC Trust becomes indebted or liable, the full payment
of any costs, expenses or liabilities of BVBC Trust, other than obligations of
BVBC Trust to pay to the holders of the trust preferred securities or other
similar interests in BVBC Trust of the amounts due the holders under the terms
of the trust preferred securities or the other similar interests.
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES
AND THE TRUST PREFERRED SECURITIES GUARANTEE
FULL AND UNCONDITIONAL TRUST PREFERRED SECURITIES GUARANTEE ON A SUBORDINATED
BASIS
Payments of distributions and other amounts due on the trust preferred
securities, to the extent BVBC Trust has funds available for the payment of the
distributions, are irrevocably guaranteed by Blue Valley to the extent described
under "Description of the Trust Preferred Securities Guarantee." Taken together,
Blue Valley's obligations under the junior subordinated debentures, the
indenture, the trust agreement, the expense agreement and the trust preferred
securities guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee on a subordinated basis of payments of distributions and
other amounts due on the trust preferred securities. No single document standing
alone or operating in conjunction with fewer
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than all of the other documents constitutes the trust preferred securities
guarantee. It is only the combined operation of those documents that has the
effect of providing a full, irrevocable and unconditional guarantee on a
subordinated basis of BVBC Trust's obligations under the trust preferred
securities. If Blue Valley does not make payments on the junior subordinated
debentures, BVBC Trust will not pay distributions or other amounts due on the
trust preferred securities. The trust preferred securities guarantee does not
cover payment of distributions when BVBC Trust does not have sufficient funds to
pay the distributions. If this happens, the remedy of a holder of the trust
preferred securities is to sue Blue Valley directly for enforcement of payment
of the distributions to the holder. The obligations of Blue Valley under the
trust preferred securities guarantee are subordinate and junior in right of
payment to all senior and subordinated debt.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
junior subordinated debentures, the payments will be sufficient to cover
distributions and other payments due on the trust preferred securities,
primarily because:
- the aggregate principal amount of the junior subordinated debentures
will be equal to the sum of the aggregate liquidation amount of the
trust preferred securities and common securities;
- the interest rate and interest and other payment dates on the junior
subordinated debentures will match the distribution rate and
distribution and other payment dates for the trust preferred securities;
- Blue Valley will pay for any and all costs, expenses and liabilities of
BVBC Trust except BVBC Trust's obligations to holders of trust preferred
securities; and
- the trust agreement prohibits BVBC Trust from engaging in any activity
that is inconsistent with the limited purposes of BVBC Trust.
Blue Valley may satisfy any payment it is otherwise required to make to
BVBC Trust under the indenture, by making a payment under the trust preferred
securities guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF THE TRUST PREFERRED SECURITIES UNDER THE TRUST
PREFERRED SECURITIES GUARANTEE
A holder of any of the trust preferred securities may sue Blue Valley
directly to enforce its rights under the trust preferred securities guarantee
without first suing the guarantee trustee, BVBC Trust or any other person or
entity.
A default under any senior and subordinated debt would not constitute an
event of default. However, if Blue Valley defaults under its senior and
subordinated debt, the indenture provides that no payments may be made on the
junior subordinated debentures until the senior and subordinated debt has been
paid in full or any payment default has been cured or waived. Failure to make
required payments on junior subordinated debentures would constitute an event of
default.
LIMITED PURPOSE OF BVBC TRUST
The trust preferred securities evidence a beneficial interest in BVBC
Trust, and BVBC Trust exists for the sole purpose of issuing the trust
securities and investing the proceeds from the sale of the trust securities in
the junior subordinated debentures. A principal difference between the rights of
a holder of the trust preferred securities and a holder of a junior subordinated
debenture is that a holder of a junior subordinated debenture is entitled to
receive from Blue Valley the principal amount of and interest accrued on junior
subordinated debentures held, while a holder of the trust preferred securities
is entitled to receive distributions from BVBC Trust, or from Blue Valley under
the trust preferred securities guarantee, if and to the extent BVBC Trust has
funds available for the payment of the distributions.
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RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of BVBC Trust involving the
liquidation of the junior subordinated debentures, the holders of trust
preferred securities will be entitled to receive, out of assets held by BVBC
Trust and available for distribution, the liquidation distribution in cash. See
"Description of the Trust Preferred Securities -- Liquidation Distribution Upon
Termination." Upon any voluntary or involuntary liquidation or bankruptcy of
Blue Valley, the property trustee, as holder of the junior subordinated
debentures, would be a subordinated creditor of Blue Valley, subordinated in
right of payment to all senior and subordinated debt as described in the
indenture, but entitled to receive payment in full of principal and interest,
before any shareholders of Blue Valley receive payments or distributions. Since
Blue Valley is the guarantor under the trust preferred securities guarantee and
has agreed to pay for all costs, expenses and liabilities of BVBC Trust, other
than BVBC Trust's obligations to the holders of its trust preferred securities,
the positions of a holder of the trust preferred securities and a holder of
junior subordinated debentures relative to other creditors and to shareholders
of Blue Valley in the event of liquidation or bankruptcy of Blue Valley are
expected to be substantially the same.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
Blackwell Sanders Peper Martin LLP, Kansas City, Missouri, as Blue Valley's
special tax counsel ("Tax Counsel"), has given their written legal opinion that
the following discussion correctly describes the material United States federal
income tax consequences of the purchase, ownership and disposition of trust
preferred securities.
The following discussion is general and may not apply to your particular
circumstances for any of the following, or other, reasons:
- This discussion is based on United States federal income tax laws,
including the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury regulations promulgated thereunder and administrative and
judicial interpretations of these authorities, in effect as of the date
of this prospectus. Changes to any of these laws, possibly on a
retroactive basis, after this date may affect the tax consequences
described below.
- This discussion addresses only trust preferred securities acquired at
original issuance at the original offering price and held as capital
assets, within the meaning of United States federal income tax law. It
does not discuss all of the tax consequences that may be relevant to
"Holders," as defined below, of trust preferred securities who are
subject to special rules, such as banks, thrift institutions and
certain other financial institutions, real estate investment trusts,
regulated investment companies, insurance companies, brokers and
dealers in securities or currencies, certain securities traders,
tax-exempt investors, individual retirement accounts and certain tax-
deferred accounts, and foreign investors. This discussion also does not
address tax consequences that may be relevant to a Holder in light of
the Holder's particular circumstances, such as a Holder holding a trust
preferred security as a position in a straddle, hedge, conversion or
other integrated investment.
- This discussion does not address:
(a) The income tax consequences to stockholders in, or partners or
beneficiaries of, a Holder of trust preferred securities;
(b) the United States alternative minimum tax consequences or other
collateral tax consequences of purchasing, owning and disposing of
trust preferred securities; or
(c) any state, local or foreign tax consequences of purchasing, owning
and disposing of trust preferred securities.
The authorities on which this discussion is based are subject to various
interpretations, and the opinions of Tax Counsel are not binding on the IRS or
the courts, either of which could take a contrary position. Moreover, no rulings
have been or will be sought from the IRS with respect to the transactions
described herein. Accordingly, no assurance can be given to prospective
investors that the IRS will not challenge the opinions expressed herein or that
a court would not sustain such a challenge.
WE ADVISE YOU TO CONSULT YOUR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF THE TRUST PREFERRED
SECURITIES BASED ON YOUR PARTICULAR CIRCUMSTANCES AND THE RELEVANT TAXING
JURISDICTION.
UNITED STATES HOLDERS
IN GENERAL. For purposes of the following discussion, a United States
Holder (a "Holder") means.
- a citizen or individual resident of the United States;
- a corporation or partnership created or organized in or under the laws
of the United States or any political subdivision;
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- an estate the income of which is includible in its gross income for
United States federal income tax purposes without regard to its source;
or
- a trust if a court within the United States is able to exercise primary
supervision over its administration and at least one United States
person has the authority to control all substantial decisions of the
trust.
CHARACTERIZATION OF BVBC TRUST. Tax Counsel has delivered its opinion that
(1) under then current law and based on the representations, facts and
assumptions set forth in this prospectus, (2) assuming full compliance with the
terms of the trust agreement, and other relevant documents, and (3) based on
assumptions and qualifications contained in the opinion, BVBC Trust will be
characterized for United States federal income tax purposes as a grantor trust
and not as an association taxable as a corporation. Accordingly, for United
States federal income tax purposes, a Holder of a trust preferred security will
be considered the beneficial owner of an undivided interest in the junior
subordinated debentures owned by BVBC Trust, and will be required to include on
its United States federal income tax return all income or gain recognized for
United States federal income tax purposes with respect to its share of the
junior subordinated debentures.
CHARACTERIZATION OF THE JUNIOR SUBORDINATED DEBENTURES. Tax Counsel has
delivered its opinion that, under current law, the junior subordinated
debentures are debt of Blue Valley for United States federal income tax
purposes. By acceptance of a beneficial interest in a trust preferred security,
a Holder agrees to treat the junior subordinated debentures as Blue Valley's
debt and the trust preferred securities as evidence of a beneficial ownership
interest in the junior subordinated debentures. This position may be challenged
by the IRS and Tax Counsel cannot give any assurance that a challenge will be
unsuccessful. The remainder of this discussion assumes that the junior
subordinated debentures will be classified as debt for United States federal
income tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT. Under the terms of the junior
subordinated debentures, Blue Valley has the ability to defer payments of
interest from time to time by extending the interest payment period for a period
not exceeding 20 consecutive quarterly periods, but not beyond the stated
maturity of the junior subordinated debentures. Treasury regulations provide
that debt instruments like the junior subordinated debentures, assuming they
will be issued at face value, will not be considered issued with original issue
discount ("OID"), even if their issuer can defer payments of interest, if the
likelihood of any deferral is "remote."
Blue Valley concluded, and this discussion assumes, that, as of the date of
this prospectus, the likelihood of Blue Valley deferring payments of interest is
"remote" within the meaning of the applicable Treasury regulations. This
conclusion is based in part on the fact that exercising that option would
prevent Blue Valley from declaring dividends on its common stock and would
prevent it from making any payments with respect to debt securities that rank
equally with or junior to the junior subordinated debentures. Therefore, Blue
Valley believes and will take the position that the junior subordinated
debentures will not be treated as issued with OID by reason of the deferral
option alone. Rather, Holders will be taxed on stated interest on the junior
subordinated debentures when it is paid or accrued in accordance with each
Holder's method of accounting for United States federal income tax purposes.
Because this issue has not been addressed in any published rulings or
interpretations issued by the IRS, it is possible that the IRS could take a
position contrary to the position taken by Blue Valley.
If Blue Valley exercises its option to defer payments of interest, the
junior subordinated debentures would be treated as redeemed and reissued for OID
purposes. The sum of the remaining interest payments, and any de minimis OID, on
the junior subordinated debentures will thereafter be treated as OID. The OID
would accrue, and be includible in a Holder's taxable income, on a daily
economic accrual basis, regardless of a Holder's method of accounting for income
tax purposes, over the remaining term of the junior subordinated debentures,
including any period of interest deferral, without regard to the timing of
payments under the junior subordinated debentures. Subsequent distributions of
interest on the junior subordinated debentures generally would not be taxable.
The amount of OID that would accrue in any period would approximately equal the
amount of interest that accrued on the junior subordinated
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debentures in that period at the stated interest rate. Consequently, during any
period of interest deferral, a Holder will include OID in gross income in
advance of the receipt of cash, and if a Holder disposes of a trust preferred
security prior to the record date for payment of distributions on the junior
subordinated debentures following that deferral period, a Holder will be subject
to income tax on OID accrued through the date of disposition, and not previously
included in income, but will not receive cash from BVBC Trust with respect to
the OID.
If the possibility of Blue Valley's exercise of its option to defer
payments of interest is not remote, the junior subordinated debentures would be
treated as initially issued with OID in an amount equal to the aggregate stated
interest, plus any de minimis OID, over the term of the junior subordinated
debentures. A Holder would include that OID in its taxable income, over the term
of the junior subordinated debentures, on a daily economic accrual basis.
CHARACTERIZATION OF INCOME. Because the income underlying the trust
preferred securities will be characterized as interest, not as dividends, for
United States federal income tax
purposes, if a Holder is a corporate holder of the trust preferred securities,
it will not be entitled to a dividends-received deduction for any income it
recognizes with respect to the trust preferred securities.
MARKET DISCOUNT AND BOND PREMIUM. Under some circumstances, a Holder may
be considered to have acquired its undivided interest in the junior subordinated
debentures with market discount or acquisition premium, as each phrase is
defined for United States federal income tax purposes. In this situation, such
Holder needs to contact its own tax advisor to determine its particular tax
consequences.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF BVBC
TRUST. Under the circumstances described above, BVBC Trust may distribute a
pro-rata share of the junior subordinated debentures to Holders in exchange for
their trust preferred securities and in liquidation of BVBC Trust. See
"Description of the Trust Preferred Securities -- Distribution of Junior
Subordinated Debentures." Except as discussed below, that type of a distribution
would not be a taxable event for United States federal income tax purposes, and
consequently a Holder (1) would have an aggregate adjusted basis in the junior
subordinated debentures received for United States federal income tax purposes
equal to the Holder's aggregate adjusted basis in the Holder's trust preferred
securities, and (2) would have a holding period in the junior subordinated
debentures received in such a liquidation of BVBC Trust which includes the
period during which the Holder held the trust preferred securities. If, however,
the event causing the liquidation of the BVBC Trust is a tax event, which
results in BVBC Trust being treated as an association taxable as a corporation,
the distribution would constitute a taxable event to a Holder for United States
federal income tax purposes. The Holder would recognize gain or loss as if the
Holder had sold or exchanged its trust preferred securities for the junior
subordinated debentures and received them upon liquidation. See "Sales of Trust
Preferred Securities" below. The Holder would recognize interest income in
respect of the junior subordinated debentures received from BVBC Trust in the
manner described above under "Interest Income and Original Issue Discount."
Under circumstances described above, Blue Valley may redeem junior
subordinated debentures for cash and distribute the proceeds of the redemption
to Holders in redemption of their trust preferred securities. See "Description
of the Trust Preferred Securities -- Redemption -- Mandatory and Optional Rights
of Blue Valley." The redemption would be taxable for United States federal
income tax purposes, and a Holder would recognize gain or loss as if it had sold
the trust preferred securities for cash. See "Sales of Trust Preferred
Securities" below.
SALES OF TRUST PREFERRED SECURITIES. Upon the sale or other taxable
disposition, including a redemption for cash, of the trust preferred securities,
a Holder will recognize gain or loss in an amount equal to the difference
between its adjusted tax basis in the trust preferred securities and the amount
realized in the sale, except to the extent of any amount received in respect to
accrued but unpaid interest or OID not previously included in income. A Holder's
adjusted tax basis in the trust preferred securities generally will be its
initial purchase price, increased by OID, if any, previously includible in a
Holder's gross income to the date of disposition and decreased by payments, if
any, received on the trust preferred
95
<PAGE> 99
securities in respect of OID to the date of disposition. The gain or loss
generally will be a capital gain or loss, and will be a long-term
capital gain or loss if the Holder has held the trust preferred securities for
more than one year prior to the date of disposition.
The trust preferred securities may trade at a price that does not
accurately reflect the value of accrued but unpaid interest, or OID, with
respect to the underlying junior subordinated debentures. A Holder who disposes
of its trust preferred securities between record dates for payments of
distributions thereon will be required to include in its taxable income for
United States federal income tax purposes (1) any portion of the amount realized
that is attributable to the accrued but unpaid interest to the extent not
previously included in income or (2) any amount of OID, in either case, that has
accrued on its pro rata share of the underlying junior subordinated debentures
during the taxable year of sale through the date of disposition. Any income
inclusion will increase a Holder's adjusted tax basis in the trust preferred
securities of which it disposes. To the extent that the amount realized in the
sale is less than a Holder's adjusted tax basis, a Holder will recognize a
capital loss. Subject to certain limited exceptions applicable to non-corporate
taxpayers, capital losses cannot be applied to offset ordinary income for United
States federal income tax purposes.
EFFECT OF CHANGES IN TAX LAWS
In recent years there have been several legislative proposals which, if
enacted, could have adversely affected the ability of Blue Valley to deduct
interest paid on the junior subordinated debentures. These proposals, however,
were not enacted. Nevertheless, there can be no assurance that other legislation
enacted in the future after the date hereof will not otherwise adversely affect
the ability of Blue Valley to deduct the interest payable on the junior
subordinated debentures. Legislation affecting the deductibility of such
interest may cause a tax event. Such a tax event would give us the right to
redeem the junior subordinated debentures. See "Description of Junior
Subordinated Debentures -- Redemption" and "Description of Trust Preferred
Securities -- Redemption -- Mandatory and Optional Rights of Blue Valley -- Tax
Event Redemption, Investment Company Event Redemption, Capital Event Redemption
or Distribution of Junior Subordinated Debentures."
A petition was filed during 1998 in the United States Tax Court as a result
of a challenge by the IRS of a taxpayer's treatment as indebtedness of a
security issued with characteristics similar to the junior subordinated
debentures. The IRS ultimately agreed to dismiss the related adjustments.
Nevertheless, the IRS could assert similar adjustments against other taxpayers.
If adjustments were proposed and the issue litigated resulting in the IRS's
position being sustained, a determination would constitute a tax event resulting
in early redemption of the trust preferred securities. See "Sales of Trust
Preferred Securities" above for the United States federal income tax
consequences of a redemption to a Holder.
NON-UNITED STATES HOLDERS
The following discussion applies to you if you are not a "Holder" as
described above.
Payments of interest, including OID, to a non-United States Holder on a
trust preferred security will generally not be subject to withholding of income
tax, provided that:
- the non-United States Holder did not, directly or indirectly, actually
or constructively, own 10% or more of the total combined voting power of
all classes of Blue Valley stock entitled to vote;
- the non-United States Holder is not a controlled foreign corporation
that is related to Blue Valley through stock ownership;
- the interest does not constitute contingent interest as described in
Section 871(h)(4) of the Code;
- the non-United States Holder is not a bank receiving interest described
in Section 881(c)(3)(A) of the Code; and
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<PAGE> 100
- either (1) the non-United States Holder certifies to BVBC Trust or its
agent under penalties of perjury, that the non-United States Holder is
not a United States Holder and provides its name and address, or (2) a
securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business (a "Financial Institution"), and holds the trust preferred
security in that capacity, certifies to BVBC Trust or its agent, under
penalties of perjury and in accordance with applicable Treasury
regulations, that it requires and has received the required statement
from the non-United States Holder or another Financial Institution
between it and the holder in the chain of ownership, and furnishes BVBC
Trust or its agent with a copy.
Recently finalized Treasury regulations, that are generally effective with
respect to payments made after December 31, 2000, would provide alternative
methods for satisfying the certification requirements described above.
As discussed above, it is possible that changes in the law affecting the
income tax consequences of the junior subordinated debentures could adversely
affect Blue Valley's ability to deduct interest payable on the junior
subordinated debentures. These changes could also cause the junior subordinated
debentures to be classified as Blue Valley's equity, rather than our debt, for
United States federal income tax purposes. This might cause the income derived
from the junior subordinated debentures to be characterized as dividends,
generally subject to a 30%, or lower rate under an applicable income tax treaty,
income tax, on a withholding basis, when paid to you if you are not a United
States Holder, rather than as portfolio interest which, as discussed above,
generally is exempt from income tax in the hands of a foreign corporation or
nonresident alien who is not a United States Holder.
If a non-United States Holder holds the trust preferred securities in
connection with the active conduct of a United States trade or business, the
non-United States Holder will be subject to income tax on all income and gains
recognized with respect to its proportionate share of the junior subordinated
debentures.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, the trust preferred securities held by a
noncorporate Holder within the United States. In addition, payments made on, and
payments of the proceeds from the sale of, the trust preferred securities to or
through the United States office of a broker are subject to information
reporting unless the Holder certifies as to its non-United States Holder status
or otherwise establish as an exemption from information reporting and backup
withholding. Taxable income on the trust preferred securities for a calendar
year should be reported to United States Holders on the appropriate forms by the
following January 31st.
Payments made on, and proceeds from the sale of, the trust preferred
securities may be subject to a "backup" withholding tax of 31% unless a Holder
complies with various identification or exemption requirements. Any amounts so
withheld will be allowed as a credit against a Holder's income tax liability, or
refunded, provided the required information is provided to the IRS.
In addition, a non-United States Holder will generally not be subject to
withholding of income tax on any gain realized upon the sale or other
disposition of a trust preferred security.
THE PRECEDING DISCUSSION IS ONLY A SUMMARY AND DOES NOT ADDRESS THE
CONSEQUENCES TO PARTICULAR PERSONS OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
THE TRUST PREFERRED SECURITIES. POTENTIAL PURCHASERS OF THE TRUST PREFERRED
SECURITIES ARE URGED TO CONTACT THEIR OWN TAX ADVISORS TO DETERMINE THEIR
PARTICULAR TAX CONSEQUENCES.
ERISA CONSIDERATIONS
We and certain of our affiliates may each be considered to be a "party in
interest" within the meaning of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or a "disqualified
97
<PAGE> 101
person" within the meaning of Section 4975 of the Code with respect to many
employee benefit plans that are subject to ERISA. The purchase of the trust
preferred securities by an employee benefit plan that is subject to the
fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of Section 4975(e)(1) of the Code and with respect to which we, or
any affiliate of ours, is a service provider, or otherwise a party in interest
or a disqualified person, may constitute or result in a prohibited transaction
under ERISA or Section 4975 of the Code, unless the trust preferred securities
are acquired pursuant to and in accordance with an applicable exemption. Any
pension or other employee benefit plan proposing to acquire any trust preferred
securities should consult with its counsel.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement between
us, BVBC Trust, and the underwriter, the underwriter has agreed to purchase from
BVBC Trust, and BVBC Trust has agreed to sell to the underwriter, 1,250,000
trust preferred securities.
The obligations of the underwriter to purchase the trust preferred
securities are subject to approval of certain legal matters by its counsel and
to various other conditions. Under the terms and conditions of the underwriting
agreement, the underwriter is committed to accept and pay for all of the trust
preferred securities, other than trust preferred securities covered by the
over-allotment option described below, if any are taken.
The underwriter proposes to offer the trust preferred securities directly
to the public at the public offering price set forth on the cover page of this
prospectus. Any trust preferred securities sold by the underwriter to securities
dealers may be sold at a concession of up to $ per trust preferred security
from the initial public offering price. These securities dealers may resell any
trust preferred securities purchased from the underwriter to other brokers and
dealers at a concession of up to $ per trust preferred security from the
initial public offering price. After the trust preferred securities are released
for sale to the public, the offering price and other selling terms may from time
to time be changed by the underwriter.
BVBC Trust has granted to the underwriter an option, exercisable within 30
days after the date of this prospectus, to purchase up to 187,500 additional
trust preferred securities at the same price per trust preferred security to be
paid by the underwriter for the other trust preferred securities being offered
hereby. The underwriter may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the distribution of the trust
preferred securities being offered hereby.
If the underwriter exercises its option to purchase additional trust
preferred securities, BVBC Trust will issue and sell to us additional common
securities and we will issue and sell to BVBC Trust junior subordinated
debentures in an aggregate principal amount equal to the total aggregate
liquidation amount of the additional trust preferred securities being purchased
under the option and the additional common securities sold to us.
The following table summarizes the price and proceeds on a per security and
aggregate basis. The proceeds to be received by BVBC Trust as shown in the below
do not reflect estimated expenses in connection with this offering of the trust
preferred securities of $800,000 payable by us.
<TABLE>
<CAPTION>
PER TRUST
PREFERRED SECURITY TOTAL
------------------ -----------
<S> <C> <C>
Public Offering Price....................................... $8.00 $10,000,000
Proceeds to BVBC Trust...................................... $8.00 $10,000,000
</TABLE>
In view of that fact that the proceeds of the sale of the trust preferred
securities will be used by BVBC Trust to purchase the junior subordinated
debentures from us, we have agreed to pay the underwriter $ per preferred
security, or a total of $ , as compensation for arranging the investment in
the junior subordinated debentures. Should the
98
<PAGE> 102
underwriter exercise the over-allotment option, an aggregate of $ will be
paid to the underwriter for arranging the investment in the junior subordinated
debentures.
During a period of 30 days from the date of this prospectus, neither BVBC
Trust nor we will, subject to certain exceptions, without the prior written
consent of the underwriter, directly or indirectly, sell, offer to sell, grant
any option for sale of, or otherwise dispose of, any trust preferred securities,
any security convertible into or exchangeable for trust preferred securities or
junior subordinated debentures or any debt securities substantially similar to
the junior subordinated debentures or equity securities substantially similar to
the trust preferred securities, except for junior subordinated debentures and
the trust preferred securities being offered hereby.
Because the National Association of Securities Dealers may view the trust
preferred securities as interests in a direct participation program, the offer
and sale of the trust preferred securities is being made in compliance with the
provisions of Rule 2810 under the NASD Conduct Rules.
Although we have applied to have the trust preferred securities listed on
the American Stock Exchange under the trading symbol " ", we cannot make any
assurances as to the liquidity of the trust preferred securities or that an
active and liquid market will develop or, if developed, that the market will
continue. The offering price and distribution rate for the trust preferred
securities have been determined by negotiations among our representatives and
the underwriter, and the offering price of the trust preferred securities may
not be indicative of their market price following this offering.
Blue Valley and the underwriter have agreed to indemnify, or to contribute
to payments made by, each other against certain civil liabilities, including
certain civil liabilities arising under the Securities Act.
This offering of the trust preferred securities is made for delivery when,
as and if accepted by the underwriter and subject to prior sale and to
withdrawal, cancellation or modification of this offering without notice. The
underwriter reserves the right to reject any order for the purchase of the trust
preferred securities. The underwriter has advised us that it does not intend to
confirm any sales to any accounts over which it exercises discretionary
authority.
In connection with this offering, the underwriter may engage in
transactions that are intended to stabilize, maintain or otherwise affect the
price of the trust preferred securities during and after the offering, such as
the following:
- the underwriter may over-allot or otherwise create a short position in
the trust preferred securities for their own account by selling more
trust preferred securities than have been sold to them;
- the underwriter may elect to cover any short position by purchasing
trust preferred securities in the open market or by exercising the
over-allotment option;
- the underwriter may stabilize or maintain the price of the trust
preferred securities by bidding; and
- the underwriter may impose penalty bids, under which selling concessions
allowed to syndicate members or broker-dealers participating in this
offering are reclaimed if trust preferred securities previously
distributed in this offering are repurchased in connection with
stabilization transactions or otherwise.
The effect of these transactions may be to stabilize or maintain the market
price at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of the trust preferred
securities to the extent that it discourages resales. No representation is made
as to the magnitude or effect of any of these stabilization or other
transactions. These transactions may be effected on the American Stock Exchange
or otherwise and, if commenced, may be discontinued at any time.
The underwriter has advised us that it will not make any sales to any
accounts over which it exercises discretionary authority without the prior
specific written approval of the customer.
99
<PAGE> 103
AVAILABLE INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act
with the SEC in connection with the offering described in this prospectus. This
prospectus omits certain information, exhibits and undertakings contained in the
registration statement we filed with the SEC. You may read and copy, upon
payment of a fee set by the SEC, any document that we file with the SEC at its
public reference rooms in Washington, D.C., 450 Fifth Street, N.W., 20549, New
York, New York, Seven World Trade Center, 13th Floor, Suite 1300, 10048, and
Chicago, Illinois, Citicorp Center, 500 West Madison Street, 14th Floor, Suite
1400, 60661. You may also call the SEC at 1-800-432-0330 for more information on
the public reference rooms. Our filings are also available to the public on the
Internet, through the SEC's EDGAR database. You may access the EDGAR database at
the SEC's web site at http://www.sec.gov.
Separate financial statements of BVBC Trust are not included in this
prospectus. We do not believe separate financial statements would be helpful
because:
- BVBC Trust is a subsidiary of Blue Valley, which will file consolidated
financial information under the Exchange Act.
- BVBC Trust does not have any independent operations other than issuing
the preferred and common securities and purchasing the junior
subordinated debentures of Blue Valley.
- BVBC Trust's only material assets will be the junior subordinated
debentures of Blue Valley when issued.
- The combined obligations of Blue Valley under the junior subordinated
debentures, the guarantee, the trust agreement and the indenture have
the effect of providing a full and unconditional guarantee of BVBC
Trust's obligations under its trust preferred securities. See
"Description of Junior Subordinated Securities," "Description of the
Trust Preferred Securities," "Description of Trust Preferred Securities
Guarantee" and "Relationship Among the Trust Preferred Securities, the
Junior Subordinated Debentures and the Trust Preferred Securities
Guarantee."
LEGAL MATTERS
The validity of the trust preferred securities and matters relating to
United States federal income tax consequences of this offering, will be passed
upon for us and for BVBC Trust by Blackwell Sanders Peper Martin LLP, Kansas
City, Missouri. Morris, Nichols, Arsht & Tunnell, Delaware, will pass upon
certain matters relating to Delaware law for BVBC Trust. Certain legal matters
will be passed upon for the underwriter by Lewis, Rice & Fingersh, L.C., St.
Louis, Missouri.
EXPERTS
The consolidated financial statements of Blue Valley for each of the years
in the three-year period ended December 31, 1999, included in this prospectus,
have been audited by Baird, Kurtz & Dobson, independent accountants, as stated
in their report appearing herein, and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
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<PAGE> 104
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS OF BLUE VALLEY BAN CORP
<TABLE>
<S> <C>
Independent Accountants' Review Report...................... F-2
Consolidated Balance Sheet (unaudited) -- March 31, 2000.... F-3
Consolidated Statements of Income (unaudited) -- three
months ended March 31, 2000 and 1999...................... F-5
Consolidated Statements of Changes in Stockholders' Equity
(unaudited) -- three months ended March 31, 2000.......... F-6
Consolidated Statements of Cash Flows (unaudited) -- three
months ended March 31, 2000 and 1999...................... F-7
Notes to Consolidated Financial Statements
(unaudited) -- three months ended March 31, 2000.......... F-8
Independent Accountants' Report............................. F-9
Consolidated Balance Sheets -- December 31, 1999 and 1998... F-10
Consolidated Statements of Income -- years ended December
31, 1999, 1998 and 1997................................... F-12
Consolidated Statements of Changes in Stockholders'
Equity -- years ended December 31, 1999, 1998 and 1997.... F-13
Consolidated Statements of Cash Flows -- years ended
December 31, 1999, 1998 and 1997.......................... F-14
Notes to Consolidated Financial Statements -- December 31,
1999, 1998 and 1997....................................... F-15
</TABLE>
F-1
<PAGE> 105
INDEPENDENT ACCOUNTANTS' REVIEW 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, 2000, and the related consolidated statements of income and cash
flows for the three month periods ended March 31, 2000 and 1999 and
stockholders' equity for the three months ended March 31, 2000. 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 accompanying consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
/s/ BAIRD, KURTZ & DOBSON
Kansas City, Missouri
May 24, 2000
F-2
<PAGE> 106
BLUE VALLEY BAN CORP
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------
(UNAUDITED)
<S> <C>
Cash and due from banks..................................... $ 12,703
Federal funds sold.......................................... 3,000
--------
Cash and cash equivalents................................. 15,703
Available-for-sale securities............................... 51,733
Mortgage loans held for sale................................ 2,528
Loans....................................................... 254,325
Less allowance for loan losses............................ (3,995)
--------
Net loans................................................. 250,330
Premises and equipment...................................... 5,587
Foreclosed assets held for sale, net........................ 311
Interest receivable......................................... 2,175
Deferred income taxes....................................... 1,924
Prepaid expenses and other assets........................... 908
Federal Home Loan Bank stock................................ 1,053
Excess of cost over fair value of net assets acquired, at
amortized cost............................................ 1,410
--------
Total Assets.............................................. $333,662
========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
and Independent Accountant's Review Report
F-3
<PAGE> 107
BLUE VALLEY BAN CORP
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------
(UNAUDITED)
<S> <C>
LIABILITIES
Demand deposits............................................. $ 39,491
Savings, NOW and money market deposits...................... 133,235
Time deposits............................................... 106,135
--------
Total Deposits............................................ 278,861
Securities sold under agreements to repurchase.............. 11,874
Short-term debt............................................. 7,263
Long-term debt.............................................. 11,874
Advances from borrowers for taxes and insurance............. 1,179
Accrued interest and other liabilities...................... 2,984
--------
Total Liabilities......................................... 314,035
--------
STOCKHOLDERS' EQUITY
Capital stock
Common stock, par value $1 per share;
Authorized 15,000,000 shares; issued and outstanding
2,141,720 shares...................................... 2,142
Additional paid-in capital.................................. 5,277
Retained earnings........................................... 13,290
Accumulated other comprehensive income
Unrealized depreciation on available-for-sale securities,
net of income taxes of $(721).......................... (1,082)
--------
Total Stockholders' Equity................................ 19,627
--------
Total Liabilities and Stockholders' Equity................ $333,662
========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
and Independent Accountant's Review Report
F-4
<PAGE> 108
BLUE VALLEY BAN CORP
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans.................................. $6,273 $4,027
Federal funds sold.......................................... 38 152
Available-for-sale securities............................... 753 713
------ ------
Total Interest Income..................................... 7,064 4,892
------ ------
INTEREST EXPENSE
Deposits.................................................... 2,951 2,229
Securities sold under repurchase agreements................. 91 57
Long-term debt and advances................................. 413 237
------ ------
Total Interest Expense.................................... 3,455 2,523
------ ------
NET INTEREST INCOME......................................... 3,609 2,369
PROVISION FOR LOAN LOSSES................................... 465 300
------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 3,144 2,069
------ ------
NONINTEREST INCOME
Service fees................................................ 600 659
Other income................................................ 75 56
------ ------
Total Noninterest Income.................................. 675 715
------ ------
NONINTEREST EXPENSE
Salaries and employee benefits.............................. 1,409 997
Net occupancy expense....................................... 257 198
Other operating expense..................................... 932 613
------ ------
Total Noninterest Expense................................. 2,598 1,808
------ ------
INCOME BEFORE INCOME TAXES.................................. 1,221 976
PROVISION FOR INCOME TAXES.................................. 388 321
------ ------
NET INCOME.................................................. $ 833 $ 655
====== ======
BASIC EARNINGS PER SHARE.................................... $ .39 $ .31
====== ======
DILUTED EARNINGS PER SHARE.................................. $ .38 $ .30
====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
and Independent Accountant's Review Report
F-5
<PAGE> 109
BLUE VALLEY BAN CORP
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
UNREALIZED
ADDITIONAL DEPRECIATION ON
COMPREHENSIVE COMMON PAID-IN RETAINED AVAILABLE-FOR-SALE
INCOME STOCK CAPITAL EARNINGS SECURITIES, NET TOTAL
------------- ------ ---------- -------- ------------------ -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999......... $2,138 5,230 $12,458 $ (957) $18,869
Issuance of 4,000 shares of common
stock............................ 4 47 51
Net income......................... $832 832 832
Change in unrealized depreciation
on available-for-sale securities,
net of income taxes of $(83)..... (125) (125) (125)
---- ------ ------ ------- ------- -------
BALANCE, MARCH 31, 2000............ $707 $2,142 $5,277 $13,290 $(1,082) $19,627
==== ====== ====== ======= ======= =======
RECLASSIFICATION DISCLOSURE:
Unrealized depreciation on available-for-sale securities, net of income
taxes of $(83)........................................................ $ (125)
Less: reclassification adjustments for appreciation (depreciation)
included in net income................................................ 0
-------
Change in unrealized depreciation on available-for-sale securities, net
of income taxes of $(83).............................................. $ (125)
=======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
and Independent Accountant's Review Report
F-6
<PAGE> 110
BLUE VALLEY BAN CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 833 $ 655
Items not requiring (providing) cash:
Depreciation and amortization............................. 146 128
Amortization (accretion) of premiums and discounts on
securities............................................. 21 (14)
Provision for loan losses................................. 465 300
Changes in:
Accrued interest receivable............................... (136) (268)
Mortgage loans held for sale.............................. (1,576) 933
Prepaid expenses and other assets......................... (69) (1,198)
Accrued interest payable and other liabilities............ 562 189
-------- --------
Net cash provided by operating activities.............. 246 725
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net originations of loans................................... (4,476) (25,114)
Proceeds from sales of loan participations.................. 110
Purchase of premises and equipment.......................... (120) (102)
Proceeds from the sale of foreclosed assets................. 39 22
Proceeds from maturities of available-for-sale securities... 205 8,000
Purchases of available-for-sale securities.................. (3,541) (12)
-------- --------
Net cash used in investing activities.................. (7,783) (17,206)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, money market, NOW and
savings accounts.......................................... 9,378 13,042
Net increase (decrease) in certificates of deposit.......... 1,338 (4,483)
Repayments of long-term debt................................ (34) (32)
Net payments on short-term debt............................. (10,187) (125)
Proceeds from sale of common stock.......................... 51
Net increase (decrease) in other borrowings................. 614 (1,595)
Net increase (decrease) in advances from borrowers for taxes
and insurance............................................. (1,380) 170
-------- --------
Net cash provided by (used in) financing activities.... (220) 6,977
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS....................... (7,757) (9,504)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 23,460 28,999
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 15,703 $ 19,495
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
and Independent Accountant's Review Report
F-7
<PAGE> 111
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
Company's consolidated financial position as of March 31, 2000, and the
consolidated results of its operations, changes in stockholders' equity and cash
flows for the periods ended March 31, 2000 and 1999, and are of a normal
recurring nature.
NOTE 2: RESULTS OF OPERATIONS
The results of operations for the period are not necessarily indicative of
the results to be expected for the full year.
NOTE 3: EARNINGS PER SHARE
Basic earnings per share is computed based on the weighted average number
of shares outstanding during each year. Diluted earnings per share is computed
using the weighted average common shares and all potential dilutive common
shares outstanding during the period.
The computation of per share earnings is as follows:
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C>
Net income.................................................. $ 833 $ 655
---------- ----------
Average common shares outstanding........................... 2,140,929 2,130,396
Average common share stock options outstanding.............. 34,372 18,688
---------- ----------
Average diluted common shares............................... 2,175,301 2,149,084
---------- ----------
Basic earnings per share.................................... $ .39 $ .31
========== ==========
Diluted earnings per share.................................. $ .38 $ .30
========== ==========
</TABLE>
See Independent Accountants' Review Report.
F-8
<PAGE> 112
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Blue Valley Ban Corp
Overland Park, Kansas
We have audited the accompanying consolidated balance sheets of BLUE VALLEY
BAN CORP as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BLUE VALLEY
BAN CORP as of December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1999
in conformity with generally accepted accounting principles.
/s/ Baird, Kurtz & Dobson
March 1, 2000
Kansas City, Missouri
F-9
<PAGE> 113
BLUE VALLEY BAN CORP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash and due from banks..................................... $ 15,460 $ 8,299
Federal funds sold.......................................... 8,000 20,700
-------- --------
Cash and cash equivalents.............................. 23,460 28,999
Available-for-sale securities............................... 48,646 53,427
Mortgage loans held for sale................................ 952 1,954
Loans....................................................... 250,410 161,444
Less allowance for loan losses............................ 3,817 2,341
-------- --------
Net loans.............................................. 246,593 159,103
Premises and equipment...................................... 5,574 5,422
Foreclosed assets held for sale, net........................ 186 46
Interest receivable......................................... 2,039 1,501
Deferred income taxes....................................... 1,841 471
Prepaid expenses and other assets........................... 840 584
Federal Home Loan Bank stock................................ 1,034 617
Excess of cost over fair value of net assets acquired, at
amortized cost............................................ 1,448 1,600
-------- --------
Total Assets.............................................. $332,613 $253,724
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-10
<PAGE> 114
BLUE VALLEY BAN CORP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
LIABILITIES
Demand deposits............................................. $ 36,950 $ 33,752
Savings, NOW and money market deposits...................... 126,398 63,215
Time deposits............................................... 104,797 112,857
-------- --------
Total Deposits....................................... 268,145 209,824
Securities sold under agreements to repurchase.............. 11,260 8,817
Short-term debt............................................. 17,450 3,575
Long-term debt.............................................. 11,908 12,038
Advances from borrowers for taxes and insurance............. 2,559 712
Accrued interest and other liabilities...................... 2,422 1,742
-------- --------
Total Liabilities.................................... 313,744 236,708
-------- --------
STOCKHOLDERS' EQUITY
Capital stock
Common stock, par value $1 per share;
Authorized 15,000,000 shares; issued and outstanding
1999 -- 2,137,720 shares; 1998 -- 2,130,396 shares.... 2,138 2,130
Additional paid-in capital.................................. 5,230 5,159
Retained earnings........................................... 12,458 9,375
Accumulated other comprehensive income
Unrealized appreciation (depreciation) on
available-for-sale securities, net of income taxes of
$(638) in 1999 and $235 in 1998........................ (957) 352
-------- --------
Total Stockholders' Equity........................... 18,869 17,016
-------- --------
Total Liabilities and Stockholders' Equity........... $332,613 $253,724
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-11
<PAGE> 115
BLUE VALLEY BAN CORP
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.................................. $20,422 $14,608 $12,000
Federal funds sold.......................................... 431 396 276
Available-for-sale securities............................... 2,755 2,814 2,275
------- ------- -------
Total Interest Income..................................... 23,608 17,818 14,551
------- ------- -------
INTEREST EXPENSE
Deposits.................................................... 9,832 8,232 6,634
Securities sold under repurchase agreements................. 287 438 167
Long-term debt and advances................................. 1,085 535 457
------- ------- -------
Total Interest Expense.................................... 11,204 9,205 7,258
------- ------- -------
NET INTEREST INCOME......................................... 12,404 8,613 7,293
PROVISION FOR LOAN LOSSES................................... 2,144 1,061 660
------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 10,260 7,552 6,633
------- ------- -------
NONINTEREST INCOME
Service fees................................................ 2,835 2,084 1,045
Other income................................................ 189 562 409
------- ------- -------
Total Noninterest Income.................................. 3,024 2,646 1,454
------- ------- -------
NONINTEREST EXPENSE
Salaries and employee benefits.............................. 4,578 3,312 2,304
Net occupancy expense....................................... 894 748 663
Other operating expense..................................... 3,208 1,936 1,689
------- ------- -------
Total Noninterest Expense................................. 8,680 5,996 4,656
------- ------- -------
INCOME BEFORE INCOME TAXES.................................. 4,604 4,202 3,431
PROVISION FOR INCOME TAXES.................................. 1,521 1,386 1,145
------- ------- -------
NET INCOME.................................................. $ 3,083 $ 2,816 $ 2,286
======= ======= =======
BASIC EARNINGS PER SHARE.................................... $ 1.45 $ 1.36 $ 1.24
======= ======= =======
DILUTED EARNINGS PER SHARE.................................. $ 1.42 $ 1.35 $ 1.22
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
F-12
<PAGE> 116
BLUE VALLEY BAN CORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
------------------
UNREALIZED
APPRECIATION
ADDITIONAL (DEPRECIATION) ON
COMPREHENSIVE COMMON PAID-IN RETAINED AVAILABLE-FOR-SALE
INCOME STOCK CAPITAL EARNINGS SECURITIES, NET TOTAL
------------- ------ ---------- -------- ------------------ -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996......... $1,841 $4,026 $ 4,273 $ (40) $10,100
Issuance of 186,600 shares of
common stock..................... 187 591 778
Net income......................... $ 2,286 2,286 2,286
Change in unrealized appreciation
(depreciation) on
available-for-sale securities,
net of income taxes of $200...... 300 300 300
------- ------ ------ ------- ------- -------
BALANCE, DECEMBER 31, 1997......... $ 2,586 2,028 4,617 6,559 260 13,464
======= ====== ====== ======= ======= =======
Issuance of 102,336 shares of
common stock..................... 102 542 644
Net income......................... $ 2,816 2,816 2,816
Change in unrealized appreciation
(depreciation) on
available-for-sale securities,
net of income taxes of $61....... 92 92 92
------- ------ ------ ------- ------- -------
BALANCE, DECEMBER 31, 1998......... $ 2,908 2,130 5,159 9,375 352 17,016
======= ====== ====== ======= ======= =======
Issuance of 7,324 shares of common
stock............................ 8 71 79
Net income......................... $ 3,083 3,083 3,083
Change in unrealized appreciation
(depreciation) on
available-for-sale securities,
net of income taxes of $(872).... (1,309) (1,309) (1,309)
------- ------ ------ ------- ------- -------
BALANCE, DECEMBER 31, 1999......... $ 1,774 $2,138 $5,230 $12,458 $ (957) $18,869
======= ====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------ -------
<S> <C> <C> <C>
RECLASSIFICATION DISCLOSURE:
Unrealized appreciation (depreciation) on available-for-sale
securities, net of income taxes of $(871), $106 and $203
for 1999, 1998 and 1997, respectively..................... $(1,307) $ 159 $ 305
Less: reclassification adjustments for appreciation
(depreciation) included in net income, net of income taxes
of $1, $45 and $3 for 1999, 1998 and 1997, respectively... (2) (67) (5)
------- ------ -------
Change in unrealized appreciation (depreciation) on
available-for-sale securities, net of income taxes of
$(872), $61 and $200 for 1999, 1998 and 1997,
respectively.............................................. $(1,309) $ 92 $ 300
======= ====== =======
</TABLE>
See Notes to Consolidated Financial Statements
F-13
<PAGE> 117
BLUE VALLEY BAN CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 3,083 $ 2,816 $ 2,286
Items not requiring (providing) cash:
Depreciation and amortization............................. 533 445 388
Amortization (accretion) of premiums and discounts on
securities............................................. 50 27
Provision for loan losses................................. 2,144 1,061 660
Deferred income taxes..................................... (497) (298) (103)
Provision for losses on foreclosed assets................. 116
Gain on sales of available-for-sale securities............ (3) (112) (8)
(Gain) loss on sale of foreclosed assets.................. (78) 45
Changes in:
Accrued interest receivable............................... (538) (141) (204)
Mortgage loans held for sale.............................. 1,002 (1,063) 610
Prepaid expenses and other assets......................... (259) 38 212
Accrued interest payable and other liabilities............ 680 730 283
------- ------- -------
Net cash provided by operating activities.............. 6,195 3,398 4,312
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net originations of loans................................... (92,460) (38,869) (27,802)
Proceeds from sales of loan participations.................. 2,231 4,394 254
Purchase of premises and equipment.......................... (530) (1,203) (286)
Proceeds from the sale of foreclosed assets................. 455 827 329
Proceeds from sales of available-for-sale securities........ 2,003 11,115 3,865
Proceeds from maturities of available-for-sale securities... 10,105 7,270 4,422
Purchases of available-for-sale securities.................. (9,973) (31,433) (11,947)
------- ------- -------
Net cash used in investing activities.................. (88,169) (47,899) (31,165)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, money market, NOW and
savings accounts.......................................... 66,381 18,861 9,665
Net increase (decrease) in certificates of deposit.......... (8,060) 20,171 21,199
Repayments of long-term debt................................ (130) (120) (112)
Proceeds from long-term debt................................ 10,000
Net proceeds (payments) on short-term debt.................. 13,875 (463) 1,150
Proceeds from sale of common stock.......................... 79 644 778
Net increase in other borrowings............................ 2,443 704 2,382
Net increase (decrease) in advances from borrowers for taxes
and insurance............................................. 1,847 (1,277) 973
------- ------- -------
Net cash provided by financing activities.............. 76,435 48,520 36,035
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (5,539) 4,019 9,182
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR......................................... 28,999 24,980 15,798
------- ------- -------
CASH AND CASH EQUIVALENTS,
END OF YEAR............................................... $23,460 $28,999 $24,980
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
F-14
<PAGE> 118
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a holding company for Bank of Blue Valley (the Bank) and
Blue Valley Building Corporation through 100% ownership of each.
The Bank is primarily engaged in providing a full range of banking and
mortgage services to individual and corporate customers in southern Johnson
County. The Bank is subject to competition from other financial institutions.
The Bank also is subject to the regulation of certain federal and state agencies
and undergoes periodic examinations by those regulatory authorities.
The Blue Valley Building Corporation is primarily engaged in leasing real
property at its only facility in Overland Park, Kansas.
OPERATING SEGMENT
The Company provides community banking services through its subsidiary
bank, including such products and services as loans; time deposits, checking and
savings accounts; trust services; and investment services. These activities are
reported as one operating segment.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowance for loan losses and
the valuation of foreclosed assets held for sale, management obtains independent
appraisals for significant properties.
Management believes that the allowances for losses on loans and the
valuation of foreclosed assets held for sale are adequate. While management uses
available information to recognize losses on loans and foreclosed assets held
for sale, changes in economic conditions may necessitate revision of these
estimates in future years. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Company's
allowances for losses on loans and valuation of foreclosed assets held for sale.
Such agencies may require the Company to recognize additional losses based on
their judgements of information available to them at the time of their
examination.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Blue Valley
Ban Corp and its 100% owned subsidiaries, Bank of Blue Valley and Blue Valley
Building Corporation. Significant intercompany accounts and transactions have
been eliminated in consolidation.
F-15
<PAGE> 119
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
CASH EQUIVALENTS
The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents. At December 31, 1999 and 1998, cash
equivalents consisted of federal funds sold.
INVESTMENT IN DEBT SECURITIES
Available-for-sale securities, which include any security for which the
Company has no immediate plan to sell, but which may be sold in the future, are
carried at fair value. Realized gains and losses, based on specifically
identified amortized cost of the specific security, are included in other
income. Unrealized gains and losses are recorded, net of related income tax
effects, in stockholders' equity. Premiums and discounts are amortized and
accreted, respectively, to interest income using a method which approximates the
level-yield method over the period to maturity.
Interest on investments in debt securities is included in income when
earned.
OTHER INVESTMENTS
The Company, as a member of the Federal Home Loan Bank (FHLB) system, is
required to maintain an investment in capital stock of the FHLB. No ready market
exists for the FHLB stock, and it has no quoted market value. Such stock is
recorded at cost and reported as other investments in the accompanying
consolidated balance sheets.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of cost or fair
value, determined using an aggregate basis. Write-downs to fair value are
recognized as a charge to earnings at the time the decline in value occurs.
Forward commitments to sell mortgage loans are acquired to reduce market risk on
mortgage loans in the process of origination and mortgage loans held for sale.
Amounts paid to investors to obtain forward commitments are deferred until such
time as the related loans are sold. The fair values of the forward commitments
are not recognized in the financial statements. Gains and losses resulting from
sales of mortgage loans are recognized when the respective loans are sold to
investors. Gains and losses are determined by the difference between the selling
price and the carrying amount of the loans sold, net of discounts collected or
paid, commitment fees paid and considering a normal servicing rate. Fees
received from borrowers to guarantee the funding of mortgage loans held for sale
are recognized as income or expense when the loans are sold or when it becomes
evident that the commitment will not be used.
LOANS
Loans that management has the intent and ability to hold for the
foreseeable future, or until maturity or pay-offs, are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions charged to expense
and reduced by loans charged off, net of recoveries. The allowance is maintained
at a level considered adequate to provide for loan losses inherent in the
portfolio, based on management's evaluation of the loan portfolio, as well as on
current economic conditions and historical losses by loan category. General
allowances have been established, based upon management's risk grading system
and considering such factors as peer group ratios and the results of recent
regulatory examinations, and allocated to the individual loan categories.
F-16
<PAGE> 120
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
Allowances are accrued on loans evaluated for impairment for which the basis of
each loan, including accrued interest, exceeds the discounted amount of expected
future collections of interest and principal or, alternatively, the fair value
of loan collateral.
A loan is considered impaired when it is probable that the Company will not
receive all amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more (nonaccrual loans) and
certain other loans identified by management. Accrual of interest is
discontinued, and interest accrued and unpaid is removed, at the time such
amounts are delinquent 90 days. Interest is recognized for nonaccrual loans only
upon receipt, and only after all principal amounts are current according to the
terms of the contract.
PREMISES AND EQUIPMENT
Depreciable assets are stated at cost less accumulated depreciation.
Depreciation is charged to expense using the straight-line method over the
estimated useful lives of the assets.
FORECLOSED ASSETS HELD FOR SALE
Assets acquired by foreclosure or in settlement of debt and held for sale
are valued at estimated fair value as of the date of foreclosure, and a related
valuation allowance is provided for estimated costs to sell the assets.
Management evaluates the value of foreclosed assets held for sale periodically
and increases the valuation allowance for any subsequent declines in fair value.
Increases in the valuation allowance and gains/losses on sales of foreclosed
assets are included in non-interest expenses, net.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
Unamortized costs in excess of the fair value of underlying net tangible
assets acquired aggregated $1,448,000 and $1,600,000 (originally $2,286,000) at
December 31, 1999 and 1998, respectively, and are being amortized over a 15-year
period using the straight-line method. Amortization expense related to purchased
subsidiaries and acquired deposits was $152,000 for each of the years 1999, 1998
and 1997.
FEE INCOME
Loan origination fees, net of direct origination costs, are recognized as
income using the level-yield method over the term of the loans.
RECLASSIFICATION
Certain reclassifications have been made to the 1998 financial statements
to conform to the 1999 financial statement presentation. These reclassifications
had no effect on net income.
INCOME TAXES
Deferred tax liabilities and assets are recognized for the tax effect of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.
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.
F-17
<PAGE> 121
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
The computation of per share earnings is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Net income........................................... $ 3,083 $ 2,816 $ 2,286
---------- ---------- ----------
Average common shares outstanding.................... 2,131,372 2,065,400 1,843,228
Average common share stock options outstanding....... 34,636 18,688 24,616
---------- ---------- ----------
Average diluted common shares........................ 2,166,008 2,084,088 1,867,844
---------- ---------- ----------
Basic earnings per share........................... $ 1.45 $ 1.36 $ 1.24
========== ========== ==========
Diluted earnings per share......................... $ 1.42 $ 1.35 $ 1.22
========== ========== ==========
</TABLE>
NOTE 2: INVESTMENT IN DEBT SECURITIES
The amortized cost and approximate fair value of available-for-sale
securities at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury.................................. $10,012 $20 $ (83) $ 9,949
U.S. Government agencies....................... 25,591 (1,365) 24,226
State and political subdivisions............... 14,638 33 (200) 14,471
------- --- ------- -------
$50,241 $53 $(1,648) $48,646
======= === ======= =======
</TABLE>
Maturities of available-for-sale debt instruments at December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
AMORTIZED APPROXIMATE
COST FAIR VALUE
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
In one year or less......................................... $ 3,262 $ 3,255
After one through five years................................ 15,239 15,025
After five through ten years................................ 31,740 30,366
After ten years.............................................
------- -------
$50,241 $48,646
======= =======
</TABLE>
The amortized cost and approximate fair value of available-for-sale
securities at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury.................................. $12,024 $198 $ (10) $12,212
U.S. Government agencies....................... 26,660 142 (155) 26,647
State and political subdivisions............... 14,156 416 (4) 14,568
------- ---- ----- -------
$52,840 $756 $(169) $53,427
======= ==== ===== =======
</TABLE>
F-18
<PAGE> 122
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
The book value of securities pledged as collateral to secure public
deposits amounted to $22,177,000 at December 31, 1999 and $28,231,000 at
December 31, 1998. The approximate fair value of pledged securities amounted to
$21,597,000 at December 31, 1999 and $28,568,000 at December 31, 1998.
The Company entered into sales of securities under agreements to
repurchase. The amounts deposited under these agreements represent short-term
borrowings and are reflected as a liability in the consolidated balance sheets.
The securities underlying the agreements are book-entry securities. During the
period, securities held in safekeeping were pledged to the depositors under a
written custodial agreement that explicitly recognizes the depositors' interest
in the securities. At December 31, 1999, or at any month end during the period,
no material amount of agreements to repurchase securities sold was outstanding
with any individual dealer. Securities sold under agreements to repurchase
averaged $9,500,000 and $7,042,000 during 1999 and 1998, and the maximum amounts
outstanding at any month-end were $13,056,000 and $8,886,000, respectively. The
book value of securities pledged to secure agreements to repurchase amounted to
$15,110,000, and $10,092,000 at December 31, 1999 and 1998, respectively. The
approximate fair value of these securities was $14,235,000 at December 31, 1999
and $10,012,000 at December 31, 1998.
Gross gains of $3,000, $112,000 and $8,000 were realized at December 31,
1999, 1998 and 1997, respectively, resulting from sales of available-for-sale
securities.
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at December 31, 1999 and 1998 include the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial.................................................. $ 64,552 $ 52,310
Commercial real estate...................................... 26,617 15,457
Construction................................................ 41,336 25,834
Residential real estate..................................... 33,251 28,367
Leases...................................................... 30,174 13,765
Personal.................................................... 44,747 19,751
Home equity................................................. 9,820 6,170
-------- --------
TOTAL LOANS................................................. 250,497 161,654
Less:
Unearned discount and fees................................ 87 210
Allowance for loan losses................................. 3,817 2,341
-------- --------
Net loans................................................... $246,593 $159,103
======== ========
</TABLE>
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR.................................. $2,341 $1,618 $1,275
Provision charged to expense................................ 2,144 1,061 660
Losses charged off, net of recoveries of $104,000, $48,000
and $142,000 for 1999, 1998 and 1997, respectively........ (668) (338) (317)
------ ------ ------
BALANCE, END OF YEAR........................................ $3,817 $2,341 $1,618
====== ====== ======
</TABLE>
F-19
<PAGE> 123
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
Impaired loans totaled $5,153,000 and $5,237,000 at December 31, 1999 and
1998, respectively, with related allowances for loan losses of $825,000 and
$747,000, respectively.
Interest of $713,000 and $600,000 was recognized on average impaired loans
of $4,092,000 and $3,496,000 for 1999 and 1998, respectively. Interest of
$140,000 and $85,000 was recognized on impaired loans on a cash basis during
1999 and 1998, respectively.
NOTE 4: PREMISES AND EQUIPMENT
Major classifications of these assets are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Land........................................................ $1,477 $1,477
Building and improvements................................... 3,567 3,405
Furniture and equipment..................................... 1,651 1,282
Land improvements, net...................................... 230 230
------ ------
6,925 6,394
Less accumulated depreciation............................... 1,351 972
------ ------
Total premises and equipment................................ $5,574 $5,422
====== ======
</TABLE>
NOTE 5: INTEREST-BEARING DEPOSITS
Interest-bearing deposits in denominations of $100,000 or more were
$34,957,000 on December 31, 1999 and $35,846,000 on December 31, 1998.
At December 31, 1999, the scheduled maturities of certificates of deposit
are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
2000........................................................ $ 66,492
2001........................................................ 16,192
2002........................................................ 10,851
2003........................................................ 7,024
2004 and thereafter......................................... 4,238
--------
$104,797
========
</TABLE>
F-20
<PAGE> 124
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
NOTE 6: OPERATING LEASES
Blue Valley Building Corp. leases office space to others under
noncancellable operating leases expiring in various years through 2004. Minimum
future rentals receivable under noncancellable operating leases at December 31,
1999 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
2000........................................................ $160
2001........................................................ 132
2002........................................................ 133
2003........................................................ 138
2004........................................................ 143
----
Future minimum lease receivable............................. $706
====
</TABLE>
NOTE 7: INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Taxes currently payable..................................... $2,018 $1,684 $1,248
Deferred income taxes....................................... (497) (298) (103)
------ ------ ------
$1,521 $1,386 $1,145
====== ====== ======
</TABLE>
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Computed at the statutory rate (34%)........................ $1,565 $1,428 $1,167
Increase (decrease) resulting from:
Tax-exempt interest....................................... (190) (213) (140)
Stock options............................................. (22) (6) (60)
State income taxes........................................ 138 139 130
Other..................................................... 30 38 48
------ ------ ------
Actual tax provision........................................ $1,521 $1,386 $1,145
====== ====== ======
</TABLE>
F-21
<PAGE> 125
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
The tax effects of temporary differences related to deferred taxes shown on
the December 31, 1999 and 1998 consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................. $1,239 $ 739
Accrued compensated absences.............................. 50 37
Accumulated depreciation on available-for- sale
securities............................................. 638
------ ------
1,927 776
------ ------
Deferred tax liabilities:
Accumulated depreciation.................................. (41) (49)
Accumulated appreciation on available-for-sale
securities............................................. (235)
Other..................................................... (45) (21)
------ ------
(86) (305)
------ ------
Net deferred tax asset.................................... $1,841 $ 471
====== ======
</TABLE>
NOTE 8: SHORT-TERM DEBT
Short-term debt at December 31, 1999 and 1998 consisted of the following
components:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Note payable to bank (A).................................... $ 7,450 $ 3,575
Line of credit (B).......................................... 10,000
------- -------
Total short-term debt....................................... $17,450 $ 3,575
======= =======
</TABLE>
---------------
(A) Due on demand, but no later than July 2000; payable in quarterly
installments of $187,500 plus interest at prime less 1.0%; collateralized
by 258,000 shares of the Bank's capital stock.
(B) Line of credit with the Federal Home Loan Bank. Amount outstanding is a
two-week advance with principal and interest payable at maturity. The line
is collateralized by various assets including mortgage-backed loans and
securities, and U.S. Treasury and Agency securities. The interest rate is
adjusted daily and is tied to the Federal Funds rate. Availability is
determined quarterly; at December 31, 1999 an additional $396,000 was
available.
NOTE 9: LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consisted of the following
components:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Note payable -- other (A)................................... $ 1,908 $ 2,038
Federal Home Loan Bank advances (B)......................... 10,000 10,000
------- -------
Total long-term debt........................................ $11,908 $12,038
======= =======
</TABLE>
---------------
(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.
F-22
<PAGE> 126
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
(B) Due in 2008; collateralized by various assets including mortgage-backed
loans and securities, and U.S. Treasury and Agency securities. The interest
rates on the advances range from 4.63% to 5.682%.
Aggregate annual maturities of long-term debt at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
2000........................................................ $ 140
2001........................................................ 151
2002........................................................ 162
2003........................................................ 175
2004........................................................ 188
Thereafter.................................................. 11,092
-------
$11,908
=======
</TABLE>
NOTE 10: REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities and certain off-balance sheet items
as calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgements by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1999, that the Company and the Bank meet all capital adequacy requirements to
which they are subject.
As of December 31, 1999, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category.
F-23
<PAGE> 127
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
The Company and the Bank's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
----------------- ------------------ -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------ -------- ------ ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total Capital
(to Risk Weighted Assets)
Consolidated................. $21,749 8.07% $21,573 8.00% N/A
======= ====== ======= =====
Bank Only.................... $27,396 10.31% $21,256 8.00% $26,570 10.00%
======= ====== ======= ===== ======= ======
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated................. $18,378 6.82% $10,786 4.00% N/A
======= ====== ======= =====
Bank Only.................... $24,074 9.06% $10,628 4.00% $15,942 6.00%
======= ====== ======= ===== ======= ======
Tier 1 Capital
(to Average Assets)
Consolidated................. $18,378 5.80% $12,678 4.00% N/A
======= ====== ======= =====
Bank Only.................... $24,074 7.69% $12,525 4.00% $15,656 5.00%
======= ====== ======= ===== ======= ======
AS OF DECEMBER 31, 1998:
Total Capital
(to Risk Weighted Assets)
Consolidated................. $17,319 9.62% $14,406 8.00% N/A
======= ====== ======= =====
Bank Only.................... $19,012 10.79% $14,100 8.00% $17,625 10.00%
======= ====== ======= ===== ======= ======
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated................. $15,064 8.37% $ 7,203 4.00% N/A
======= ====== ======= =====
Bank Only.................... $16,809 9.54% $ 7,050 4.00% $10,575 6.00%
======= ====== ======= ===== ======= ======
Tier 1 Capital
(to Average Assets)
Consolidated................. $15,064 6.13% $ 9,837 4.00% N/A
======= ====== ======= =====
Bank Only.................... $16,809 6.94% $ 9,684 4.00% $12,104 5.00%
======= ====== ======= ===== ======= ======
</TABLE>
The Bank is subject to certain restrictions on the amounts of dividends
that it may declare without prior regulatory approval. At December 31, 1999,
approximately $6,140,000 of retained earnings were available for dividend
declaration without prior regulatory approval.
F-24
<PAGE> 128
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
NOTE 11: TRANSACTIONS WITH RELATED PARTIES
At December 31, 1999 and 1998, the Company had loans outstanding to
executive officers, directors and to companies in which the Banks' executive
officers or directors were principal owners, in the amounts of $1,384,000 and
$1,713,000, respectively. Related party transactions for 1999 were as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Balance, beginning of year.................................. $1,713
New loans................................................... 202
Repayments.................................................. (531)
------
Balance, end of year........................................ $1,384
======
</TABLE>
In management's opinion, such loans and other extensions of credit and
deposits were made in the ordinary course of business and were made on
substantially the same terms (including interest rates and collateral) as those
prevailing at the time for comparable transactions with other persons. Further,
in management's opinion, these loans did not involve more than the normal risk
of collectibility or present other unfavorable features.
NOTE 12: PROFIT SHARING PLAN
The Company's profit sharing plan covers substantially all employees.
Contributions to the plan are determined annually by the Board of Directors, and
participant interests are vested over a period from two to six years of service.
Employer contributions charged to expense for 1999, 1998 and 1997 were $216,000,
$152,000 and $132,000, respectively.
NOTE 13: STOCK OPTIONS
The Company has a fixed option plan under which the Company may grant
options which vest two years from the date of grant to its employees for shares
of common stock. At December 31, 1999, the Company had 215,284 options available
to be granted (options granted prior to 1998 were subject to an earlier plan
with similar terms). The exercise price of each option is intended to equal the
fair value of the Company's stock on the date of grant, and maximum terms are 10
years.
A summary of the status of the plan at December 31, 1999, 1998 and 1997,
and changes during the years then ended, is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year.... 101,340 $ 9.18 138,160 $6.17 264,260 $4.45
Granted........................... 64,000 14.38 65,516 11.02 60,500 7.50
Exercised......................... (7,324) 10.75 (102,336) 6.30 (186,600) 4.17
Forfeited......................... (800)
------- ------ -------- ----- -------- -----
Outstanding, end of year.......... 157,216 $11.21 101,340 $9.18 138,160 $6.17
======= ====== ======== ===== ======== =====
Options exercisable, end of
year............................ 88,860 $11.19 68,984 $7.34 138,160 $6.17
======= ====== ======== ===== ======== =====
</TABLE>
The weighted-average remaining contractual life at December 31, 1999 was
8.86 years. Exercise prices ranged from $3.75 to $14.38.
F-25
<PAGE> 129
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
The fair value of options granted is estimated on the date of the grant
using the minimum value method with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Dividend per Share.......................................... $ -- $ -- $ --
Risk-Free Interest Rate..................................... 6% 6% 6%
Expected Life of Options.................................... 2 years 2 years 2 years
Weighted-average fair value of options granted during the
year...................................................... $ 101 $ 79 $ 50
======== ======== ========
</TABLE>
The expected life of options outstanding is based on the historical
experience of the Company.
The Company applies APB Opinion 25 and related Interpretations in
accounting for the plan and no compensation cost has been recognized. Had
compensation cost for the Company's plan been determined based on the fair value
at the grant dates using the minimum value method under Statement of Financial
Accounting Standards No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net income
As reported............................................... $ 3,083 $2,816 $2,286
Pro forma................................................. $ 3,023 $2,790 $2,253
Basic earnings per share
As reported............................................... $ 1.45 $ 1.36 $ 1.24
Pro forma................................................. $ 1.42 $ 1.35 $ 1.22
Diluted earnings per share
As reported............................................... $ 1.42 $ 1.34 $ 1.22
Pro forma................................................. $ 1.40 $ 1.34 $ 1.21
</TABLE>
NOTE 14: ADDITIONAL CASH FLOWS INFORMATION
NONCASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans transferred to foreclosed assets held for sale........ $ 595 $ 82 $ 647
ADDITIONAL CASH PAYMENT INFORMATION
Interest paid............................................. 11,411 8,995 7,061
Income taxes paid......................................... 1,655 1,551 1,165
</TABLE>
F-26
<PAGE> 130
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
NOTE 15: OTHER INCOME/EXPENSE
OTHER INCOME/EXPENSE
Other operating expenses consist of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Advertising................................................. $ 475 $ 269 $ 119
Data processing............................................. 352 266 206
Professional fees........................................... 259 154 203
Other expense............................................... 2,122 1,247 1,161
------ ------ ------
Total..................................................... $3,208 $1,936 $1,689
====== ====== ======
</TABLE>
Other income consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Rental income............................................... $ 143 $ 273 $ 352
Other income................................................ 46 289 57
------ ------ ------
Total..................................................... $ 189 $ 562 $ 409
====== ====== ======
</TABLE>
NOTE 16: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term instruments, the carrying amount approximates fair
value.
AVAILABLE-FOR-SALE SECURITIES
Fair values for available-for-sale securities, which also are the amounts
recognized in the consolidated balance sheets, equal quoted market prices, if
available. If quoted market prices are not available, fair values are estimated
based on quoted market prices of similar securities.
MORTGAGE LOANS HELD FOR SALE
For homogeneous categories of loans, such as mortgage loans held for sale,
fair value is estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics.
LOANS
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. Loans with similar
characteristics were aggregated for purposes of the calculations. The carrying
amount of accrued interest approximates its fair value.
F-27
<PAGE> 131
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
DEPOSITS
The fair value of demand deposits, savings accounts, NOW accounts and
certain money market deposits is the amount payable on demand at the reporting
date (i.e., their carrying amount). The fair value of fixed maturity time
deposits is estimated using a discounted cash flow calculation that applies the
rates currently offered for deposits of similar remaining maturities. The
carrying amount of accrued interest payable approximates its fair value.
ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE
The fair value of advances from borrowers for taxes and insurance is the
amount payable at the reporting date (i.e., their carrying amount).
SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE AND OTHER LIABILITIES
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
NOTES PAYABLE AND LONG-TERM DEBT
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
COMMITMENTS TO EXTEND CREDIT, LETTERS OF CREDIT AND LINES OF CREDIT
The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For fixed
rate loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair value of letters of
credit and lines of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate or otherwise settle the
obligations with the counterparties at the reporting date.
F-28
<PAGE> 132
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
The following table presents estimated fair values of the Company's
financial instruments. The fair values of certain of these instruments were
calculated by discounting expected cash flows, which method involves significant
judgements by management and uncertainties. Fair value is the estimated amount
at which financial assets or liabilities could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
Because no market exists for certain of these financial instruments, and because
management does not intend to sell these financial instruments, the Company does
not know whether the fair values shown below represent values at which the
respective financial instrument could be sold individually or in the aggregate.
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents........................... $ 23,460 $ 23,460 $ 28,999 $ 28,999
Available-for-sale securities....................... 48,646 48,646 53,427 53,427
Mortgage loans held for sale........................ 952 952 1,954 1,954
Interest receivable................................. 2,039 2,039 1,501 1,501
Loans, net of allowance for loan losses............. 246,593 246,090 159,103 159,160
Financial liabilities:
Deposits............................................ 268,145 262,913 209,824 211,219
Advances from borrowers for taxes and insurance..... 2,559 2,559 712 712
Securities sold under agreements to repurchase...... 11,260 11,260 8,817 8,817
Short-term debt..................................... 17,450 17,450 3,575 3,575
Long-term debt...................................... 11,908 11,348 12,038 12,002
Interest payable.................................... 870 870 976 976
Unrecognized financial instruments (net of
amortization):
Commitments to extend credit........................ 0 0 0 0
Letters of credit................................... 0 0 0 0
Lines of credit..................................... 0 0 0 0
Forward commitments................................. 0 0 0 0
</TABLE>
NOTE 17: COMMITMENTS AND CREDIT RISKS
The Company extends credit for commercial real estate mortgages,
residential mortgages, working capital financing and consumer loans to
businesses and residents principally in southern Johnson County. The Bank also
purchases indirect leases from various leasing companies throughout Kansas and
Missouri.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require a payment of a fee. Since a portion of the commitments may
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Each customer's creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if deemed
necessary, is based on management's credit evaluation of the counterparty.
Collateral held varies, but may include accounts receivable, inventory,
property, plant and equipment, commercial real estate and residential real
estate.
At December 31, 1999 and 1998, the Company had outstanding commitments to
originate loans aggregating approximately $36,826,000 and $14,518,000,
respectively. The commitments extended over varying periods of time with the
majority being disbursed within a one-year period. Loan commitments at
F-29
<PAGE> 133
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
fixed rates of interest amounted to $2,116,000 and $3,333,000 at December 31,
1999 and 1998, respectively, with the remainder at floating market rates.
Mortgage loans in the process of origination represent amounts which the
Company plans to fund within a normal period of 60 to 90 days and which are
intended for sale to investors in the secondary market. Forward commitments to
sell mortgage loans are obligations to deliver loans at a specified price on or
before a specified future date. The Bank acquires such commitments to reduce
market risk on mortgage loans in the process of origination and mortgage loans
held for sale.
Total mortgage loans in the process of origination amounted to $9,204,000
and $8,858,000 and mortgage loans held for sale amounted to $952,000 and
$1,954,000 at December 31, 1999 and 1998, respectively. Related forward
commitments to sell mortgage loans amounted to approximately $10,156,000 and
$10,812,000 at December 31, 1999 and 1998, respectively. Mortgage loans in the
process of origination represent commitments to originate loans at fixed rates.
Letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
The Company had total outstanding letters of credit amounting to $4,267,000
and $2,318,000 at December 31, 1999 and 1998, respectively.
Lines of credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Lines of credit
generally have fixed expiration dates. Since a portion of the line may expire
without being drawn upon, the total unused lines do not necessarily represent
future cash requirements. Each customer's creditworthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed necessary, is
based on management's credit evaluation of the counterparty. Collateral held
varies, but may include accounts receivable, inventory, property, plant and
equipment, commercial real estate and residential real estate. Management uses
the same credit policies in granting lines of credit as it does for on-balance
sheet instruments.
At December 31, 1999 and 1998, unused lines of credit borrowings aggregated
approximately $75,112,000 and $58,786,000, respectively.
Additionally, the Company periodically has excess funds which are loaned to
other banks as federal funds sold. At December 31, 1999 and 1998, federal funds
sold totaling $8,000,000 and $20,700,000, respectively, were loaned to various
banks, as approved by the Board of Directors, with the largest balance at any
one bank being $5,000,000 and $17,700,000 (Federal Home Loan Bank) at December
31, 1999 and 1998.
NOTE 18: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations.
Estimates related to the allowance for loan losses are reflected in the footnote
regarding loans. Current vulnerabilities due to certain concentrations of credit
risk are discussed in the footnote on commitments and credit risk.
NOTE 19: FUTURE CHANGES IN ACCOUNTING PRINCIPLE
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). This
F-30
<PAGE> 134
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
statement, as amended by SFAS No. 137, requires all derivatives to be recorded
on the balance sheet at fair value and establishes standard accounting
methodologies for hedging activities. The standard will result in the
recognition of offsetting changes in value or cash flows of both the hedge and
the hedged item in earnings or comprehensive income in the same period. The
statement is effective for Blue Valley's fiscal year ending December 31, 2001.
Because Blue Valley generally does not hold derivative instruments, the adoption
of this statement is not expected to have a material impact on the financial
statements.
NOTE 20: SUBSEQUENT EVENT
Subsequent to year end, the stockholders authorized:
- An increase in the number of authorized shares of the Company's common
stock from 1,000,000 to 15,000,000.
- A reduction in the par value of the Company's common stock from $10.00
to $1.00 per share.
- The issuance of up to 15,000,000 shares of preferred stock in one or
more series with such limitations and restrictions as may be determined
by the Board's sole discretion.
In addition, the Board of Directors authorized a 4-for-1 stock split. All
shares and per share amounts presented in these financial statements have been
restated to give effect to the stock split, retroactively.
NOTE 21: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 136 $ 318
Investments in subsidiaries:
Bank of Blue Valley....................................... 24,565 18,762
Blue Valley Building Corp................................. 1,425 1,404
Loans....................................................... 300 200
Other assets................................................ 334 202
------- -------
Total Assets.............................................. $26,760 $20,886
======= =======
LIABILITIES
Long-term debt.............................................. $ 7,450 $ 3,575
Other liabilities........................................... 441 295
------- -------
Total Liabilities......................................... 7,891 3,870
------- -------
STOCKHOLDERS' EQUITY
Common stock................................................ 2,138 2,130
Additional paid-in capital.................................. 5,230 5,159
Undivided profits........................................... 12,458 9,375
Unrealized appreciation (depreciation) on available-for-sale
securities, net of income taxes of $(638) and $235 at 1999
and 1998, respectively.................................... (957) 352
------- -------
Total stockholders' equity................................ 18,869 17,016
------- -------
Total Liabilities and Stockholders' Equity................ $26,760 $20,886
======= =======
</TABLE>
F-31
<PAGE> 135
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries................................. $ 695 $ 100 $ 445
Other income................................................ 5 7 3
------- ------- -------
700 107 448
Expenses.................................................... 379 350 250
------- ------- -------
Income before income taxes and equity in undistributed net
income of subsidiaries.................................... 321 (243) 198
Credit for income taxes..................................... (128) (118) (84)
------- ------- -------
Income before equity in undistributed net income of
subsidiaries.............................................. 449 (125) 282
Equity in undistributed net income of subsidiaries.......... 2,634 2,941 2,004
------- ------- -------
Net income.................................................. $ 3,083 $ 2,816 $ 2,286
======= ======= =======
</TABLE>
F-32
<PAGE> 136
BLUE VALLEY BAN CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 3,083 $ 2,816 $ 2,286
Items not requiring (providing) cash:
Deferred income taxes..................................... (128) (198) (4)
Equity in undistributed income of subsidiaries............ (2,634) (2,941) (2,004)
Changes in:
Other assets.............................................. (3)
Other liabilities......................................... 146 257 (14)
------- ------- -------
Net cash provided by (used in) operating activities.... 464 (66) 264
------- ------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Capital contributed to subsidiary........................... (4,500) (615)
Net originations of loans................................... (100)
------- -------
Net cash used in investing activities.................. (4,600) (615)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt................................ (625) (463) (300)
Proceeds from long-term debt................................ 4,500 1,500
Proceeds from sale of common stock.......................... 79 644 778
------- ------- -------
Net cash provided by financing activities.............. 3,954 181 1,978
------- ------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.......................................... (182) 115 1,627
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR......................................... 318 203 76
------- ------- -------
CASH AND CASH EQUIVALENTS,
END OF YEAR............................................... $ 136 $ 318 $ 1,703
======= ======= =======
</TABLE>
F-33
<PAGE> 137
------------------------------------------------------
------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 6
Cautionary Note on Forward-looking
Statements........................... 13
Use of Proceeds........................ 14
Market for the Trust Preferred
Securities........................... 14
Accounting Treatment................... 14
Capitalization......................... 15
Selected Consolidated Financial Data... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 18
Business............................... 43
Regulation and Supervision............. 52
Management............................. 59
Security Ownership of Management and
Certain Beneficial Owners............ 65
Description of the Trust Preferred
Securities........................... 65
Description of Junior Subordinated
Debentures........................... 79
Description of the Trust Preferred
Securities Guarantee................. 88
Description of the Expense Agreement... 90
Relationship Among the Trust Preferred
Securities, the Junior Subordinated
Debentures and the Trust Preferred
Securities Guarantee................. 90
Material Federal Income Tax
Consequences......................... 93
ERISA Considerations................... 97
Underwriting........................... 98
Available Information.................. 100
Legal Matters.......................... 100
Experts................................ 100
Index to Financial Statements.......... F-1
</TABLE>
------------------------
- WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION THAT DIFFERS FROM
THE INFORMATION IN THIS PROSPECTUS. IF YOU RECEIVE ANY DIFFERENT INFORMATION,
YOU SHOULD NOT RELY ON IT.
- THE DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT BLUE VALLEY BAN CORP IS OPERATING UNDER THE SAME CONDITIONS
THAT IT WAS OPERATING UNDER WHEN THIS PROSPECTUS WAS WRITTEN. DO NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AT ANY TIME PAST
THE DATE INDICATED.
- THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES.
- THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF
AN OFFER TO BUY, THE SECURITIES TO WHICH IT RELATES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
- UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THE TRUST PREFERRED SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
1,250,000 TRUST PREFERRED SECURITIES
BVBC CAPITAL TRUST I
% CUMULATIVE TRUST
PREFERRED SECURITIES
FULLY, IRREVOCABLY AND
UNCONDITIONALLY GUARANTEED ON A
SUBORDINATED BASIS BY
BLUE VALLEY BAN CORP
---------------------------
$10,000,000
% SUBORDINATED DEBENTURES
OF
BLUE VALLEY BAN CORP
---------------------------
PROSPECTUS
, 2000
---------------------------
STIFEL, NICOLAUS & COMPANY
INCORPORATED
------------------------------------------------------
------------------------------------------------------
<PAGE> 138
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- --------
<S> <C>
SEC filing fee(2)........................................... $ 3,036
American Stock Exchange listing fee......................... 15,000
NASD filing fee............................................. 1,650
Printing, postage and mailing............................... 70,000
Legal fees and expenses..................................... 130,000
Accounting fees and expenses................................ 60,000
Trustee, Transfer agent and Registrar fees and expenses..... 5,000
Blue Sky fees and expenses.................................. 10,000
Miscellaneous............................................... 5,314
--------
Total..................................................... $300,000
========
</TABLE>
---------------
(1) The amounts set forth above, except for the SEC filing fee, the American
Stock Exchange listing fee and the NASD filing fee are in each case
estimated.
(2) Based upon the sale of 1,437,500 trust preferred securities at $8.00 per
trust preferred security.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Amended and Restated Articles of Incorporation of the registrant,
together with its Bylaws, provide that the registrant shall indemnify each
person who is or was an officer or director of the registrant, or who is or was
serving at the request of the registrant as a director, officer, employee,
partner, trustee or agent of the registrant to the fullest extent permitted by
applicable law. The laws of the State of Kansas permit, and in some cases
require, corporations to indemnify officers, directors, employees and agents who
are or who have been a party to or are threatened to be made a party to
litigation against judgments, fines, settlements and reasonable expenses under
certain circumstances.
The registrant has also adopted provisions in its Amended and Restated
Articles of Incorporation that limit the liability of its directors to the
fullest extent permitted by the laws of the State of Kansas. Under the
registrant's Amended and Restated Articles of Incorporation, as permitted by the
laws of the State of Kansas, a director is not liable to the registrant or its
stockholders for monetary damages for a breach of fiduciary duty as a director,
except to the extent such exemption from liability, or limitation thereof, is
not permitted under the Kansas General Corporation Code (the "KGCC") as
presently in effect or as the same may hereafter be amended. As of the filing
date of this registration statement, KGCC sec. 17-6002 provides, in pertinent
part, that corporations "shall not eliminate or limit the liability of a
director (a) for any breach of the director's duty of loyalty to the corporation
or its stockholders, policyholders or members, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (c) under the provisions of K.S. 17-6424, and amendments thereto, or (d)
for any transaction from which the director derived an improper personal
benefit." The registrant has agreed to indemnify the underwriter and the
underwriter has agreed to indemnify the registrant against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On January 31, 2000, the registrant effected a 4-for-1 stock split of its
common stock. In connection with such stock split, the registrant issued to its
stockholders of record an aggregate of 1,603,290 shares of common stock. All
common share and per share amounts herein have been retroactively adjusted to
reflect the stock split.
II-1
<PAGE> 139
Since December 31, 1996, the registrant has granted options to purchase an
aggregate of 190,016 shares of common stock (after giving effect to the stock
split) under its 1998 Equity Incentive Plan and its 1994 Stock Option Plan
(together, the "Plans"), exercisable at a weighted average price of $11.03 per
share (after giving effect to the stock split). During this same period, options
granted under the Plans to purchase 296,260 shares of the registrant's common
stock were exercised at a weighted average price of $5.07 per share.
No underwriters were involved in the foregoing transactions. The January
31, 2000 stock split was effected in reliance upon the definition of "sale" set
forth in Section 2(a)(3) of the Securities Act. Each of the options granted
under the Plans and the exercises thereof were effected in reliance on Rule 701
under the Securities Act, and are deemed restricted securities for the purposes
of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
The following is a complete list of exhibits filed as a part of this
registration statement.
<TABLE>
<C> <S> <C>
1.1 Draft form of Underwriting Agreement between Blue Valley Ban
Corp, BVBC Capital Trust I and Stifel, Nicolaus & Company,
Incorporated
3.1* Amended and Restated Articles of Incorporation of Blue
Valley Ban Corp
3.2* Bylaws, as amended, of Blue Valley Ban Corp
4.1* 1998 Equity Incentive Plan
4.2* 1994 Stock Option Plan
4.3* Draft form of Indenture of Blue Valley Ban Corp
4.4* Draft form of % Junior Subordinated Debentures, due
June 30, 2030
4.5* Certificate of Trust of BVBC Capital Trust I
4.6* Draft form of Amended and Restated Trust Agreement of BVBC
Capital Trust I
4.7* Draft form of % Cumulative Preferred Security
Certificate for BVBC Capital Trust I
4.8* Draft form of Trust preferred securities Guarantee Agreement
of Blue Valley Ban Corp relating to the % Cumulative
Trust preferred securities
4.9* Draft form of Agreement as to Expenses and Liabilities
5.1 Opinion of Blackwell Sanders Peper Martin LLP as to the
legality of the % junior subordinated debentures, due
June 30, 2030 and the Trust Preferred Securities Guarantee
Agreement relating to the % Cumulative Trust preferred
securities
5.2* Opinion of Morris, Nichols, Arsht & Tunnell (special
Delaware counsel) as to the legality of the %
cumulative trust preferred securities to be issued by BVBC
Capital Trust I
8.1* Opinion of Blackwell Sanders Peper Martin LLP as to certain
federal income tax matters.
10.1* Security Agreement of Blue Valley Ban Corp in favor of
Boatmen's First National Bank of Kansas City, dated as of
June 7, 1994
10.2* Agreement between Blue Valley Ban Corp, Bank of Blue Valley
and Boatmen's First National Bank of Kansas City, dated as
of January 2, 1997
10.3* Amendment of Loan Documents between Blue Valley Ban Corp,
Bank of Blue Valley and NationsBank, N.A. (successor to
Boatmen's First National Bank of Kansas City), dated as of
December 26, 1997
10.4* Second Amendment of Loan Documents between Blue Valley Ban
Corp, Bank of Blue Valley and NationsBank, N.A., dated as of
January 31, 1999
10.5* Third Amendment of Loan Documents between Blue Valley Ban
Corp, Bank of Blue Valley and NationsBank, N.A., dated as of
June 21, 1999
10.6* Fourth Amendment of Loan Documents between Blue Valley Ban
Corp, Bank of Blue Valley and NationsBank, N.A., dated as of
December 30, 1999
</TABLE>
II-2
<PAGE> 140
<TABLE>
<C> <S> <C>
10.7* Amended and Restated Promissory Note of Blue Valley Ban Corp, dated December 30, 1999
10.8* Promissory Note of Blue Valley Building, dated July 15, 1994
10.9* Mortgage, Assignment of Leases and Rents and Security Agreement between Blue Valley Building and
Businessmen's Assurance Company of America, dated July 15, 1994
10.10* Assignment of Leases and Rents between Blue Valley Building and Businessmen's Assurance Company
of America, dated July 15, 1994
10.11* Lease Agreement between Bank of Blue Valley and CMI, Inc., dated January 18, 1999
12.1 Statements re: computations of ratios
15.1 Letter from Baird, Kurtz & Dobson acknowledging awareness of the use of a report on unaudited
interim financial information
21.1* Subsidiaries of Blue Valley Ban Corp
23.1 Consent of Blackwell Sanders Peper Martin LLP (see exhibits 5.1 and 8.1)
23.2 Consent of Morris, Nichols, Arsht & Tunnell (special Delaware counsel) (see exhibit 5.2)
23.3 Consent of Baird, Kurtz & Dobson
24.1* Power of attorney
25.1* Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the
Indenture
25.2* Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the
Amended and Restated Trust Agreement
25.3* Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the Trust
Preferred Securities Guaranty Agreement
27.1 Financial Data Schedule
</TABLE>
---------------
* Previously filed
(b) Financial Statement Schedules
No financial statement schedules are applicable.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities under the Securities
Act of 1933 may be permitted to officers, directors and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(c) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-3
<PAGE> 141
(d) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Overland Park, State of
Kansas, on June 5, 2000.
BLUE VALLEY BAN CORP
/s/ ROBERT D. REGNIER
By:
--------------------------------------
Robert D. Regnier, President and
Chief Executive Officer
II-5
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Overland Park, State of
Kansas, on June 5, 2000.
BVBC CAPITAL TRUST I
/s/ ROBERT D. REGNIER
By:
--------------------------------------
Robert D. Regnier,
Administrative Trustee
II-6
<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President, Chief Executive Officer June 5, 2000
--------------------------------------------- & Director
Robert D. Regnier
* Director June 5, 2000
---------------------------------------------
Donald H. Alexander
* Director June 5, 2000
---------------------------------------------
Wayne A. Henry, Jr.
* Director June 5, 2000
---------------------------------------------
C. Ted McCarter
* Director June 5, 2000
---------------------------------------------
Thomas A. McDonnell
* Treasurer and Principal Finance and June 5, 2000
--------------------------------------------- Accounting Officer
Mark A. Fortino
</TABLE>
* By: /s/ MARK A. FORTINO
--------------------------------------------
Mark A. Fortino, Attorney-in-Fact
II-7
<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Administrative Trustee June 5, 2000
---------------------------------------------
Robert D. Regnier
* Administrative Trustee June 5, 2000
---------------------------------------------
Mark A. Fortino
</TABLE>
* By: /s/ MARK A. FORTINO
--------------------------------------------
Mark A. Fortino, Attorney-in-Fact
II-8
