##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 001-15933
 BLUE VALLEY BAN CORP.
  Kansas
    
    48-1070996(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)11935 RileyOverland Park, Kansas
    
    66225-6128(Address of principal executive offices)
    
    (Zip Code)
 (913) 338-1000
  Title of each class
    
    Name of each exchange on which registeredGuarantee with respect to the Trust Preferred
    
    None currentlySecurities, $8.00 par value, of BVBC Capital
Trust I (None of which are currently outstanding)
  o þ
 þ o
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
 .
 DOCUMENTS INCORPORATED BY REFERENCE




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##### 



BLUE VALLEY BAN CORP.
 FORM 10-K INDEX
 Page No.PART I.Item 1. Business
    
    
    2Item 1A. Risk Factors
    
    
    15Item 1B. Unresolved Staff Comments
    
    
    18Item 2. Properties
    
    
    18Item 3. Legal Proceedings
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19PART II.Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    20Item 6. Selected Financial Data
    
    
    21Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    23Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    46Item 8. Financial Statements and Supplementary Data
    
    
    48Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    48Item 9A. Controls and Procedures
    
    
    48Item 9B. Other Information
    
    
    48PART III.Item 10. Directors, Executive Officers and Corporate Governance
    
    
    49Item 11. Executive Compensation
    
    
    49Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    49Item 13. Certain Relationships, Related Transactions, and Director Independence
    
    
    49Item 14. Principal Accountant Fees and Services
    
    
    50PART IV.Item 15. Exhibits, Financial Statement Schedules
    
    
    50EX-21.1EX-23.3EX-31.1EX-31.2EX-32.1
  1




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Part I
 
 Item 1: Business
 The Company and Subsidiaries
          2




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Our Market Area
    Lending Activities
 Overview
   3




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LOAN PORTFOLIO
 As of December 31, 2008Amount
    
    
    Percent(In thousands)Commercial
    
    $
    172,647
    
    
    
    26.06
    %Commercial real estate
    
    
    170,697
    
    
    
    25.77Construction
    
    
    182,933
    
    
    
    27.62Lease financing
    
    
    18,927
    
    
    
    2.86Residential real estate
    
    
    43,695
    
    
    
    6.60Consumer
    
    
    14,245
    
    
    
    2.15Home equity
    
    
    59,257
    
    
    
    8.94Total loans and leases
    
    
    662,401
    
    
    
    100.00
    %Less allowance for loan losses
    
    
    12,368Loans receivable, net
    
    $
    650,033
 Commercial loans.
    Commercial real estate loans
  4




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Construction loans.
  Lease financing.
  Residential real estate loans.
  5




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Consumer loans.
  Home equity loans.
 6




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Investment Activities
  
    
    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.
  Deposit Services
   7




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Investment Brokerage Services
  Trust Services
  Competition
   Trademarks
  
 Employees
  8




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Directors and Executive Officers of the Registrant
  Name
    
    Age
    
    PositionsDirectorsRobert D. Regnier
    
    
    60
    
    
    President, Chief Executive Officer and Chairman of
the Board of Directors of Blue Valley; President,
Chief Executive Officer and Chairman of the Board
of Directors of the BankDonald H. Alexander
    
    
    70
    
    
    Director of Blue Valley and the BankMichael J. Brown
    
    
    52
    
    
    Director of Blue ValleyThomas A. McDonnell
    
    
    63
    
    
    Director of Blue ValleyAnne D. St. Peter
    
    
    43
    
    
    Director of Blue ValleyRobert D. Taylor
    
    
    61
    
    
    Director of Blue Valley and Chairman of the Audit
Committee of Blue ValleyAdditional Directors of the BankHarvey S. Bodker
    
    
    73
    
    
    Director of the BankRichard L. Bond
    
    
    73
    
    
    Director of the BankSuzanne E. Dotson
    
    
    62
    
    
    Director of the BankCharles H. Hunter
    
    
    66
    
    
    Director of the BankExecutive Officers who are not DirectorsMark A. Fortino
    
    
    42
    
    
    Executive Vice President and Chief Financial
Officer of the Bank; Chief Financial Officer of
Blue ValleyBruce A. Easterly
    
    
    49
    
    
    Executive Vice President  Chief Lending Officer
of the BankSheila C. Stokes
    
    
    47
    
    
    Senior Vice President  Retail Division of the BankBonnie M. McConnaughy
    
    
    49
    
    
    Senior Vice President  Operations of the Bank
 Available Information
 http://www.bankbv.com http://www.sec.gov
 Regulation and Supervision
  9




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Applicable Legislation
  Emergency Economic Stabilization Act of 2008.
  USA PATRIOT Act.
 10




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Gramm-Leach-Bliley Act
     Bank Holding Company Regulation
  Investments and Activities.
 
    
    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);
 11




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
    
    Acquiring all or substantially all of the assets of another bank or bank holding
company; or
    
    Merging or consolidating with another bank holding company.
   
    
    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.
  Source of Strength.
 Capital Requirements.
  Dividends.
 12




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Bank Regulations
  Deposit Insurance.
 Capital Requirements.
  13




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
    
    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%.
  
    
    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.
   Federal Deposit Insurance Corporation Improvement Act.
 Insider Transactions.
 14




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Community Reinvestment Act Requirements.
 State Bank Activities.
 Regulations Governing Extensions of Credit .
 Reserve Requirements.
 Other Regulations
  
 Item 1A: Risk Factors
 Current levels of market volatility.
  15




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Our loan portfolio is concentrated in real estate lending, which has made and will make our loan
portfolio more susceptible to credit losses in the current real estate market.
  Our future ability to raise capital may be limited.
  Our operations may be adversely affected if we are unable to maintain and increase our deposit base
and secure adequate funding.
  The loss of our key personnel could adversely affect our operations.
  Changes in interest rates may adversely affect our earnings and cost of funds.
  16




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Because our business is concentrated in the Kansas City MSA, a downturn in the economy of the
Kansas City MSA may adversely affect our business.
  The continued slowdown in real estate sales and a decrease in residential real estate values within
our market areas have and may continue to affect our financial condition.
  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.
   We may incur significant costs if we foreclose on environmentally contaminated real estate.
  17




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If we are not able to compete effectively in the highly competitive banking industry, our business
will be adversely affected.
  Blue Valley and the Bank are subject to extensive governmental regulation.
  Confidential customer information transmitted through the Banks online banking service is
vulnerable to security breaches and computer viruses, which could expose the Bank to litigation and
adversely affect its reputation and ability to generate deposits.
  If we are unable to pay our Preferred Shares dividend, the holder of the Preferred Shares may have
additional rights.
  
 Item 1B: Unresolved Staff Comments
  
 Item 2: Properties
  18




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Mortgage Indebtednessas of December 31,Location
    
    Year Occupied
    
    2008
    
    OccupancyOverland Park Banking
Center
11935 Riley
Overland Park, Kansas *
    
    
    1994
    
    
    $2.1 Million
    
    80%
One sublease occupying 20%Olathe Banking Center
1235 E. Santa Fe
Olathe, Kansas **
    
    
    2001
    
    
    None
    
    
    100
    %Shawnee Banking Center
5520 Hedge Lane Terrace
Shawnee, Kansas **
    
    
    2001
    
    
    None
    
    
    100
    %Mortgage and
Operations Center
7900 College Boulevard
Overland Park, Kansas *
    
    
    2003
    
    
    $3.4 Million
    
    
    100
    %Leawood Banking Center
13401 Mission Road 
Leawood, Kansas *
    
    
    2004
    
    
    None
    
    55%
Four subleases occupying 45%Lenexa Banking Center
9500 Lackman Road
Lenexa, Kansas **
    
    
    2007
    
    
    None
    
    
    100
    %
 
 *
    
    The building is owned by Blue Valley Building Corp.**
    
    The building is owned by the Bank. 
 Item 3: Legal Proceedings
  
 Item 4: Submission of Matters to a Vote of Security Holders
  19




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Part II
 
 Item 5:
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
 Market for Common Stock
 Yahoo.com
 2008
    
    2007Fiscal Quarter
    
    High
    
    Low
    
    High
    
    LowFirst
    
    $
    34.00
    
    
    $
    31.00
    
    
    $
    38.25
    
    
    $
    33.50Second
    
    
    34.00
    
    
    
    26.00
    
    
    
    40.00
    
    
    
    33.50Third
    
    
    31.00
    
    
    
    25.00
    
    
    
    38.50
    
    
    
    33.00Fourth
    
    
    25.00
    
    
    
    15.00
    
    
    
    36.00
    
    
    
    31.00
 Dividends
  Declaration Date
    
    Amount Per Share
    
    Record Date
    
    Pay DateDecember 21, 2006
    
    $0.30
    
    December 29, 2006
    
    January 29, 2007December 20, 2007
    
    $0.36
    
    December 31, 2007
    
    January 31, 2008
   20




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Item 6: Selected Financial Data
  As of and for theYear Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(In thousands, except share and per share data)Selected Statement of Income DataInterest income:Interest and fees on loans .
    
    $
    41,245
    
    
    $
    47,194
    
    
    $
    44,537
    
    
    $
    37,492
    
    
    $
    29,245Federal funds sold and other short-term investments
    
    
    378
    
    
    
    557
    
    
    
    256
    
    
    
    580
    
    
    
    157Available-for-sale securities
    
    
    3,375
    
    
    
    4,466
    
    
    
    4,039
    
    
    
    2,317
    
    
    
    2,301Total interest income
    
    
    44,998
    
    
    
    52,217
    
    
    
    48,832
    
    
    
    40,389
    
    
    
    31,703Interest expense:Interest-bearing demand deposits
    
    
    1,394
    
    
    
    656
    
    
    
    97
    
    
    
    94
    
    
    
    169Savings and money market deposit accounts
    
    
    2,402
    
    
    
    6,362
    
    
    
    4,356
    
    
    
    3,861
    
    
    
    2,932Other time deposits
    
    
    12,139
    
    
    
    13,134
    
    
    
    11,254
    
    
    
    9,171
    
    
    
    7,297Funds borrowed
    
    
    5,756
    
    
    
    5,430
    
    
    
    5,255
    
    
    
    4,867
    
    
    
    4,115Total interest expense
    
    
    21,691
    
    
    
    25,582
    
    
    
    20,962
    
    
    
    17,993
    
    
    
    14,513Net interest income
    
    
    23,307
    
    
    
    26,635
    
    
    
    27,870
    
    
    
    22,396
    
    
    
    17,190Provision for loan losses
    
    
    17,025
    
    
    
    2,855
    
    
    
    1,255
    
    
    
    230
    
    
    
    1,965Net interest income after provision for loan
losses
    
    
    6,282
    
    
    
    23,780
    
    
    
    26,615
    
    
    
    22,166
    
    
    
    15,225Non-interest income:Loans held for sale fee income
    
    
    2,136
    
    
    
    3,160
    
    
    
    5,046
    
    
    
    7,408
    
    
    
    10,358Service fees
    
    
    3,299
    
    
    
    2,830
    
    
    
    2,491
    
    
    
    2,166
    
    
    
    2,441Realized gains on available-for-sale securities
    
    
    702
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    524Gain on settlement of litigation
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income
    
    
    1,275
    
    
    
    1,105
    
    
    
    1,344
    
    
    
    1,727
    
    
    
    617Total non-interest income
    
    
    8,412
    
    
    
    7,200
    
    
    
    8,881
    
    
    
    11,301
    
    
    
    13,940Non-interest expense:Salaries and employee benefits
    
    
    12,500
    
    
    
    13,570
    
    
    
    14,737
    
    
    
    15,986
    
    
    
    16,670Net occupancy expense
    
    
    3,144
    
    
    
    3,200
    
    
    
    3,059
    
    
    
    3,307
    
    
    
    3,433Goodwill impairment
    
    
    4,821
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other operating expense
    
    
    8,304
    
    
    
    7,447
    
    
    
    6,578
    
    
    
    6,841
    
    
    
    6,467Total non-interest expense
    
    
    28,769
    
    
    
    24,217
    
    
    
    24,374
    
    
    
    26,134
    
    
    
    26,570Income before income taxes
    
    
    (14,075
    )
    
    
    6,763
    
    
    
    11,122
    
    
    
    7,333
    
    
    
    2,595Provision for income taxes
    
    
    (3,824
    )
    
    
    2,275
    
    
    
    4,199
    
    
    
    2,764
    
    
    
    665Net income
    
    $
    (10,251
    )
    
    $
    4,488
    
    
    $
    6,923
    
    
    $
    4,569
    
    
    $
    1,930Per Share DataBasic earnings
    
    $
    (4.20
    )
    
    $
    1.86
    
    
    $
    2.93
    
    
    $
    1.95
    
    
    $
    0.84Diluted earnings
    
    
    (4.20
    )
    
    
    1.84
    
    
    
    2.88
    
    
    
    1.91
    
    
    
    0.82Dividends
    
    
    0.00
    
    
    
    0.36
    
    
    
    0.30
    
    
    
    0.25
    
    
    
    0.20Book value basic (at end of period)
    
    
    19.97
    
    
    
    24.34
    
    
    
    22.45
    
    
    
    19.42
    
    
    
    17.78Weighted average common shares outstanding:Basic
    
    
    2,438,809
    
    
    
    2,410,621
    
    
    
    2,365,932
    
    
    
    2,348,805
    
    
    
    2,302,564Diluted
    
    
    2,438,809
    
    
    
    2,438,203
    
    
    
    2,407,802
    
    
    
    2,388,531
    
    
    
    2,360,061Dividend payout ratio
    
    
    0.00
    %
    
    
    19.35
    %
    
    
    10.23
    %
    
    
    12.82
    %
    
    
    23.80
    %
 21




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As of and for theYear Ended December 31,2008
    
    2007
    
    2006
    
    2005
    
    2004(In thousands)Selected Financial Condition Data
(at end of period):Total available-for-sale securities
    
    $
    68,681
    
    
    $
    76,653
    
    
    $
    87,009
    
    
    $
    99,987
    
    
    $
    66,350Total mortgage loans held for sale
    
    
    8,157
    
    
    
    10,978
    
    
    
    21,805
    
    
    
    13,906
    
    
    
    44,144Total loans
    
    
    662,401
    
    
    
    596,646
    
    
    
    528,515
    
    
    
    503,143
    
    
    
    507,170Total assets
    
    
    815,700
    
    
    
    736,213
    
    
    
    692,219
    
    
    
    689,589
    
    
    
    672,717Total deposits
    
    
    600,868
    
    
    
    536,370
    
    
    
    535,864
    
    
    
    529,341
    
    
    
    522,646Funds borrowed
    
    
    135,129
    
    
    
    134,942
    
    
    
    96,577
    
    
    
    104,394
    
    
    
    102,469Total stockholders equity
    
    
    76,439
    
    
    
    58,934
    
    
    
    53,820
    
    
    
    46,255
    
    
    
    41,384Trust assets under administration
    
    
    112,688
    
    
    
    104,167
    
    
    
    104,445
    
    
    
    93,988
    
    
    
    118,074Selected Financial Ratios and Other Data:Performance Ratios:Net interest margin (1)
    
    
    3.19
    %
    
    
    3.95
    %
    
    
    4.34
    %
    
    
    3.50
    %
    
    
    2.91
    %Non-interest income to average assets
    
    
    1.07
    
    
    
    0.99
    
    
    
    1.29
    
    
    
    1.63
    
    
    
    2.16Non-interest expense to average assets
    
    
    3.67
    
    
    
    3.34
    
    
    
    3.54
    
    
    
    3.77
    
    
    
    4.11Net overhead ratio (2)
    
    
    2.59
    
    
    
    2.35
    
    
    
    2.25
    
    
    
    2.14
    
    
    
    1.96Efficiency ratio (3)
    
    
    90.70
    
    
    
    71.57
    
    
    
    66.32
    
    
    
    77.56
    
    
    
    85.35Return on average assets (4)
    
    
    (1.31
    )
    
    
    0.62
    
    
    
    1.00
    
    
    
    0.66
    
    
    
    0.30Return on average equity (5)
    
    
    (17.53
    )
    
    
    7.88
    
    
    
    13.81
    
    
    
    10.44
    
    
    
    4.69Asset Quality Ratios:Non-performing loans to total loans
    
    
    6.54
    %
    
    
    4.22
    %
    
    
    1.31
    %
    
    
    0.87
    %
    
    
    0.86
    %Allowance for possible loan losses to:Total loans
    
    
    1.87
    
    
    
    1.51
    
    
    
    1.16
    
    
    
    1.33
    
    
    
    1.45Non-performing loans
    
    
    28.54
    
    
    
    35.65
    
    
    
    88.16
    
    
    
    153.27
    
    
    
    168.60Net charge-offs to average total loans
    
    
    2.16
    
    
    
    0.06
    
    
    
    0.35
    
    
    
    0.17
    
    
    
    0.36Non-performing loans to total assets
    
    
    5.31
    
    
    
    3.42
    
    
    
    1.00
    
    
    
    0.63
    
    
    
    0.65Balance Sheet Ratios:Loans to deposits
    
    
    110.24
    %
    
    
    111.24
    %
    
    
    98.63
    %
    
    
    95.05
    %
    
    
    97.04
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    115.18
    
    
    
    117.84
    
    
    
    119.12
    
    
    
    116.78
    
    
    
    114.38Capital Ratios:Total equity to total assets
    
    
    9.37
    %
    
    
    8.01
    %
    
    
    7.77
    %
    
    
    6.71
    %
    
    
    6.15
    %Total capital to risk-weighted assets ratio
    
    
    13.82
    
    
    
    11.53
    
    
    
    12.47
    
    
    
    12.04
    
    
    
    11.15Tier 1 capital to risk-weighted assets ratio
    
    
    12.57
    
    
    
    10.28
    
    
    
    11.33
    
    
    
    10.25
    
    
    
    9.00Tier 1 capital to average assets ratio
    
    
    11.50
    
    
    
    9.86
    
    
    
    10.29
    
    
    
    8.86
    
    
    
    8.45Average equity to average assets ratio
    
    
    7.66
    
    
    
    7.85
    
    
    
    7.27
    
    
    
    6.31
    
    
    
    6.37
 
 (1)
    
    Net interest income, on a full tax-equivalent basis, 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. 22




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##### Table of Contents



Item 7: Managements Discussion and Analysis of Financial Condition and Results of Operations
   Critical Accounting Policies
   
    
    analytical reviews of loan loss experience in relationship to outstanding loans and
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 judgment with respect to current economic conditions and their impact on
the existing loan portfolio.
 23




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##### Table of Contents



Overview
     24




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##### Table of Contents



Goodwill and Other Intangible Assets,
   Net Interest Income
  25




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##### Table of Contents



Years ended December 31, 2008 and 2007.
   Years ended December 31, 2007 and 2006.
   26




---



##### Table of Contents



Average Balance Sheets.
 AVERAGE BALANCES, YIELDS AND RATES
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(In thousands)AssetsFederal funds sold and other short-term investments
    
    $
    22,478
    
    
    $
    378
    
    
    
    1.68
    %
    
    $
    10,902
    
    
    $
    557
    
    
    
    5.11
    %
    
    $
    5,100
    
    
    $
    256
    
    
    
    5.01
    %Available-for-sale securities  taxable
    
    
    69,741
    
    
    
    3,369
    
    
    
    4.83
    
    
    
    90,246
    
    
    
    4,452
    
    
    
    4.93
    
    
    
    93,043
    
    
    
    4,013
    
    
    
    4.31Available-for-sale securities  non-taxable (1)
    
    
    141
    
    
    
    9
    
    
    
    6.38
    
    
    
    312
    
    
    
    21
    
    
    
    6.66
    
    
    
    565
    
    
    
    40
    
    
    
    7.03Mortgage loans held for sale
    
    
    6,157
    
    
    
    340
    
    
    
    5.52
    
    
    
    9,589
    
    
    
    609
    
    
    
    6.35
    
    
    
    18,067
    
    
    
    1,145
    
    
    
    6.34Loans, net of unearned discount and fees (2)
    
    
    631,673
    
    
    
    40,905
    
    
    
    6.48
    
    
    
    563,224
    
    
    
    46,585
    
    
    
    8.27
    
    
    
    525,471
    
    
    
    43,392
    
    
    
    8.26Total earning assets
    
    
    730,190
    
    
    
    45,001
    
    
    
    6.16
    
    
    
    674,273
    
    
    
    52,224
    
    
    
    7.75
    
    
    
    642,246
    
    
    
    48,846
    
    
    
    7.61Cash and due from banks  non-interest bearing
    
    
    20,611
    
    
    
    
    
    
    
    
    
    
    
    17,728
    
    
    
    
    
    
    
    
    
    
    
    18,545Allowance for possible loan losses
    
    
    (10,060
    )
    
    
    
    
    
    
    
    
    
    
    (6,962
    )
    
    
    
    
    
    
    
    
    
    
    (6,556
    )Premises and equipment, net
    
    
    18,337
    
    
    
    
    
    
    
    
    
    
    
    19,072
    
    
    
    
    
    
    
    
    
    
    
    18,300Other assets
    
    
    25,704
    
    
    
    
    
    
    
    
    
    
    
    20,895
    
    
    
    
    
    
    
    
    
    
    
    16,444Total assets
    
    $
    784,782
    
    
    
    
    
    
    
    
    
    
    $
    725,006
    
    
    
    
    
    
    
    
    
    
    $
    688,979Liabilities and Stockholders EquityDeposits-interest bearing:Interest-bearing demand accounts
    
    $
    52,776
    
    
    $
    1,394
    
    
    
    2.64
    %
    
    $
    30,719
    
    
    $
    656
    
    
    
    2.14
    %
    
    $
    24,979
    
    
    $
    97
    
    
    
    0.39
    %Savings and money market deposits
    
    
    137,295
    
    
    
    2,402
    
    
    
    1.75
    
    
    
    163,099
    
    
    
    6,362
    
    
    
    3.90
    
    
    
    147,403
    
    
    
    4,356
    
    
    
    2.95Time deposits
    
    
    286,404
    
    
    
    12,139
    
    
    
    4.24
    
    
    
    269,673
    
    
    
    13,134
    
    
    
    4.87
    
    
    
    262,199
    
    
    
    11,254
    
    
    
    4.29Total interest-bearing deposits
    
    
    476,475
    
    
    
    15,935
    
    
    
    3.34
    
    
    
    463,491
    
    
    
    20,152
    
    
    
    4.35
    
    
    
    434,581
    
    
    
    15,707
    
    
    
    3.61Short-term debt
    
    
    46,008
    
    
    
    943
    
    
    
    2.05
    
    
    
    33,610
    
    
    
    1,319
    
    
    
    3.93
    
    
    
    32,047
    
    
    
    1,365
    
    
    
    4.26Long-term debt
    
    
    111,490
    
    
    
    4,813
    
    
    
    4.32
    
    
    
    75,087
    
    
    
    4,111
    
    
    
    5.48
    
    
    
    72,530
    
    
    
    3,890
    
    
    
    5.36Total interest-bearing liabilities
    
    
    633,973
    
    
    
    21,691
    
    
    
    3.42
    
    
    
    572,188
    
    
    
    25,582
    
    
    
    4.47
    
    
    
    539,158
    
    
    
    20,962
    
    
    
    3.89Non-interest bearing deposits
    
    
    86,811
    
    
    
    
    
    
    
    
    
    
    
    91,151
    
    
    
    
    
    
    
    
    
    
    
    93,916Other liabilities
    
    
    3,852
    
    
    
    
    
    
    
    
    
    
    
    4,745
    
    
    
    
    
    
    
    
    
    
    
    5,770Stockholders equity
    
    
    60,146
    
    
    
    
    
    
    
    
    
    
    
    56,922
    
    
    
    
    
    
    
    
    
    
    
    50,135Total liabilities and stockholders equity
    
    $
    784,782
    
    
    
    
    
    
    
    
    
    
    $
    725,006
    
    
    
    
    
    
    
    
    
    
    $
    688,979FTE net interest income/spread
    
    
    
    
    
    $
    23,310
    
    
    
    2.74
    %
    
    
    
    
    
    $
    26,642
    
    
    
    3.28
    %
    
    
    
    
    
    $
    27,884
    
    
    
    3.72
    %FTE net interest margin
    
    
    
    
    
    
    
    
    
    
    3.19
    %
    
    
    
    
    
    
    
    
    
    
    3.95
    %
    
    
    
    
    
    
    
    
    
    
    4.34
    %
 
 (1)
    
    Presented on a fully tax-equivalent basis assuming a tax rate of 34%. For the three
years ended December 31, 2008, 2007 and 2006, the tax equivalency adjustment amounted to
$3,000, $7,000, and $14,000, respectively.(2)
    
    Includes average balances and income from loans on non-accrual status 27




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##### Table of Contents



Analysis of Changes in Net Interest Income Due to Changes in Interest Rates and Volumes.
 
    
    changes in rate, reflecting changes in rate multiplied by the prior period volume; and
    
    changes in volume, reflecting changes in volume multiplied by the current period rate.
 CHANGES IN INTEREST INCOME AND EXPENSE VOLUME AND RATE VARIANCES
 Year Ended December 31,(In thousands)2008 Compared to 2007
    
    
    2007 Compared to 2006Change
    
    
    Change
    
    
    
    
    
    
    Change
    
    
    ChangeDue to
    
    
    Due to
    
    
    Total
    
    
    Due to
    
    
    Due to
    
    
    TotalRate
    
    
    Volume
    
    
    Change
    
    
    Rate
    
    
    Volume
    
    
    ChangeFederal funds sold
    
    $
    (374
    )
    
    $
    195
    
    
    $
    (179
    )
    
    $
    5
    
    
    $
    296
    
    
    $
    301Available-for-sale
securities  taxable
    
    
    (93
    )
    
    
    (990
    )
    
    
    (1,083
    )
    
    
    577
    
    
    
    (138
    )
    
    
    439Available-for-sale
securities 
non-taxable (1)
    
    
    (1
    )
    
    
    (11
    )
    
    
    (12
    )
    
    
    (2
    )
    
    
    (17
    )
    
    
    (19
    )Mortgage loans held for
sale
    
    
    (79
    )
    
    
    (190
    )
    
    
    (269
    )
    
    
    2
    
    
    
    (538
    )
    
    
    (536
    )Loans, net of unearned
discount and fees
    
    
    (10,112
    )
    
    
    4,432
    
    
    
    (5,680
    )
    
    
    70
    
    
    
    3,123
    
    
    
    3,193Total interest income
    
    
    (10,659
    )
    
    
    3,436
    
    
    
    (7,223
    )
    
    
    652
    
    
    
    2,726
    
    
    
    3,378Interest-bearing demand
accounts
    
    
    155
    
    
    
    583
    
    
    
    738
    
    
    
    436
    
    
    
    123
    
    
    
    559Savings and money market
deposits
    
    
    (3,509
    )
    
    
    (451
    )
    
    
    (3,960
    )
    
    
    1,394
    
    
    
    612
    
    
    
    2,006Time deposits
    
    
    (1,707
    )
    
    
    712
    
    
    
    (995
    )
    
    
    1,516
    
    
    
    364
    
    
    
    1,880Short-term debt
    
    
    (630
    )
    
    
    254
    
    
    
    (376
    )
    
    
    (107
    )
    
    
    61
    
    
    
    (46
    )Long-term debt
    
    
    (870
    )
    
    
    1,572
    
    
    
    702
    
    
    
    81
    
    
    
    140
    
    
    
    221Total interest expense
    
    
    (6,561
    )
    
    
    2,670
    
    
    
    (3,891
    )
    
    
    3,320
    
    
    
    1,300
    
    
    
    4,620Net interest income
    
    $
    (4,098
    )
    
    $
    766
    
    
    $
    (3,332
    )
    
    $
    (2,668
    )
    
    $
    1,426
    
    
    $
    (1,242
    )
 
 (1)
    
    Presented on a fully tax-equivalent basis assuming a tax rate of 34%. Provision for Loan Losses
  28




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Critical Accounting Policies
 Non-interest Income
  NON-INTEREST INCOME
 Year Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands)Loans held for sale fee income
    
    $
    2,136
    
    
    $
    3,160
    
    
    $
    5,046NSF charges and service fees
    
    
    1,641
    
    
    
    1,418
    
    
    
    1,244Other service charges
    
    
    1,658
    
    
    
    1,412
    
    
    
    1,247Realized gains on available-for-sale securities
    
    
    702
    
    
    
    105
    
    
    
    Gain on settlement of litigation
    
    
    1,000
    
    
    
    
    
    
    
    Other income
    
    
    1,275
    
    
    
    1,105
    
    
    
    1,344Total non-interest income
    
    $
    8,412
    
    
    $
    7,200
    
    
    $
    8,881
  29




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##### Table of Contents



Non-interest Expense
  NON-INTEREST EXPENSE
 Year Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands)Salaries and employee benefits
    
    $
    12,500
    
    
    $
    13,570
    
    
    $
    14,737Net occupancy expense
    
    
    3,144
    
    
    
    3,200
    
    
    
    3,059Goodwill impairment
    
    
    4,821
    
    
    
    
    
    
    
    Other operating expense
    
    
    8,304
    
    
    
    7,447
    
    
    
    6,578Total non-interest expenses
    
    $
    28,769
    
    
    $
    24,217
    
    
    $
    24,374
 Goodwill and Other Intangible Assets
 30




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##### Table of Contents



Income Taxes
  Financial Condition
  Investment securities.
  31




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##### Table of Contents



INVESTMENT SECURITIES PORTFOLIO COMPOSITION
 At December 31,2008
    
    
    2007
    
    
    2006(In thousands)U.S. government sponsored agency securities
    
    $
    68,092
    
    
    $
    75,953
    
    
    $
    86,165State and political subdivisions
    
    
    
    
    
    
    210
    
    
    
    360Equity and other
    
    
    589
    
    
    
    490
    
    
    
    484Total
    
    $
    68,681
    
    
    $
    76,653
    
    
    $
    87,009
  MATURITY OF INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES
 One Year or Less
    
    
    One to Five Years
    
    
    Five to Ten Years
    
    
    More Than Ten
Years
    
    
    Total Investment 
SecuritiesCarrying
    
    
    Average
    
    
    Carrying
    
    
    Average
    
    
    Carrying
    
    
    Average
    
    
    Carrying
    
    
    Average
    
    
    Carrying
    
    
    AverageValue
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield(In thousands)Available-For-SaleU.S. government
sponsored agency
    
    $
    15,043
    
    
    
    4.20
    %
    
    $
    49,974
    
    
    
    4.30
    %
    
    $
    3,075
    
    
    
    6.03
    %
    
    $
    
    
    
    
    
    %
    
    $
    68,092
    
    
    
    4.36
    %Equity and other
securities
with no
defined maturity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    589
    
    
    
    4.00Total available-for-sale
    
    $
    15,043
    
    
    
    4.20
    %
    
    $
    49,974
    
    
    
    4.30
    %
    
    $
    3,075
    
    
    
    6.03
    %
    
    $
    
    
    
    
    
    %
    
    $
    68,681
    
    
    
    4.35
    %
 Loans Held for Sale.
 Loans.
   32




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##### Table of Contents



As of December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(In thousands)Commercial
    
    $
    172,647
    
    
    
    26.06
    %
    
    $
    139,120
    
    
    
    23.32
    %
    
    $
    110,849
    
    
    
    20.97
    %
    
    $
    112,452
    
    
    
    22.35
    %
    
    $
    117,604
    
    
    
    23.19
    %Commercial real estate
    
    
    170,697
    
    
    
    25.77
    
    
    
    150,655
    
    
    
    25.25
    
    
    
    126,952
    
    
    
    24.02
    
    
    
    114,562
    
    
    
    22.77
    
    
    
    126,205
    
    
    
    24.88Construction
    
    
    182,933
    
    
    
    27.62
    
    
    
    188,229
    
    
    
    31.55
    
    
    
    171,709
    
    
    
    32.49
    
    
    
    139,662
    
    
    
    27.76
    
    
    
    130,631
    
    
    
    25.76Lease financing
    
    
    18,927
    
    
    
    2.86
    
    
    
    19,724
    
    
    
    3.30
    
    
    
    18,512
    
    
    
    3.50
    
    
    
    18,238
    
    
    
    3.62
    
    
    
    21,203
    
    
    
    4.18Residential real estate
    
    
    43,695
    
    
    
    6.60
    
    
    
    37,511
    
    
    
    6.29
    
    
    
    34,988
    
    
    
    6.63
    
    
    
    39,371
    
    
    
    7.83
    
    
    
    30,886
    
    
    
    6.09Consumer
    
    
    14,245
    
    
    
    2.15
    
    
    
    22,934
    
    
    
    3.84
    
    
    
    33,097
    
    
    
    6.26
    
    
    
    45,221
    
    
    
    8.99
    
    
    
    48,950
    
    
    
    9.65Home equity
    
    
    59,257
    
    
    
    8.94
    
    
    
    38,473
    
    
    
    6.45
    
    
    
    32,408
    
    
    
    6.13
    
    
    
    33,637
    
    
    
    6.68
    
    
    
    31,691
    
    
    
    6.25Total loans and
leases
    
    
    662,401
    
    
    
    100.00
    %
    
    
    596,646
    
    
    
    100.00
    %
    
    
    528,515
    
    
    
    100.00
    %
    
    
    503,143
    
    
    
    100.00
    %
    
    
    507,170
    
    
    
    100.00
    %Less allowance for loan
losses
    
    
    12,368
    
    
    
    
    
    
    
    8,982
    
    
    
    
    
    
    
    6,106
    
    
    
    
    
    
    
    6,704
    
    
    
    
    
    
    
    7,333Loans, net
    
    $
    650,033
    
    
    
    
    
    
    $
    587,664
    
    
    
    
    
    
    $
    522,409
    
    
    
    
    
    
    $
    496,439
    
    
    
    
    
    
    $
    499,837
 Collateral and Concentration.
  MATURITIES AND SENSITIVITIES OF LOANS TO
CHANGES IN INTEREST RATES
 As of December 31, 2008More than One YearLess than
    
    One to
    
    Over fiveone year
    
    five years
    
    years
    
    Total
    
    Fixed
    
    Variable(In thousands)Commercial
    
    $
    104,733
    
    
    $
    56,298
    
    
    $
    11,616
    
    
    $
    172,647
    
    
    $
    32,410
    
    
    $
    35,504Commercial Real Estate
    
    
    40,431
    
    
    
    123,638
    
    
    
    6,628
    
    
    
    170,697
    
    
    
    101,658
    
    
    
    28,608Construction
    
    
    135,928
    
    
    
    43,495
    
    
    
    3,510
    
    
    
    182,933
    
    
    
    24,069
    
    
    
    22,936
 33




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##### Table of Contents



Non-performing Assets
  NON-PERFORMING ASSETS
 As of December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(In thousands)Commercial and all other loans:Past due 90 days or more
    
    $
    
    
    
    $
    680
    
    
    $
    802
    
    
    $
    781
    
    
    $
    2,008Non-accrual
    
    
    2,143
    
    
    
    60
    
    
    
    381
    
    
    
    769
    
    
    
    543Commercial real estate loans:Past due 90 days or more
    
    
    
    
    
    
    
    
    
    
    4,951
    
    
    
    598
    
    
    
    Non-accrual
    
    
    1,951
    
    
    
    512
    
    
    
    
    
    
    
    
    
    
    
    158Construction loans:Past due 90 days or more
    
    
    
    
    
    
    10,699
    
    
    
    
    
    
    
    585
    
    
    
    Non-accrual
    
    
    32,110
    
    
    
    10,115
    
    
    
    136
    
    
    
    452
    
    
    
    Lease financing:Past due 90 days or more
    
    
    
    
    
    
    11
    
    
    
    186
    
    
    
    5
    
    
    
    1Non-accrual
    
    
    475
    
    
    
    1,084
    
    
    
    
    
    
    
    119
    
    
    
    80Residential real estate loans:Past due 90 days or more
    
    
    
    
    
    
    1,194
    
    
    
    
    
    
    
    
    
    
    
    153Non-accrual
    
    
    6,129
    
    
    
    189
    
    
    
    410
    
    
    
    1,016
    
    
    
    1,315Consumer loans:Past due 90 days or more
    
    
    
    
    
    
    13
    
    
    
    13
    
    
    
    49
    
    
    
    17Non-accrual
    
    
    36
    
    
    
    
    
    
    
    47
    
    
    
    
    
    
    
    Home equity loans:Past due 90 days or more
    
    
    
    
    
    
    637
    
    
    
    
    
    
    
    
    
    
    
    Non-accrual
    
    
    488
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75Debt securities and other assets (excluding
other real estate owned and other repossessed
assets):Past due 90 days or more
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-accrual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-performing loans
    
    
    43,332
    
    
    
    25,194
    
    
    
    6,926
    
    
    
    4,374
    
    
    
    4,350Foreclosed assets held for sale
    
    
    4,783
    
    
    
    2,523
    
    
    
    717
    
    
    
    711
    
    
    
    2,645Total non-performing assets
    
    $
    48,115
    
    
    $
    27,717
    
    
    $
    7,643
    
    
    $
    5,085
    
    
    $
    6,995Total non-performing loans to total loans
    
    
    6.54
    %
    
    
    4.22
    %
    
    
    1.31
    %
    
    
    0.87
    %
    
    
    0.86
    %Total non-performing loans to total assets
    
    
    5.31
    
    
    
    3.42
    
    
    
    1.00
    
    
    
    0.63
    
    
    
    0.65Allowance for loan losses to non-performing loans
    
    
    28.54
    
    
    
    35.65
    
    
    
    88.16
    
    
    
    153.27
    
    
    
    168.60Non-performing assets to loans and foreclosed
assets held for sale
    
    
    7.21
    
    
    
    4.63
    
    
    
    1.44
    
    
    
    1.01
    
    
    
    1.37
 Non-performing assets
  34




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##### Table of Contents



Year EndedDecember 31, 2008(In thousands)Gross interest income (since date of
non-accrual) if the loans had been
current and accruing interest
    
    $
    1,526Interest income reversed at time loan
placed on non-accrual
    
    
    1,164Cash interest received during the period
    
    
    927
 Impaired Loans.
   Allowance For Loan Losses.
 35




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##### Table of Contents



SUMMARY OF LOAN LOSS EXPERIENCE
AND RELATED INFORMATION
 As of and for theYear Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(In thousands)Balance at beginning of period
    
    $
    8,982
    
    
    $
    6,106
    
    
    $
    6,704
    
    
    $
    7,333
    
    
    $
    7,051Loans charged-off:Commercial loans
    
    
    6,603
    
    
    
    215
    
    
    
    1,417
    
    
    
    949
    
    
    
    1,665Commercial real estate loans
    
    
    262
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction loans
    
    
    6,022
    
    
    
    244
    
    
    
    100
    
    
    
    
    
    
    
    Lease financing
    
    
    372
    
    
    
    139
    
    
    
    134
    
    
    
    86
    
    
    
    220Residential real estate loans
    
    
    424
    
    
    
    49
    
    
    
    318
    
    
    
    
    
    
    
    18Consumer loans
    
    
    112
    
    
    
    16
    
    
    
    83
    
    
    
    77
    
    
    
    80Home equity loans
    
    
    127
    
    
    
    
    
    
    
    8
    
    
    
    16
    
    
    
    Total loans charged-off
    
    
    13,922
    
    
    
    663
    
    
    
    2,060
    
    
    
    1,128
    
    
    
    1,983Recoveries:Commercial loans
    
    
    223
    
    
    
    294
    
    
    
    117
    
    
    
    154
    
    
    
    41Commercial real estate loans
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    3
    
    
    
    7Construction loans
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lease financing
    
    
    29
    
    
    
    9
    
    
    
    32
    
    
    
    76
    
    
    
    166Residential real estate loans
    
    
    1
    
    
    
    6
    
    
    
    47
    
    
    
    1
    
    
    
    48Consumer loans
    
    
    6
    
    
    
    14
    
    
    
    11
    
    
    
    35
    
    
    
    38Home equity loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total recoveries
    
    
    283
    
    
    
    324
    
    
    
    207
    
    
    
    269
    
    
    
    300Net loans charged-off
    
    
    13,639
    
    
    
    339
    
    
    
    1,853
    
    
    
    859
    
    
    
    1,683Allowance of acquired company
    
    
    
    
    
    
    360
    
    
    
    
    
    
    
    
    
    
    
    Provision for loan losses
    
    
    17,025
    
    
    
    2,855
    
    
    
    1,255
    
    
    
    230
    
    
    
    1,965Balance at end of period
    
    $
    12,368
    
    
    $
    8,982
    
    
    $
    6,106
    
    
    $
    6,704
    
    
    $
    7,333Loans outstanding:Average
    
    $
    631,673
    
    
    $
    563,224
    
    
    $
    525,471
    
    
    $
    516,643
    
    
    $
    463,833End of period
    
    
    662,401
    
    
    
    596,646
    
    
    
    528,515
    
    
    
    503,143
    
    
    
    507,170Ratio of allowance for loan losses
to loans outstanding:Average
    
    
    1.96
    %
    
    
    1.59
    %
    
    
    1.16
    %
    
    
    1.30
    %
    
    
    1.58
    %End of period
    
    
    1.87
    
    
    
    1.51
    
    
    
    1.16
    
    
    
    1.33
    
    
    
    1.45Ratio of net charge-offs to:Average loans
    
    
    2.16
    
    
    
    0.06
    
    
    
    0.35
    
    
    
    0.17
    
    
    
    0.36End of period loans
    
    
    2.06
    
    
    
    0.06
    
    
    
    0.35
    
    
    
    0.17
    
    
    
    0.33
 36




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ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
 As of December 31,2008
    
    2007
    
    2006
    
    2005
    
    2004(In thousands)% of Total
    
    
    
    
    
    
    % of Total
    
    
    
    
    
    
    % of Total
    
    
    
    
    
    
    % of Total
    
    
    
    
    
    
    % of TotalAmount
    
    
    Allowance
    
    
    Amount
    
    
    Allowance
    
    
    Amount
    
    
    Allowance
    
    
    Amount
    
    
    Allowance
    
    
    Amount
    
    
    AllowanceCommercial
    
    $
    3,040
    
    
    
    24.58
    %
    
    $
    1,790
    
    
    
    19.93
    %
    
    $
    1,386
    
    
    
    22.70
    %
    
    $
    1,863
    
    
    
    27.79
    %
    
    $
    3,016
    
    
    
    41.13
    %Commercial real estate
    
    
    2,507
    
    
    
    20.27
    
    
    
    1,597
    
    
    
    17.78
    
    
    
    1,674
    
    
    
    27.42
    
    
    
    1,441
    
    
    
    21.49
    
    
    
    1,432
    
    
    
    19.53Construction
    
    
    4,695
    
    
    
    37.96
    
    
    
    4,188
    
    
    
    46.63
    
    
    
    1,920
    
    
    
    31.44
    
    
    
    1,776
    
    
    
    26.51
    
    
    
    1,475
    
    
    
    20.11Lease financing
    
    
    449
    
    
    
    3.63
    
    
    
    664
    
    
    
    7.39
    
    
    
    355
    
    
    
    5.81
    
    
    
    582
    
    
    
    8.68
    
    
    
    583
    
    
    
    7.95Residential real estate
    
    
    1,201
    
    
    
    9.71
    
    
    
    377
    
    
    
    4.20
    
    
    
    402
    
    
    
    6.58
    
    
    
    536
    
    
    
    7.99
    
    
    
    209
    
    
    
    2.85Consumer
    
    
    67
    
    
    
    .54
    
    
    
    119
    
    
    
    1.32
    
    
    
    172
    
    
    
    2.82
    
    
    
    294
    
    
    
    4.38
    
    
    
    404
    
    
    
    5.51Home equity
    
    
    409
    
    
    
    3.31
    
    
    
    247
    
    
    
    2.75
    
    
    
    197
    
    
    
    3.23
    
    
    
    212
    
    
    
    3.16
    
    
    
    214
    
    
    
    2.92Total
    
    $
    12,368
    
    
    
    100.00
    %
    
    $
    8,982
    
    
    
    100.00
    %
    
    $
    6,106
    
    
    
    100.00
    %
    
    $
    6,704
    
    
    
    100.00
    %
    
    $
    7,333
    
    
    
    100.00
    %
 Deposits.
  37




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##### Table of Contents



DEPOSITS
 Year Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands)Percent
    
    
    Weighted
    
    
    
    
    
    
    Percent
    
    
    Weighted
    
    
    
    
    
    
    Percent
    
    
    Weightedof
    
    
    Average
    
    
    
    
    
    
    of
    
    
    Average
    
    
    
    
    
    
    Of
    
    
    AverageBalance
    
    
    Deposits
    
    
    Rate
    
    
    Balance
    
    
    Deposits
    
    
    Rate
    
    
    Balance
    
    
    Deposits
    
    
    RateDemand
    
    $
    86,020
    
    
    
    14.32
    %
    
    
    
    %
    
    $
    87,927
    
    
    
    16.39
    %
    
    
    
    %
    
    $
    94,823
    
    
    
    17.69
    %
    
    
    
    %Savings
    
    
    8,030
    
    
    
    1.34
    
    
    
    0.44
    
    
    
    8,384
    
    
    
    1.57
    
    
    
    0.49
    
    
    
    8,874
    
    
    
    1.66
    
    
    
    0.49Interest-bearing demand
    
    
    72,699
    
    
    
    12.10
    
    
    
    2.64
    
    
    
    35,983
    
    
    
    6.71
    
    
    
    2.14
    
    
    
    26,427
    
    
    
    4.93
    
    
    
    0.39Money Market
    
    
    99,282
    
    
    
    16.52
    
    
    
    1.83
    
    
    
    153,619
    
    
    
    28.64
    
    
    
    4.09
    
    
    
    23,071
    
    
    
    4.31
    
    
    
    1.13Money Management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97,697
    
    
    
    18.23
    
    
    
    3.61Time Deposits
    
    
    334,837
    
    
    
    55.72
    
    
    
    4.24
    
    
    
    250,457
    
    
    
    46.69
    
    
    
    4.87
    
    
    
    284,972
    
    
    
    53.18
    
    
    
    3.97Total deposits
    
    $
    600,868
    
    
    
    100.00
    %
    
    
    
    
    
    $
    536,370
    
    
    
    100.00
    %
    
    
    
    
    
    $
    535,864
    
    
    
    100.00
    %
  AMOUNTS AND MATURITIES OF
TIME DEPOSITS OF $100,000 OR MORE
 As of December 31, 2008Weighted AverageAmount

    
    Rate Paid(In thousands)Three months or less
    
    $
    30,557
    
    
    
    3.89
    %Over three months through six months
    
    
    16,218
    
    
    
    3.96Over six months through twelve months
    
    
    21,264
    
    
    
    3.61Over twelve months
    
    
    31,108
    
    
    
    4.10Total
    
    $
    99,147
    
    
    
    4.08
    %
 Liquidity and Capital Resources
 Liquidity
 38




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##### Table of Contents



39




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##### Table of Contents



SHORT-TERM DEBT
 Average
    
    
    
    
    
    
    Weighted
    
    
    WeightedAmount
    
    
    amount
    
    
    Maximum
    
    
    average
    
    
    Averageoutstanding
    
    
    outstanding
    
    
    Outstanding
    
    
    interest rate
    
    
    interest rateat
    
    
    during the
    
    
    At any
    
    
    during the
    
    
    at periodperiod end
    
    
    period (1)
    
    
    Month end
    
    
    period
    
    
    end(In thousands)At or for the year ended December 31, 2008:Federal Home Loan Bank borrowings
    
    $
    
    
    
    $
    1,730
    
    
    $
    4,000
    
    
    
    3.16
    %
    
    
    
    %Federal Funds purchased
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    1.97
    
    
    
    JP Morgan Chase operating line of credit
    
    
    
    
    
    
    10,385
    
    
    
    15,000
    
    
    
    4.94
    
    
    
    Federal Reserve Bank line of credit
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    1.40Repurchase agreements and other interest
bearing liabilities
    
    
    27,545
    
    
    
    33,884
    
    
    
    41,708
    
    
    
    1.11
    
    
    
    .31Total
    
    $
    27,545
    
    
    $
    46,008
    
    
    
    
    
    
    
    2.05
    
    
    
    .31At or for the year ended December 31, 2007:Federal Home Loan Bank borrowings
    
    $
    25,000
    
    
    $
    2,701
    
    
    $
    25,000
    
    
    
    5.10
    %
    
    
    4.67
    %Federal Funds purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repurchase agreements and other interest
bearing liabilities
    
    
    29,036
    
    
    
    30,909
    
    
    
    37,569
    
    
    
    3.83
    
    
    
    2.89Total
    
    $
    54,036
    
    
    $
    33,610
    
    
    
    
    
    
    
    3.93
    
    
    
    3.71At or for the year ended December 31, 2006:Federal Home Loan Bank borrowings
    
    $
    
    
    
    $
    6,668
    
    
    $
    31,500
    
    
    
    5.13
    %
    
    
    
    %Federal Funds purchased
    
    
    
    
    
    
    152
    
    
    
    
    
    
    
    5.09
    
    
    
    Repurchase agreements and other interest
bearing liabilities
    
    
    29,558
    
    
    
    25,227
    
    
    
    36,783
    
    
    
    4.02
    
    
    
    4.12Total
    
    $
    29,558
    
    
    $
    32,047
    
    
    
    
    
    
    
    4.26
    
    
    
    4.11
 
 (1)
    
    Calculations are based on daily averages where available and monthly averages otherwise. Capital Resources.
  40




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##### Table of Contents



RISK-BASED CAPITAL
 December 31,2008
    
    
    2007
    
    
    2006(In thousands)Tier 1 capitalStockholders equity
    
    $
    76,439
    
    
    $
    58,934
    
    
    $
    53,820Intangible assets
    
    
    (826
    )
    
    
    (5,942
    )
    
    
    (671
    )Unrealized (appreciation)
depreciation on available-for-sale
securities and derivative instruments
    
    
    (657
    )
    
    
    (600
    )
    
    
    95Trust preferred securities (1)
    
    
    19,000
    
    
    
    19,000
    
    
    
    17,972Total Tier 1 capital
    
    
    93,956
    
    
    
    71,392
    
    
    
    71,216Tier 2 capitalQualifying allowance for loan losses
    
    
    9,381
    
    
    
    8,683
    
    
    
    6,106Trust preferred securities(1)
    
    
    
    
    
    
    
    
    
    
    1,028Total Tier 2 capital
    
    
    9,381
    
    
    
    8,683
    
    
    
    7,134Total risk-based capital
    
    $
    103,337
    
    
    $
    80,075
    
    
    $
    78,350Risk weighted assets
    
    $
    747,504
    
    
    $
    694,318
    
    
    
    628,521Ratios at end of periodTotal capital to risk-weighted assets
ratio
    
    
    13.82
    %
    
    
    11.53
    %
    
    
    12.47
    %Tier 1 capital to average assets ratio
(leverage ratio)
    
    
    11.50
    %
    
    
    9.86
    %
    
    
    10.29
    %Tier 1 capital to risk-weighted assets
ratio
    
    
    12.57
    %
    
    
    10.28
    %
    
    
    11.33
    %Minimum guidelinesTotal capital to risk-weighted assets
ratio
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.00
    %Tier 1 capital to average assets ratio
(leverage ratio)
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %Tier 1 capital to risk-weighted assets
ratio
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %
 
 (1)
    
    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 (Tier 1 capital before reduction of intangibles). Approximately $19.0 million, $19.0
million and $18.0 million of the $19.0 million in trust preferred securities have been
included as Tier 1 capital as of December 31, 2008, 2007 and 2006, respectively. The remaining
balance of the trust preferred securities have been included as Tier 2 capital.  41




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##### Table of Contents




    
    The Preferred Shares have a senior rank. The Company is not free to issue other preferred
stock that is senior to the Preferred Shares.
 
    
    Until the third anniversary of the sale of the Preferred Shares, unless the Preferred Shares
have been redeemed in whole or the Treasury has transferred all of the shares to a
non-affiliated third party, the Company may not declare or pay a common stock dividend in an
amount greater than the amount of the last quarterly cash dividend per share declared prior to
October 14, 2008, or repurchase common stock or other equity shares (subject to certain
limited exceptions) without the Treasurys approval.
 
    
    If the Company were to pay a cash dividend in the future, which would only occur with the
consent of the Treasury, any such dividend would have to be discontinued if a Preferred Share
dividend were missed. Thereafter, dividends on common stock could be resumed only if all
Preferred Share dividends in arrears were paid. Similar restrictions apply to the Companys
ability to repurchase common stock if Preferred Share dividends are missed.
 
    
    Failure to pay the Preferred Share dividend is not an event of default. However, a failure to
pay a total of six Preferred Share dividends, whether or not consecutive, gives the holders of
the Preferred Shares the right to elect two directors to the Companys Board of Directors.
That right would continue until the Company pays all dividends in arrears.
 
    
    In conformity with requirements of the SPA and Section 111(b) of the Emergency Economic
Stabilization Act of 2008 (the EESA), the Company and its subsidiary, Bank of Blue Valley,
and each of its Senior Executive Officers agreed to limit certain compensation, bonus,
incentive and other benefits plans, arrangements, and policies with respect to the Senior
Executive Officers during the period that the Treasury owns any debt or equity securities
acquired in connection with the Transaction. The applicable Senior Executive Officers have
entered into letter agreements with the Company consenting to the foregoing and have executed
a waiver voluntarily waiving any claim against the Treasury or the Company for any changes to
such Senior Executive Officers compensation or benefits that are required to comply with
Section 111(b) of EESA.
   42




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##### Table of Contents



Contractual Obligations
  Payments due by Period(In thousands)Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    yearsTime Deposit Obligations
    
    $
    334,837
    
    
    $
    205,542
    
    
    $
    109,066
    
    
    $
    15,694
    
    
    $
    4,535Short-term Debt
Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-term Debt
Obligations
    
    
    107,584
    
    
    
    569
    
    
    
    8,730
    
    
    
    36,365
    
    
    
    61,920Total Obligations
    
    $
    442,421
    
    
    $
    206,111
    
    
    $
    117,796
    
    
    $
    52,059
    
    
    $
    66,455
 Inflation
  Off-Balance Sheet Arrangements
    43




---



##### Table of Contents



Recent and Future Accounting Requirements
 Accounting for Uncertainty in Income
Taxes  an interpretation of SFAS No. 109
 Fair Value Measurements
 The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment to FASB Statement No. 115 Accounting for Certain Investments in Debt and Equity Securities
  44




---



##### Table of Contents



Business Combinations
 Subsequent Events
 Non-performing assets
  Trust Preferred Securities
  45




---



##### Table of Contents



Item 7A: Qualitative and Quantitative Disclosure About Market Risk
     Net Interest
    
    Net EconomicIncome
    
    Value ofChanges in Interest Rates
    
    (next 12 months)
    
    Equity at Risk200 basis point rise
    
    7.11%
    
    (3.78%)Base Rate Scenario
    
    
    
    200 basis point decline
    
    2.61%
    
    (4.34)%
   46




---



##### Table of Contents



INTEREST-RATE SENSITIVITY ANALYSIS
 Expected Maturity or Repricing Date(In thousands)0-90 Days
    
    
    91-365 Days
    
    
    1 year
    
    
    1 to 2 years
    
    
    2 to 5 years
    
    
    Thereafter
    
    
    TotalInterest-Earning Assets:Fixed Rate Loans
    
    $
    29,815
    
    
    $
    52,579
    
    
    $
    82,394
    
    
    $
    50,098
    
    
    $
    129,929
    
    
    $
    16,371
    
    
    $
    278,792Average Interest Rate
    
    
    7.18
    %
    
    
    6.73
    %
    
    
    6.89
    %
    
    
    7.37
    %
    
    
    7.13
    %
    
    
    6.72
    %
    
    
    7.08
    %Variable Rate Loans
    
    
    360,717
    
    
    
    4,177
    
    
    
    364,894
    
    
    
    2,761
    
    
    
    24,111
    
    
    
    
    
    
    
    391,766Average Interest Rate
    
    
    5.27
    %
    
    
    6.52
    %
    
    
    5.28
    %
    
    
    6.02
    %
    
    
    5.86
    %
    
    
    
    %
    
    
    5.32
    %Fixed Rate Investments
    
    
    17,025
    
    
    
    1,026
    
    
    
    18,051
    
    
    
    9,125
    
    
    
    37,841
    
    
    
    3,075
    
    
    
    68,092Average Interest Rate
    
    
    4.24
    %
    
    
    4.38
    %
    
    
    4.25
    %
    
    
    4.01
    %
    
    
    4.36
    %
    
    
    6.03
    %
    
    
    4.36
    %Variable Rate Investments
    
    
    589
    
    
    
    
    
    
    
    589
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    589Average Interest Rate
    
    
    4.0
    
    
    
    
    
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.0
    %Interest Bearing Deposits
    
    
    343
    
    
    
    
    
    
    
    343
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343Average Interest Rate
    
    
    0.05
    %
    
    
    
    
    
    
    0.05
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.05
    %Federal Funds Sold
    
    
    20,000
    
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000Average Interest Rate
    
    
    0.29
    %
    
    
    
    
    
    
    0.29
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.29
    %Total interest-earning assets
    
    $
    428,489
    
    
    $
    57,782
    
    
    $
    486,271
    
    
    $
    61,984
    
    
    $
    191,881
    
    
    $
    19,446
    
    
    $
    759,582Interest-Bearing Liabilities:Interest-bearing demand
    
    $
    72,699
    
    
    $
    
    
    
    $
    72,699
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    72,699Average Interest Rate
    
    
    2.86
    %
    
    
    
    
    
    
    2.86
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.86
    %Savings and money market
    
    
    107,312
    
    
    
    
    
    
    
    107,312
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,312Average Interest Rate
    
    
    0.81
    %
    
    
    
    
    
    
    0.81
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.81
    %Time deposits
    
    
    100,691
    
    
    
    104,856
    
    
    
    205,547
    
    
    
    94,759
    
    
    
    29,996
    
    
    
    4,535
    
    
    
    334,837Average Interest Rate
    
    
    3.71
    %
    
    
    3.31
    %
    
    
    3.51
    %
    
    
    4.04
    %
    
    
    4.08
    %
    
    
    3.55
    %
    
    
    3.71
    %Funds borrowed
    
    
    67,273
    
    
    
    47,929
    
    
    
    115,202
    
    
    
    5,599
    
    
    
    11,996
    
    
    
    2,332
    
    
    
    135,129Average Interest Rate
    
    
    3.08
    %
    
    
    3.52
    %
    
    
    3.26
    %
    
    
    4.20
    %
    
    
    3.96
    %
    
    
    5.19
    %
    
    
    3.40
    %Total interest-bearing liabilities
    
    $
    347,975
    
    
    $
    152,785
    
    
    $
    500,760
    
    
    $
    100,358
    
    
    $
    41,992
    
    
    $
    6,867
    
    
    $
    649,977Cumulative:Rate sensitive assets (RSA)
    
    $
    428,489
    
    
    $
    486 271
    
    
    $
    486,271
    
    
    $
    548,255
    
    
    $
    740,136
    
    
    $
    759,582
    
    
    $
    759,582Rate sensitive liabilities (RSL)
    
    
    347,975
    
    
    
    500,760
    
    
    
    500,760
    
    
    
    601,118
    
    
    
    643,110
    
    
    
    649,977
    
    
    
    649,977GAP (GAP = RSA  RSL)
    
    
    80,514
    
    
    
    (14,489
    )
    
    
    (14,489
    )
    
    
    (52,863
    )
    
    
    97,026
    
    
    
    109,605
    
    
    
    109,605RSA/RSL
    
    
    123.14
    %
    
    
    97.11
    %
    
    
    97.11
    %
    
    
    91.21
    %
    
    
    115.09
    %
    
    
    116.86
    %RSA/Total assets
    
    
    52.53
    
    
    
    59.61
    
    
    
    59.61
    
    
    
    67.21
    
    
    
    90.74
    
    
    
    93.12RSL/Total assets
    
    
    42.66
    
    
    
    61.39
    
    
    
    61.39
    
    
    
    73.69
    
    
    
    78.84
    
    
    
    79.68GAP/Total assets
    
    
    9.87
    
    
    
    (1.78
    )
    
    
    (1.78
    )
    
    
    (6.48
    )
    
    
    11.89
    
    
    
    13.44GAP/RSA
    
    
    18.79
    
    
    
    (2.98
    )
    
    
    (2.98
    )
    
    
    (9.64
    )
    
    
    13.11
    
    
    
    14.43
  47




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##### Table of Contents



Item 8: Financial Statements and Supplementary Data
  
 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A: Controls and Procedures
   Managements Report on Internal Control Over Financial Reporting:
   
 Item 9B: Other Information
  48




---



##### Table of Contents



Part III
 
 Item 10: Directors, Executive Officers and Corporate Governance
    ir@bankbv.com
  
 Item 11: Executive Compensation
  
 Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13: Certain Relationships, Related Transactions, and Director Independence
  
    
    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.
 49




---



##### Table of Contents



Item 14: Principal Accounting Fees and Services
  
 Part IV
 
 Item 15: Exhibits, Financial Statement Schedules
 (a)
    
    The financial statements and financial statement schedules listed in the accompanying index
to consolidated financial statements and financial statement schedules are filed as part of
this Form 10-K.(b)
    
    The exhibits listed in the accompanying exhibit index are filed as part of this Form 10-K.(c)
    
    None
 50




---



##### Table of Contents



SIGNATURES
  Date: March 30, 2009
    By:
    /s/ Robert D. RegnierRobert D. Regnier, President,Chief Executive Officer and Director  Date: March 30, 2009
    By:
    /s/ Robert D. RegnierRobert D. Regnier, President,Chief Executive Officer and Director
(Principal Executive Officer)Date: March 30, 2009
    By:
    /s/ Mark A. FortinoMark A. Fortino, Chief Financial Officer(Principal Financial [and Accounting] Officer)Date: March 30, 2009
    By:
    /s/ Donald H. AlexanderDonald H. Alexander, DirectorDate: March 30, 2009
    By:
    /s/ Michael J. BrownMichael J. Brown, DirectorDate: March 30, 2009
    By:
    /s/ Thomas A. McDonnellThomas A. McDonnell, DirectorDate: March 30, 2009
    By:
    /s/ Anne D. St. PeterAnne D. St. Peter, DirectorDate: March 30, 2009
    By:
    /s/ Robert D. TaylorRobert D. Taylor, Director 51




---



##### Table of Contents



Exhibits2.1
    
    Agreement and Plan of Merger between Unison Bancorp, Inc., BVBC Acquisition I,
Inc. and Blue Valley Ban Corp., dated as of November 2, 2006.*****2.2
    
    Acquisition Agreement and Plan of Merger among Northland National Bank, Blue
Valley Ban Corp. and Western National Bank, dated as of March 2, 2007.*****2.3
    
    Purchase and Assumption Agreement among Northland National Bank, Bank of Blue
Valley and Blue Valley Ban Corp., dated as of March 2, 2007.*****3.1
    
    Amended and Restated Articles of Incorporation of Blue Valley Ban Corp. *3.2
    
    Bylaws, as amended, of Blue Valley Ban Corp. *3.3
    
    Certificate of Designations dated December 3, 2008.******4.1
    
    1998 Equity Incentive Plan. *4.2
    
    1994 Stock Option Plan. *4.3
    
    Form of Agreement as to Expenses and Liabilities. *4.4
    
    Form of Indenture dated April 10, 2003, between Blue Valley Ban Corp. and
Wilmington Trust Company **4.5
    
    Amended and Restated Declaration of Trust dated April 10, 2003 **4.6
    
    Guarantee Agreement dated April 10, 2003 **4.7
    
    Fee Agreement dated April 10, 2003 **4.8
    
    Specimen of Floating Rate Junior Subordinated Debt Security **4.9
    
    Form of Indenture dated as of July 29, 2005 between Blue Valley Ban Corp. and
Wilmington Trust Company***4.10
    
    Amended and Restated Declaration of Trust dated July 29, 2005***4.11
    
    Guarantee Agreement dated July 29, 2005***4.12
    
    Warrant to purchase Common Stock dated December 5, 2008.******10.1
    
    Promissory Note of Blue Valley Building dated July 15, 1994. *10.2
    
    Mortgage, Assignment of Leases and Rents and Security Agreement between Blue
Valley Building and Businessmens Assurance Company of America, dated July 15, 1994. *10.3
    
    Assignment of Leases and Rents between Blue Valley Building and Businessmens
Assurance Company of America dated July 15, 1994. *10.4
    
    Line of Credit Note with JP Morgan Chase dated June 15, 2005 ****10.5
    
    Term Note with JP Morgan Chase dated June 15, 2005 ****
 52




---



##### Table of Contents



10.6
    
    Agreement and Plan of Merger between Unison Bancorp, Inc., BVBC Acquisition I,
Inc. and Blue Valley Ban Corp., dated as of November 2, 2006 (included in Exhibit 2).*****10.7
    
    Acquisition Agreement and Plan of Merger among Northland National Bank, Blue
Valley Ban Corp. and Western National Bank, dated as of March 2, 2007 (included in
Exhibit 2).*****10.8
    
    Purchase and Assumption Agreement among Northland National Bank, Bank of Blue
Valley and Blue Valley Ban Corp., dated as of March 2, 2007 (included in Exhibit 2).*****10.9
    
    Waiver Letter and Proposed Term Sheet with JP Morgan Chase dated October 15, 2008. *******10.10
    
    Letter Agreement dated December 5, 2008, including Securities Purchase
Agreement  Standard Terms, incorporated by reference herein, between Blue Valley Ban
Corp. and the United States Department of Treasury.******10.11
    
    Amendment and Waiver by and among Bank of Blue Valley, Blue Valley Ban Corp.
and its Senior Executive Officers.******11.1
    
    Statement regarding computation of per share earnings. Please see p. F-12.21.1
    
    Subsidiaries of Blue Valley Ban Corp.23.3
    
    Consent of BKD, LLP.31.1
    
    Certification of the Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a)31.2
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)32.1
    
    Certification of the Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
 *
    
    Filed with the SEC on April 10, 2000 as an Exhibit to Blue Valleys
Registration Statement on Form S-1, Amendment No. 1, File No. 333-34328. Exhibit
incorporated herein by reference.**
    
    Filed with the SEC on March 19, 2004 as an Exhibit to Blue Valleys Annual
Report on Form 10-K. Exhibit incorporated herein by reference.***
    
    Filed with the SEC on July 29, 2005 as an Exhibit to Blue Valleys Current
Report on Form 8-K. Exhibit incorporated herein by reference.****
    
    Filed with the SEC on March 24, 2005 as an Exhibit to Blue Valleys Annual
Report on Form 10-K. Exhibit incorporated herein by reference.*****
    
    Filed with the SEC on March 28, 2007 as an Exhibit to Blue Valleys Annual
Report on Form 10-K. Exhibit incorporated herein by reference.******
    
    Filed with the SEC on December 8, 2008 as an Exhibit to Blue Valleys Current Report on Form
8-K. Exhibit incorporated herein by reference.*******
    
    Filed with the SEC on October 17, 2008 as an Exhibit to Blue Valleys
Quarterly Report on Form
10-Q. Exhibit incorporated herein by reference. 53




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##### Table of Contents



BLUE VALLEY BAN CORP.
 DECEMBER 31, 2008, 2007 AND 2006
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
 PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    F-2CONSOLIDATED FINANCIAL STATEMENTSBalance Sheets
    
    F-3Statements of Income
    
    F-5Statements of Stockholders Equity
    
    F-6Statements of Cash Flows
    
    F-7Notes to Financial Statements
    
    F-9
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
      
 F-2




---



##### Table of Contents



BLUE VALLEY BAN CORP.
 
 CONSOLIDATED BALANCE SHEETS
 DECEMBER 31, 2008 AND 2007
 ASSETS
 2008
    
    
    2007Cash and due from banks
    
    $
    24,630
    
    
    $
    17,827Interest bearing deposits in other financial institutions
    
    
    343
    
    
    
    312Federal funds sold
    
    
    20,000
    
    
    
    Cash and cash equivalents
    
    
    44,973
    
    
    
    18,139Available-for-sale securities
    
    
    68,681
    
    
    
    76,653Mortgage loans held for sale
    
    
    8,157
    
    
    
    10,978Loans, net of allowance for loan losses of $12,368 and
$8,982 in 2008 and 2007, respectively
    
    
    650,033
    
    
    
    587,664Premises and equipment, net
    
    
    17,883
    
    
    
    18,778Foreclosed assets held for sale, net
    
    
    4,783
    
    
    
    2,523Interest receivable
    
    
    3,273
    
    
    
    4,621Deferred income taxes
    
    
    3,265
    
    
    
    2,083Income taxes receivable
    
    
    3,623Prepaid expenses and other assets
    
    
    2,315
    
    
    
    1,571Federal Home Loan Bank stock, Federal Reserve Bank
stock, and
other securities
    
    
    7,888
    
    
    
    7,261Goodwill
    
    
    
    
    
    
    4,821Core deposit intangible asset, at amortized cost
    
    
    826
    
    
    
    1,121Total assets
    
    $
    815,700
    
    
    $
    736,213
  F-3




---



##### Table of Contents



BLUE VALLEY BAN CORP.
 CONSOLIDATED BALANCE SHEETS
 DECEMBER 31, 2008 AND 2007
 LIABILITIES AND STOCKHOLDERS EQUITY
 2008
    
    
    2007LIABILITIESDepositsDemand
    
    $
    86,020
    
    
    $
    87,927Savings, NOW and money market
    
    
    180,011
    
    
    
    197,986Time
    
    
    334,837
    
    
    
    250,457Total deposits
    
    
    600,868
    
    
    
    536,370Other interest-bearing liabilities
    
    
    27,545
    
    
    
    29,036Short-term debt
    
    
    
    
    
    
    25,000Long-term debt
    
    
    107,584
    
    
    
    80,906Interest payable and other liabilities
    
    
    3,264
    
    
    
    5,967Total liabilities
    
    
    739,261
    
    
    
    677,279STOCKHOLDERS EQUITYCapital stockPreferred stock, $1 par value, $1,000 liquidation preference
Authorized 15,000,000 shares; issued and outstanding
2008  21,750 shares; 2007  0 shares
    
    
    22
    
    
    
    Common stock, par value $1 per share;
Authorized 15,000,000 shares; issued and outstanding
2008  2,760,105 shares; 2007  2,439,655 shares
    
    
    2,760
    
    
    
    2,440Additional paid-in capital
    
    
    37,666
    
    
    
    10,312Retained earnings
    
    
    35,340
    
    
    
    45,592Accumulated other comprehensive income, net of income tax of
$434 in 2008 and $394 in 2007
    
    
    651
    
    
    
    590Total stockholders equity
    
    
    76,439
    
    
    
    58,934Total liabilities and stockholders equity
    
    $
    815,700
    
    
    $
    736,213
  F-4




---



##### Table of Contents



BLUE VALLEY BAN CORP.
 
 CONSOLIDATED STATEMENTS OF INCOME
 YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 2008
    
    
    2007
    
    
    2006INTEREST INCOMEInterest and fees on loans
    
    $
    41,245
    
    
    $
    47,194
    
    
    $
    44,537Federal funds sold and other short-term investments
    
    
    378
    
    
    
    557
    
    
    
    256Available-for-sale securities
    
    
    3,375
    
    
    
    4,466
    
    
    
    4,039Total interest income
    
    
    44,998
    
    
    
    52,217
    
    
    
    48,832INTEREST EXPENSEInterest-bearing demand deposits
    
    
    1,394
    
    
    
    656
    
    
    
    97Savings and money market deposit accounts
    
    
    2,402
    
    
    
    6,362
    
    
    
    4,356Other time deposits
    
    
    12,139
    
    
    
    13,134
    
    
    
    11,254Federal funds purchased and
other interest-bearing liabilities
    
    
    375
    
    
    
    1,181
    
    
    
    1,023Short-term debt
    
    
    568
    
    
    
    138
    
    
    
    342Long-term debt, net
    
    
    4,813
    
    
    
    4,111
    
    
    
    3,890Total interest expense
    
    
    21,691
    
    
    
    25,582
    
    
    
    20,962NET INTEREST INCOME
    
    
    23,307
    
    
    
    26,635
    
    
    
    27,870PROVISION FOR LOAN LOSSES
    
    
    17,025
    
    
    
    2,855
    
    
    
    1,255NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    
    
    6,282
    
    
    
    23,780
    
    
    
    26,615NON-INTEREST INCOMELoans held for sale fee income
    
    
    2,136
    
    
    
    3,160
    
    
    
    5,046Service fees
    
    
    3,299
    
    
    
    2,830
    
    
    
    2,491Realized gains on available-for-sale securities
    
    
    702
    
    
    
    105
    
    
    
    Gain on settlement of litigation
    
    
    1,000
    
    
    
    
    
    
    
    Other income
    
    
    1,275
    
    
    
    1,105
    
    
    
    1,344Total non-interest income
    
    
    8,412
    
    
    
    7,200
    
    
    
    8,881NON-INTEREST EXPENSESalaries and employee benefits
    
    
    12,500
    
    
    
    13,570
    
    
    
    14,737Net occupancy expense
    
    
    3,144
    
    
    
    3,200
    
    
    
    3,059Goodwill impairment
    
    
    4,821
    
    
    
    
    
    
    
    Other operating expense
    
    
    8,304
    
    
    
    7,447
    
    
    
    6,578Total non-interest expense
    
    
    28,769
    
    
    
    24,217
    
    
    
    24,374INCOME BEFORE INCOME TAXES
    
    
    (14,075
    )
    
    
    6,763
    
    
    
    11,122PROVISION (BENEFIT) FOR INCOME TAXES
    
    
    (3,824
    )
    
    
    2,275
    
    
    
    4,199NET INCOME (LOSS)
    
    $
    (10,251
    )
    
    $
    4,488
    
    
    $
    6,923BASIC EARNINGS PER SHARE
    
    $
    (4.20
    )
    
    $
    1.86
    
    
    $
    2.93DILUTED EARNINGS PER SHARE
    
    $
    (4.20
    )
    
    $
    1.84
    
    
    $
    2.88DIVIDENDS PER SHARE
    
    $
    0.00
    
    
    $
    0.36
    
    
    $
    0.30
  F-5




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##### Table of Contents



BLUE VALLEY BAN CORP.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    OtherComprehensive
    
    
    Preferred
    
    
    Common
    
    
    Paid-In
    
    
    Retained
    
    
    Unearned
    
    
    ComprehensiveIncome
    
    
    Stock
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Compensation
    
    
    Income (Loss)
    
    
    TotalBALANCE, DECEMBER 31, 2005
    
    
    
    
    
    $
    
    
    
    $
    2,382
    
    
    $
    9,212
    
    
    $
    35,782
    
    
    $
    (648
    )
    
    $
    (473
    )
    
    $
    46,255Issuance of 27,444 shares of common stock
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    512
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    539Dividends on common stock ($0.30 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (723
    )
    
    
    
    
    
    
    
    
    
    
    (723
    )Net income
    
    
    6,923
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,923
    
    
    
    
    
    
    
    
    
    
    
    6,923Restricted stock earned, net of forfeitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    485
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    485Reclassification of unearned compensation
in accordance with adoption of SFAS No.
123R
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (648
    )
    
    
    
    
    
    
    648
    
    
    
    
    
    
    
    Change in derivative financial instrument,
net of income taxes of $51
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76
    
    
    
    76Change in unrealized depreciation on
available-for-sale securities, net of
income taxes of $177
    
    
    265
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    265
    
    
    
    265BALANCE, DECEMBER 31, 2006
    
    $
    7,264
    
    
    $
    
    
    
    $
    2,409
    
    
    $
    9,561
    
    
    $
    41,982
    
    
    $
    
    
    
    $
    (132
    )
    
    $
    53,820Issuance of 10,182 shares of restricted
stock, net of forfeitures
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    292
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    302Issuance of 15,425 shares of common stock
through stock options exercised
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    327
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343Issuance of 4,558 shares of common stock
for the employee stock purchase plan
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    132
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137Dividends on common stock ($0.36 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (878
    )
    
    
    
    
    
    
    
    
    
    
    (878
    )Net income
    
    
    4,488
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,488
    
    
    
    
    
    
    
    
    
    
    
    4,488Change in derivative financial instrument,
net of income taxes (credit) of $(47)
    
    
    (70
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )
    
    
    (70
    )Change in unrealized appreciation on
available-for-sale securities, net of
income taxes of $528
    
    
    792
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    792
    
    
    
    792BALANCE, DECEMBER 31, 2007
    
    $
    5,210
    
    
    $
    
    
    
    $
    2,440
    
    
    $
    10,312
    
    
    $
    45,592
    
    
    $
    
    
    
    $
    590
    
    
    $
    58,934Issuance of 21,750 shares of preferred
stock
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    21,639
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,661Issuance of stock warrants to purchase
111,083 shares of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89Issuance of 288,943 shares of common stock
through rights offering
    
    
    
    
    
    
    
    
    
    
    289
    
    
    
    4,912
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,201Issuance of 12,820 shares of restricted
stock, net of forfeitures
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    296
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    309Issuance of 15,100 shares of common stock
through stock options exercised
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    320Issuance of 3,587 shares of common stock
for the employee stock purchase plan
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115Net income
    
    
    (10,251
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,251
    )
    
    
    
    
    
    
    
    
    
    
    (10,251
    )Accretion of discount on preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Change in derivative financial instrument,
net of income taxes (credit) of $(4)
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )Change in unrealized appreciation on
available-for-sale securities, net of
income taxes of $44
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67
    
    
    
    67BALANCE, DECEMBER 31, 2008
    
    $
    (10,190
    )
    
    $
    22
    
    
    $
    2,760
    
    
    $
    37,666
    
    
    $
    35,340
    
    
    $
    
    
    
    $
    651
    
    
    $
    76,439
  F-6




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##### Table of Contents



BLUE VALLEY BAN CORP.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    (10,251
    )
    
    $
    4,488
    
    
    $
    6,923Adjustments to reconcile net income to net cash flow
From operating activities:Depreciation and amortization
    
    
    1,552
    
    
    
    1,606
    
    
    
    1,471Accretion of discounts on available-for-sale securities
    
    
    (26
    )
    
    
    (30
    )
    
    
    (92
    )Provision for loan losses
    
    
    17,025
    
    
    
    2,855
    
    
    
    1,255Provision for other real estate
    
    
    
    
    
    
    5
    
    
    
    40Goodwill Impairment
    
    
    4,821
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    (1,223
    )
    
    
    (1,134
    )
    
    
    260Stock dividend on FHLB securities
    
    
    (188
    )
    
    
    (264
    )
    
    
    (275
    )Gain on sale of available-for-sale securities
    
    
    (702
    )
    
    
    (105
    )
    
    
    Net (gain) loss on sale of foreclosed assets
    
    
    46
    
    
    
    97
    
    
    
    (12
    )Loss on sale of premises and equipment
    
    
    
    
    
    
    
    
    
    
    6Restricted stock earned and forfeited
    
    
    309
    
    
    
    316
    
    
    
    485Compensation expense related to the employee stock purchase plan
    
    
    10
    
    
    
    17
    
    
    
    19Originations of loans held for sale
    
    
    (136,798
    )
    
    
    (185,809
    )
    
    
    (336,254
    )Proceeds from the sale of loans held for sale
    
    
    139,619
    
    
    
    196,636
    
    
    
    328,355Proceeds from settlement of litigation
    
    
    200
    
    
    
    
    
    
    
    Gain on settlement of litigation
    
    
    (1,000
    )
    
    
    
    
    
    
    Changes in:Interest receivable
    
    
    1,348
    
    
    
    (232
    )
    
    
    (828
    )Prepaid expenses and other assets
    
    
    (3,591
    )
    
    
    248
    
    
    
    3,455Interest payable and other liabilities
    
    
    (1,835
    )
    
    
    (172
    )
    
    
    (3,987
    )Net cash provided by operating activities
    
    
    9,316
    
    
    
    18,522
    
    
    
    821CASH FLOWS FROM INVESTING ACTIVITIESNet originations of loans
    
    
    (86,958
    )
    
    
    (55,168
    )
    
    
    (28,689
    )Proceeds from sales of loan participations
    
    
    1,514
    
    
    
    13,235
    
    
    
    500Purchase of premises and equipment
    
    
    (364
    )
    
    
    (649
    )
    
    
    (671
    )Proceeds from sale of premises and equipment
    
    
    16
    
    
    
    
    
    
    
    Proceeds from the sale of foreclosed assets, net of expenses
    
    
    3,744
    
    
    
    1,133
    
    
    
    930Proceeds from sales of available-for-sale securities
    
    
    23,702
    
    
    
    6,105
    
    
    
    Proceeds from maturities of available-for-sale securities
    
    
    33,210
    
    
    
    55,250
    
    
    
    36,310Purchases of available-for-sale securities
    
    
    (48,100
    )
    
    
    (47,970
    )
    
    
    (22,995
    )Purchases of Federal Home Loan Bank stock, Federal Reserve Bank
stock, and other securities
    
    
    (439
    )
    
    
    (314
    )
    
    
    Proceeds from the redemption of Federal Home Loan Bank stock,
Federal Reserve Bank stock, and other securities
    
    
    
    
    
    
    686
    
    
    
    2,319Sale of Western National Bank charter and other assets
    
    
    
    
    
    
    392
    
    
    
    Purchase of Unison Bancorp, Inc. and subsidiary, net of cash received
    
    
    
    
    
    
    (6,255
    )
    
    
    Proceeds from other investing activities
    
    
    
    
    
    
    123
    
    
    
    Net cash used in investing activities
    
    
    (73,675
    )
    
    
    (33,432
    )
    
    
    (12,296
    )CASH FLOWS FROM FINANCING ACTIVITIESNet (decrease) increase in demand deposits, money market, NOW and
savings accounts
    
    
    (19,882
    )
    
    
    7,042
    
    
    
    (28,794
    )Net increase (decrease) in time deposits
    
    
    84,380
    
    
    
    (37,777
    )
    
    
    35,317Net (decrease) increase in federal funds purchased and other
interest-bearing liabilities
    
    
    (1,491
    )
    
    
    (1,426
    )
    
    
    3,270Net (payments of) proceeds from short-term debt
    
    
    (25,000
    )
    
    
    25,000
    
    
    
    Repayments of long-term debt
    
    
    (13,322
    )
    
    
    (1,763
    )
    
    
    (21,087
    )Proceeds from long-term debt
    
    
    40,000
    
    
    
    15,000
    
    
    
    10,000Proceeds from sale of preferred stock
and warrants through the Capital Purchase Plan
    
    
    21,750
    
    
    
    
    
    
    
    Proceeds from sale of common stock through rights offering
    
    
    5,201
    
    
    
    
    
    
    
    Dividends paid on common stock
    
    
    (878
    )
    
    
    (723
    )
    
    
    (596
    )Net proceeds the sale of additional stock through ESPP plan and
stock options exercised
    
    
    435
    
    
    
    466
    
    
    
    538Net cash provided by (used in) financing activities
    
    
    91,193
    
    
    
    5,819
    
    
    
    (1,352
    )Increase (decrease) in cash and cash equivalents
    
    
    26,834
    
    
    
    (9,091
    )
    
    
    (12,827
    )Cash and cash equivalents, beginning of year
    
    
    18,139
    
    
    
    27,230
    
    
    
    40,057CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    44,973
    
    
    $
    18,139
    
    
    $
    27,230
  F-7




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##### Table of Contents



BLUE VALLEY BAN CORP.
 CONSOLIDATED STATEMENTS OF CASH FLOW
 DECEMBER 31, 2008, 2007 AND 2006
 SUPPLEMENTAL CASH FLOWS INFORMATIONLoans transferred to foreclosed assets held for sale
    
    $
    6,050
    
    
    $
    3,023
    
    
    $
    964Restricted stock issued
    
    $
    13
    
    
    $
    10
    
    
    $
    Cash dividends declared on common stock
    
    $
    
    
    
    $
    878
    
    
    $
    723Interest paid
    
    $
    21,382
    
    
    $
    25,175
    
    
    $
    20,587Income taxes paid (net of refunds)
    
    $
    1,667
    
    
    $
    561
    
    
    $
    4,035Assets acquired and liabilities assumed (see Note 22)
    
    $
    
    
    
    $
    33,668
    
    
    $
    
  F-8




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##### Table of Contents



BLUE VALLEY BAN CORP.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Operations
      Operating Segment
  Principles of Consolidation
  Use of Estimates
    F-9




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  Cash Equivalents
   Investment in Securities
  Other Investments
   Mortgage Loans Held for Sale
  F-10




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Loans
  Allowance for Loan Losses
    Premises and Equipment
  F-11




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Foreclosed Assets Held for Sale
  Goodwill
 Goodwill and Other Intangible Assets,
 Core Deposit Intangible Assets
  Fee Income
  Income Taxes
  Accumulated Other Comprehensive Income (Loss)
  F-12




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Reclassification
  Earnings Per Share
  2008
    
    
    2007
    
    
    2006(In thousands, except share and per share data)Net income
    
    $
    (10,251
    )
    
    $
    4,488
    
    
    $
    6,923Average common shares outstanding
    
    
    2,438,809
    
    
    
    2,410,621
    
    
    
    2,365,932Average common share stock options
outstanding and restricted stock (1)
    
    
    
    
    
    
    27,582
    
    
    
    41,870Average diluted common shares (1)
    
    
    2,438,809
    
    
    
    2,438,203
    
    
    
    2,407,802Basic earnings per share
    
    $
    (4.20
    )
    
    $
    1.86
    
    
    $
    2.93Diluted earnings per share
    
    $
    (4.20
    )
    
    $
    1.84
    
    
    $
    2.88
 
 (1)
    
    No shares of stock options, restricted stock or warrants were included in the
computation of diluted earnings per share for any period there was a loss.   Accounting for Stock-Based Compensation
  F-13




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Recent and Future Accounting Requirements
 Accounting for Uncertainty in Income
Taxes  an interpretation of SFAS No. 109
 Fair Value Measurements
 The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment to FASB Statement No. 115 Accounting for Certain Investments in Debt and Equity Securities
  Business Combinations
 F-14




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 2: AVAILABLE-FOR-SALE SECURITIES
  December 31, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)U.S. Government sponsored
agencies
    
    $
    66,996
    
    
    $
    1,096
    
    
    $
    
    
    
    $
    68,092State and political subdivisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity and other securities
    
    
    600
    
    
    
    
    
    
    
    (11
    )
    
    
    589$
    67,596
    
    
    $
    1,096
    
    
    $
    (11
    )
    
    $
    68,681
 December 31, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)U.S. Government sponsored
agencies
    
    $
    74,969
    
    
    $
    985
    
    
    $
    (1
    )
    
    $
    75,953State and political subdivisions
    
    
    210
    
    
    
    
    
    
    
    
    
    
    
    210Equity and other
    
    
    500
    
    
    
    
    
    
    
    (10
    )
    
    
    490$
    75,679
    
    
    $
    985
    
    
    $
    (11
    )
    
    $
    76,653
  Amortized
    
    
    EstimatedCost
    
    
    Fair Value(In thousands)Due in one year or less
    
    $
    14,999
    
    
    $
    15,043Due after one through five years
    
    
    48,997
    
    
    
    49,974Due after five years
    
    
    3,000
    
    
    
    3,075Total
    
    
    66,996
    
    
    
    68,092Equity and other securities
    
    
    600
    
    
    
    589$
    67,596
    
    
    $
    68,681
   F-15




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 2: AVAILABLE-FOR-SALE SECURITIES (Continued)
  2008
    
    2007(In thousands)Balance as of December 31
    
    $
    25,160
    
    
    $
    27,956Carrying value of securities pledged to secure agreements to repurchases
at December 31
    
    $
    47,685
    
    
    $
    47,657Average balance during the year of securities sold under agreements to repurchase
    
    $
    32,925
    
    
    $
    29,873Maximum amount outstanding at any month-end during the year
    
    $
    40,119
    
    
    $
    35,472
    December 31, 2008(In thousands)Less than 12 Months
    
    
    12 Months or More
    
    
    Total
    
    
    TotalDescription of
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedSecurities
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesU.S. Government sponsored
agencies
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    State and political subdivisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity and other securities
    
    
    
    
    
    
    
    
    
    
    589
    
    
    
    11
    
    
    
    589
    
    
    
    11Total temporarily impaired
securities
    
    $
    
    
    
    $
    
    
    
    $
    589
    
    
    $
    11
    
    
    $
    589
    
    
    $
    11
 F-16




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 2: AVAILABLE-FOR-SALE SECURITIES (Continued)
 December 31, 2007(In thousands)Less than 12 Months
    
    
    12 Months or More
    
    
    Total
    
    
    TotalDescription of
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedSecurities
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesU.S. Government sponsored agencies
    
    $
    
    
    
    $
    
    
    
    $
    2,499
    
    
    $
    1
    
    
    $
    2,499
    
    
    $
    1State and political subdivisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity and other securities
    
    
    
    
    
    
    
    
    
    
    490
    
    
    
    10
    
    
    
    490
    
    
    
    10Total temporarily impaired securities
    
    $
    
    
    
    $
    
    
    
    $
    2,989
    
    
    $
    11
    
    
    $
    2,989
    
    
    $
    11
 NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
  2008
    
    
    2007(In thousands)Commercial loans
    
    $
    172,647
    
    
    $
    139,120Commercial real estate loans
    
    
    170,697
    
    
    
    150,655Construction loans
    
    
    182,933
    
    
    
    188,229Lease financing
    
    
    18,927
    
    
    
    19,724Residential real estate loans
    
    
    43,695
    
    
    
    37,511Consumer loans
    
    
    14,245
    
    
    
    22,934Home equity loans
    
    
    59,257
    
    
    
    38,473Total loans
    
    
    662,401
    
    
    
    596,646Less: Allowance for loan losses
    
    
    12,368
    
    
    
    8,982Net loans
    
    $
    650,033
    
    
    $
    587,664
  2008
    
    
    2007
    
    
    2006(In thousands)Balance, beginning of year
    
    $
    8,982
    
    
    $
    6,106
    
    
    $
    6,704Provision charged to expense
    
    
    17,025
    
    
    
    2,855
    
    
    
    1,255Allowance of acquired company
    
    
    
    
    
    
    360
    
    
    
    Losses charged off, net of
recoveries of $283,000,
$324,000 and $207,000
for 2008, 2007 and 2006,
respectively
    
    
    (13,639
    )
    
    
    (339
    )
    
    
    (1,853
    )Balance, end of year
    
    $
    12,368
    
    
    $
    8,982
    
    
    $
    6,106
 F-17




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
  2008
    
    2007(In thousands)Impaired loans with a valuation allowance
    
    
    44,170
    
    
    
    20,284Impaired loans with no valuation allowance
    
    
    13,607
    
    
    
    Average impaired loans
    
    
    36,670
    
    
    
    17,334Allowance related to impaired loans
    
    
    5,238
    
    
    
    2,564Interest income recognized (cash basis) on impaired loans
    
    
    927
    
    
    
    49Interest income recognized on impaired loans
    
    
    5,438
    
    
    
    1,310Total non-accrual loans
    
    
    43,332
    
    
    
    11,960Total loans past due 90 days or more and still accruing
    
    
    
    
    
    
    13,234Total troubled debt restructurings
    
    
    1,754
    
    
    
    
 NOTE 4: PREMISES AND EQUIPMENT
  2008
    
    
    2007(In thousands)Land
    
    $
    4,869
    
    
    $
    4,885Building and improvements
    
    
    15,701
    
    
    
    15,626Furniture and equipment
    
    
    7,473
    
    
    
    7,183Land improvements, net
    
    
    285
    
    
    
    28528,328
    
    
    
    27,979Less accumulated depreciation
    
    
    10,445
    
    
    
    9,201Total premises and equipment
    
    $
    17,883
    
    
    $
    18,778
 NOTE 5: GOODWILL
  2008
    
    
    2007(In thousands)Balance as of January 1
    
    $
    4,821
    
    
    $
    290Goodwill acquired during the year
    
    
    
    
    
    
    4,531Impairment loss
    
    
    (4,821
    )
    
    
    Balance as of December 31
    
    $
    
    
    
    $
    4,821
 Goodwill and Other Intangible Assets
 F-18




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 5: GOODWILL (Continued)
  NOTE 6: CORE DEPOSIT INTANGIBLE ASSETS
  2008
    
    
    2007Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization(In thousands)Core Deposit Intangible
    
    $
    3,286
    
    
    $
    (2,460
    )
    
    $
    3,286
    
    
    $
    (2,165
    )
  (In thousands)2009
    
    $
    2192010
    
    
    1432011
    
    
    1432012
    
    
    1432013
    
    
    143
 NOTE 7: INTEREST-BEARING DEPOSITS
  F-19




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 7: INTEREST-BEARING DEPOSITS (Continued)
  (In thousands)2009
    
    $
    205,5422010
    
    
    94,7592011
    
    
    14,3072012
    
    
    5,0142013
    
    
    10,6802014 and thereafter
    
    
    4,535$
    334,837
 NOTE 8: OPERATING LEASES
  (In thousands)2009
    
    
    3412010
    
    
    1322011
    
    
    972012
    
    
    73$
    643
  NOTE 9: SHORT TERM DEBT
  2008
    
    
    2007(In thousands)Federal Home Loan Bank advance (A)
    
    $
    
    
    
    $
    25,000Federal Reserve Bank of Kansas City line of credit (B)
    
    
    
    
    
    
    JP Morgan Chase operating line of credit (C)
    
    
    
    
    
    
    Total short-term debt
    
    $
    
    
    
    $
    25,000
 F-20




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 9: SHORT TERM DEBT (Continued)
 (A)
    
    Payable on demand; collateralized by various assets including mortgage-backed
loans. The variable interest rate was .65% on December 31, 2008 and 4.67% on December
31, 2007.(B)
    
    Payable on demand; collateralized by various assets, including commercial
and commercial real estate loans. The line of credit bears a variable interest rate
of Federal Funds rate plus 25 basis points and at December 31, 2008 approximately $54.7
million was available.(C)
    
    The $15 million line of credit was paid off and closed on December 5, 2008.
The line of credit was collateralized by stock in the Companys subsidiary bank. The
line of credit had a variable interest rate of LIBOR plus a rate between 1.63% and
2.50%, depending on the Companys consolidated non-performing asset ratio.
 NOTE 10: LONG TERM DEBT
  2008
    
    
    2007(In thousands)Note payable  Ban Corp (A)
    
    $
    
    
    
    $
    2,781Note payable  Blue Valley Building Corp. (B)
    
    
    5,496
    
    
    
    6,037Federal Home Loan Bank advances (C)
    
    
    82,500
    
    
    
    52,500Subordinated Debentures  BVBC Capital Trust II (D)
    
    
    7,732
    
    
    
    7,732Subordinated Debentures  BVBC Capital Trust III (E)
    
    
    11,856
    
    
    
    11,856Total long-term debt
    
    $
    107,584
    
    
    $
    80,906
 (A)
    
    This note was paid off on December 5, 2008. Previously, this note had a maturity date
of December 2012, payable in quarterly installments of principal plus interest at the
Federal Funds Rate plus 1.63%; collateralized by common stock of the Companys subsidiary
bank. The interest rate on this note was fixed at 5.45% by the use of a swap agreement
until the swap agreement was terminated in October 2008. (See Note 11).(B)
    
    Two notes due in 2017; payable in monthly installments totaling $70,084 including
interest at 5.19%; collateralized by land, buildings, and assignment of future rents. This
debt is guaranteed by the Company.(C)
    
    Due in 2011, 2012, 2013, 2015, 2016, and 2018; collateralized by various assets
including mortgage-backed loans. The interest rates on the advances range from 2.62% to
5.03%. Federal Home Loan Bank advance availability is determined quarterly and at December
31, 2008, approximately $14,315,000 was available.(D)
    
    Due in 2033; interest only at three month LIBOR + 3.25% (6.44% at December 31, 2008)
due quarterly; fully and unconditionally guaranteed by the Company on a subordinated basis
to the extent that the funds are held by the Trust. The Company may prepay the
subordinated debentures beginning in 2008, in whole or in part, at their face value plus
accrued interest. (See Note 25).
 F-21




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 10: LONG TERM DEBT (Continued)
 (E)
    
    Due in 2035; interest only at three month LIBOR + 1.60% (5.36% at December 31, 2008)
due quarterly; fully and unconditionally guaranteed by the Company on a subordinated basis
to the extent that the funds are held by the Trust. Subordinated to the trust preferred
securities (D) due in 2033. The Company may prepay the subordinated debentures beginning in
2010, in whole or in part, at their face value plus accrued interest. (See Note 25).
  (In thousands)2009
    
    $
    5692010
    
    
    5992011
    
    
    8,1312012
    
    
    15,6652013
    
    
    20,700Thereafter
    
    
    61,920$
    107,584
 NOTE 11: DERIVATIVE FINANCIAL INSTRUMENTS
   NOTE 12: INCOME TAXES
  2008
    
    
    2007
    
    
    2006(In thousands)Taxes currently (refundable) payable
    
    $
    (2,601
    )
    
    $
    3,409
    
    
    $
    3,939Deferred income taxes
    
    
    (1,223
    )
    
    
    (1,134
    )
    
    
    260$
    (3,824
    )
    
    $
    2,275
    
    
    $
    4,199
 F-22




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 12: INCOME TAXES (Continued)
  2008
    
    
    2007
    
    
    2006(In thousands)Computed at the statutory rate (34%)
    
    $
    (4,785
    )
    
    $
    2,299
    
    
    $
    3,793Increase (decrease) resulting from:Goodwill impairment
    
    
    1,541
    
    
    
    
    
    
    
    Tax-exempt interest
    
    
    (20
    )
    
    
    (28
    )
    
    
    (32
    )State income taxes
    
    
    (99
    )
    
    
    200
    
    
    
    251Other
    
    
    (461
    )
    
    
    (196
    )
    
    
    187Actual tax provision
    
    $
    (3,824
    )
    
    $
    2,275
    
    
    $
    4,199
  2008
    
    
    2007(In thousands)Deferred tax assets:Allowance for loan losses
    
    $
    4,545
    
    
    $
    3,279Deferred compensation
    
    
    136
    
    
    
    171Offering costs
    
    
    221
    
    
    
    231Non-accrual loan interest
    
    
    96
    
    
    
    52Net Operating Loss carried from Unison Bancorp Inc. and
subsidiary acquisition
    
    
    77
    
    
    
    77Other
    
    
    178
    
    
    
    1295,253
    
    
    
    3,939Deferred tax liabilities:Accumulated depreciation
    
    
    (428
    )
    
    
    (465
    )FHLBank stock basis
    
    
    (534
    )
    
    
    (464
    )Accumulated appreciation on available-for- sale securities
    
    
    (434
    )
    
    
    (394
    )Prepaid intangibles
    
    
    (190
    )
    
    
    (168
    )Core Deposit Intangible related to Unison Bancorp Inc. and
subsidiary acquisition
    
    
    (255
    )
    
    
    (304
    )Other
    
    
    (147
    )
    
    
    (61
    )(1,988
    )
    
    
    (1,856
    )Net deferred tax asset
    
    $
    3,265
    
    
    $
    2,083
 NOTE 13: REGULATORY MATTERS
  F-23




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 13: REGULATORY MATTERS (Continued)
     To Be Well CapitalizedUnder PromptFor Capital
    CorrectiveActual
    Adequacy Purposes
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(In thousands)As of December 31, 2008:Total Capital 
(to Risk Weighted Assets)Consolidated
    
    $
    103,337
    
    
    
    13.82
    %
    
    $
    59,800
    
    
    
    8.00
    %
    
    
    N/ABank Only
    
    $
    89,553
    
    
    
    12.22
    %
    
    $
    58,607
    
    
    
    8.00
    %
    
    $
    73,259
    
    
    
    10.00
    %Tier 1 Capital 
(to Risk Weighted Assets)Consolidated
    
    $
    93,956
    
    
    
    12.57
    %
    
    $
    29,900
    
    
    
    4.00
    %
    
    
    N/ABank Only
    
    $
    80,356
    
    
    
    10.97
    %
    
    $
    29,304
    
    
    
    4.00
    %
    
    $
    43,956
    
    
    
    6.00
    %Tier 1 Capital 
(to Average Assets)Consolidated
    
    $
    93,956
    
    
    
    11.50
    %
    
    $
    32,693
    
    
    
    4.00
    %
    
    
    N/ABank Only
    
    $
    80,356
    
    
    
    10.00
    %
    
    $
    32,128
    
    
    
    4.00
    %
    
    $
    40,161
    
    
    
    5.00
    %
 F-24




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 13: REGULATORY MATTERS (Continued)
 To Be Well CapitalizedUnder PromptFor Capital
    
    
    CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(In thousands)As of December 31, 2007:Total Capital(to Risk Weighted Assets)Consolidated
    
    $
    80,075
    
    
    
    11.53
    %
    
    $
    55,545
    
    
    
    8.00
    %
    
    
    N/ABank Only
    
    $
    73,947
    
    
    
    10.89
    %
    
    $
    54,329
    
    
    
    8.00
    %
    
    $
    67,911
    
    
    
    10.00
    %Tier 1 Capital(to Risk Weighted Assets)Consolidated
    
    $
    71,392
    
    
    
    10.28
    %
    
    $
    27,773
    
    
    
    4.00
    %
    
    
    N/ABank Only
    
    $
    65,452
    
    
    
    9.64
    %
    
    $
    27,165
    
    
    
    4.00
    %
    
    $
    40,747
    
    
    
    6.00
    %Tier 1 Capital(to Average Assets)Consolidated
    
    $
    71,392
    
    
    
    9.86
    %
    
    $
    28,953
    
    
    
    4.00
    %
    
    
    N/ABank Only
    
    $
    65,452
    
    
    
    9.23
    %
    
    $
    28,360
    
    
    
    4.00
    %
    
    $
    35,450
    
    
    
    5.00
    %
  Preferred Stock and Warrants
  
    
    The Preferred Shares have a senior rank. The Company is not free to issue other preferred
stock that is senior to the Preferred Shares.
 F-25




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 13: REGULATORY MATTERS (Continued)
 
    
    Until the third anniversary of the sale of the Preferred Shares, unless the Preferred Shares
have been redeemed in whole or the Treasury has transferred all of the shares to a
non-affiliated third party, the Company may not declare or pay a common stock dividend in an
amount greater than the amount of the last quarterly cash dividend per share declared prior to
October 14, 2008, or repurchase common stock or other equity shares (subject to certain
limited exceptions) without the Treasurys approval.
    
    If the Company were to pay a cash dividend in the future, which would only occur with the
consent of the Treasury, any such dividend would have to be discontinued if a Preferred Share
dividend were missed. Thereafter, dividends on common stock could be resumed only if all
Preferred Share dividends in arrears were paid. Similar restrictions apply to the Companys
ability to repurchase common stock if Preferred Share dividends are missed.
    
    Failure to pay the Preferred Share dividend is not an event of default. However, a failure
to pay a total of six Preferred Share dividends, whether or not consecutive, gives the holders
of the Preferred Shares the right to elect two directors to the Companys Board of Directors.
That right would continue until the Company pays all dividends in arrears.
    
    In conformity with requirements of the SPA and Section 111(b) of the Emergency Economic
Stabilization Act of 2008 (the EESA), the Company and its subsidiary, Bank of Blue Valley,
and each of its Senior Executive Officers agreed to limit certain compensation, bonus,
incentive and other benefits plans, arrangements, and policies with respect to the Senior
Executive Officers during the period that the Treasury owns any debt or equity securities
acquired in connection with the Transaction. The applicable Senior Executive Officers have
entered into letter agreements with the Company consenting to the foregoing and have executed
a waiver voluntarily waiving any claim against the Treasury or the Company for any changes to
such Senior Executive Officers compensation or benefits that are required to comply with
Section 111(b) of EESA.
   F-26




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 14: TRANSACTIONS WITH RELATED PARTIES
  2008
    
    
    2007(In thousands)Balance, beginning of year
    
    $
    20,288
    
    
    $
    10,773New loans
    
    
    21,350
    
    
    
    19,035Repayments and reclassifications
    
    
    (12,946
    )
    
    
    (9,520
    )Balance, end of year
    
    $
    28,692
    
    
    $
    20,288
  NOTE 15: PROFIT SHARING AND 401(K) PLANS
  NOTE 16: EQUITY INCENTIVE COMPENSATION
    F-27




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 16: EQUITY INCENTIVE COMPENSATION (Continued)
  2008
    
    
    2007
    
    
    2006Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding, beginning
of year
    
    
    66,325
    
    
    $
    19.73
    
    
    
    84,300
    
    
    $
    19.11
    
    
    
    111,400
    
    
    $
    18.38Exercised
    
    
    (15,100
    )
    
    
    17.56
    
    
    
    (15,425
    )
    
    
    15.42
    
    
    
    (27,100
    )
    
    
    16.12Forfeited
    
    
    
    
    
    
    
    
    
    
    (2,550
    )
    
    
    25.00
    
    
    
    
    
    
    
    Outstanding, end of year
    
    
    51,225
    
    
    $
    20.38
    
    
    
    66,325
    
    
    $
    19.73
    
    
    
    84,300
    
    
    $
    19.11Intrinsic value of
shares exercised
    
    $
    162,826
    
    
    
    
    
    
    $
    306,410
    
    
    
    
    
    
    $
    389,935Options exercisable,
end of year
    
    
    51,225
    
    
    $
    20.38
    
    
    
    66,325
    
    
    $
    19.73
    
    
    
    84,300
    
    
    $
    19.11
  Options Outstanding and ExercisableNumber Outstanding and
    
    Weighted Average
    
    Weighted AverageExercise Prices
    
    Exercisable at 12/31/08
    
    Remaining Contractual Life
    
    Exercise Price$14.375
    
    
    3,900
    
    
    1 year
    
    $
    14.37516.50
    
    
    10,050
    
    
    2 years
    
    
    16.5019.50
    
    
    20,000
    
    
    3 years
    
    
    19.5025.00
    
    
    17,275
    
    
    4 years
    
    
    25.0051,225
 NOTE 17: EMPLOYEE STOCK PURCHASE PLAN
  Employee Stock Purchase Plan ActivityPlan year ending January
    
    Shares purchased
    
    Purchase Price2008
    
    
    3,587
    
    
    $
    27.202007
    
    
    4,558
    
    
    $
    25.502006
    
    
    4,073
    
    
    $
    19.55
 F-28




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 18: GAIN ON SETTLEMENT OF LITIGATION
 Accounting for Contingencies, Accounting for the
Impact of the Terrorists Attacks of September 11, 2001.
 NOTE 19: OTHER INCOME/EXPENSE
  2008
    
    
    2007
    
    
    2006(In thousands)Rental income
    
    $
    433
    
    
    $
    481
    
    
    $
    459Other income
    
    
    842
    
    
    
    624
    
    
    
    885Total
    
    $
    1,275
    
    
    $
    1,105
    
    
    $
    1,344
  2008
    
    
    2007
    
    
    2006(In thousands)Data processing
    
    $
    1,178
    
    
    $
    1,077
    
    
    $
    889Professional fees
    
    
    1,096
    
    
    
    1,271
    
    
    
    631Foreclosure expenses
    
    
    914
    
    
    
    339
    
    
    
    162Advertising
    
    
    717
    
    
    
    998
    
    
    
    1,080Loan processing fees
    
    
    446
    
    
    
    484
    
    
    
    904Other expense
    
    
    3,953
    
    
    
    3,278
    
    
    
    2,912Total
    
    $
    8,304
    
    
    $
    7,447
    
    
    $
    6,578
 F-29




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES
 Fair Value Measurements
  Level 1
    
    Quoted prices in active markets for identical assets or liabilitiesLevel 2
    
    Observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that
are observable market data for substantially the full term of the assets or liabilities.Level 3
    
    Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
  Available-for-Sale Securities
   Fair Value Measurements UsingQuoted Prices
    
    
    Significantin Active
    
    
    OtherMarkets for
    
    
    ObservableIdentical Assts
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)(In thousands)Available-for-Sale Securities
    
    $
    68,681
    
    
    $
    589
    
    
    $
    68,092
  F-30




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
 Impaired Loans
    Fair Value Measurements UsingQuoted Prices
    
    
    Significantin Active
    
    
    OtherMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assts
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(In thousands)Impaired Loans, net
of reserves
    
    $
    52,539
    
    
    $
    
    
    
    $
    
    
    
    $
    52,539
  Cash and Cash Equivalents
  Mortgage Loans Held for Sale
  F-31




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
 Loans
  Federal Home Loan Bank Stock, Federal Reserve Bank Stock, and other securities
  Deposits
  Securities Sold Under Agreement to Repurchase and Other Interest-Bearing Liabilities
  Short-Term and Long-Term Debt
  Commitments to Extend Credit, Letters of Credit and Lines of Credit
  F-32




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
  2008
    
    2007Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    Value(In thousands)Financial assets:Cash and cash equivalents
    
    $
    44,973
    
    
    $
    44,973
    
    
    $
    18,139
    
    
    $
    18,139Available-for-sale securities
    
    
    68,681
    
    
    
    68,681
    
    
    
    76,653
    
    
    
    76,653Mortgage loans held for sale
    
    
    8,157
    
    
    
    8,157
    
    
    
    10,978
    
    
    
    10,978Interest receivable
    
    
    3,273
    
    
    
    3,273
    
    
    
    4,621
    
    
    
    4,621Loans, net of allowance for loan losses
    
    
    650,033
    
    
    
    651,868
    
    
    
    587,664
    
    
    
    590,500Federal Home Loan Bank stock, Federal
Reserve Bank stock, and other securities
    
    
    7,888
    
    
    
    7,888
    
    
    
    7,261
    
    
    
    7,261Financial liabilities:Deposits
    
    
    600,868
    
    
    
    611,538
    
    
    
    536,370
    
    
    
    537,412Securities Sold Under Agreement to Repurchase and
Other Interest-BearingLiabilities
    
    
    27,545
    
    
    
    27,545
    
    
    
    29,036
    
    
    
    29,036Short-term debt
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    25,000Long-term debt
    
    
    107,584
    
    
    
    116,987
    
    
    
    80,906
    
    
    
    81,963Interest payable
    
    
    2,768
    
    
    
    2,768
    
    
    
    2,459
    
    
    
    2,459Unrecognized financial instruments
(net of amortization):Commitments to extend credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Letters of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lines of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forward commitments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 F-33




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 21: COMMITMENTS, CREDIT RISKS AND CURRENT ECONOMIC CONDITIONS
        F-34




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 21: COMMITMENTS, CREDIT RISKS AND CURRENT ECONOMIC CONDITIONS (Continued)
  NOTE 22: BUSINESS ACQUISITION
   (In thousands)Cash and cash equivalents
    
    $
    4,134Available-for-sale securities
    
    
    1,594Loans
    
    
    29,200Premises and equipment
    
    
    1,508Core deposits intangible
    
    
    1,000Western National Bank charter  intangible
    
    
    325Goodwill
    
    
    4,531Other assets
    
    
    1,660Total assets
    
    
    43,952Deposits
    
    
    31,241Other interest-bearing liabilities
    
    
    903Long-term debt
    
    
    650Other liabilities
    
    
    874Total liabilities assumed
    
    
    33,668Net assets acquired
    
    $
    10,284
  F-35




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 23: LEGAL CONTINGENCIES
  NOTE 24: SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
  2008
    
    
    2007Fourth
    
    
    Third
    
    
    Second
    
    
    First
    
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    FirstQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(In thousands, except per share data)Interest income
    
    $
    10,770
    
    
    $
    11,121
    
    
    $
    11,466
    
    
    $
    11,641
    
    
    $
    12,713
    
    
    $
    13,143
    
    
    $
    13,605
    
    
    $
    12,756Interest expense
    
    
    5,302
    
    
    
    5,452
    
    
    
    5,235
    
    
    
    5,702
    
    
    
    6,297
    
    
    
    6,734
    
    
    
    6,561
    
    
    
    5,990Net interest income
    
    
    5,468
    
    
    
    5,669
    
    
    
    6,231
    
    
    
    5,939
    
    
    
    6,416
    
    
    
    6,409
    
    
    
    7,044
    
    
    
    6,766Provision for loan losses
    
    
    1,625
    
    
    
    12,090
    
    
    
    2,410
    
    
    
    900
    
    
    
    1,865
    
    
    
    590
    
    
    
    
    
    
    
    400Net interest income after provision
for loan losses
    
    $
    3,843
    
    
    $
    (6,421
    )
    
    $
    3,821
    
    
    $
    5,039
    
    
    $
    4,551
    
    
    $
    5,819
    
    
    $
    7,044
    
    
    $
    6,366Noninterest income
    
    
    1,512
    
    
    
    2,576
    
    
    
    1,934
    
    
    
    1,688
    
    
    
    1,531
    
    
    
    1,761
    
    
    
    1,806
    
    
    
    1,997Realized gains on available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    224
    
    
    
    478
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    Noninterest expense
    
    
    10,650
    
    
    
    5,982
    
    
    
    5,927
    
    
    
    6,210
    
    
    
    5,474
    
    
    
    5,848
    
    
    
    6,311
    
    
    
    6,584Income before income taxes
    
    
    (5,295
    )
    
    
    (9,827
    )
    
    
    52
    
    
    
    995
    
    
    
    713
    
    
    
    1,732
    
    
    
    2,539
    
    
    
    1,779Income taxes (1)
    
    
    (600
    )
    
    
    (3,617
    )
    
    
    28
    
    
    
    365
    
    
    
    35
    
    
    
    646
    
    
    
    979
    
    
    
    615Net income (loss)
    
    $
    (4,695
    )
    
    $
    (6,210
    )
    
    $
    24
    
    
    $
    630
    
    
    $
    678
    
    
    $
    1,086
    
    
    $
    1,560
    
    
    $
    1,164Net Income (loss) per Share DataBasic
    
    $
    (1.92
    )
    
    $
    (2.55
    )
    
    $
    0.01
    
    
    $
    0.26
    
    
    $
    0.28
    
    
    $
    0.45
    
    
    $
    0.65
    
    
    $
    0.48Diluted
    
    $
    (1.92
    )
    
    $
    (2.55
    )
    
    $
    0.01
    
    
    $
    0.26
    
    
    $
    0.28
    
    
    $
    0.44
    
    
    $
    0.64
    
    
    $
    0.48Balance SheetTotal assets
    
    $
    815,700
    
    
    $
    788,261
    
    
    $
    805,123
    
    
    $
    768,085
    
    
    $
    736,213
    
    
    $
    730,449
    
    
    $
    738,187
    
    
    $
    739,864Total loans, net
    
    
    650,033
    
    
    
    631,090
    
    
    
    628,067
    
    
    
    613,304
    
    
    
    587,664
    
    
    
    554,161
    
    
    
    547,405
    
    
    
    552,288Stockholders equity
    
    
    76,439
    
    
    
    53,701
    
    
    
    59,623
    
    
    
    60,062
    
    
    
    58,934
    
    
    
    58,788
    
    
    
    56,887
    
    
    
    55,419
 
 (1)
    
    Income taxes were adjusted in the 4th Quarter of 2007 to correct the
effective rate taken during the previous quarters during that period.  NOTE 25: SUBSEQUENT EVENTS
  F-36




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 25: SUBSEQUENT EVENTS (Continued)
  F-37




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 26: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
 Condensed Balance Sheets
December 31, 2008 and 2007
 2008
    
    
    2007(In thousands)ASSETSCash and cash equivalents
    
    $
    4,480
    
    
    $
    1,261Investments in subsidiaries:Bank of Blue Valley
    
    
    81,838
    
    
    
    71,988Blue Valley Building Corp.
    
    
    8,751
    
    
    
    8,437BVBC Capital Trust II
    
    
    232
    
    
    
    232BVBC Capital Trust III
    
    
    356
    
    
    
    356Other assets
    
    
    525
    
    
    
    374Total Assets
    
    $
    96,182
    
    
    $
    82,648LIABILITIESLong-term debt
    
    $
    
    
    
    $
    2,781Subordinated debentures
    
    
    19,588
    
    
    
    19,588Other liabilities
    
    
    155
    
    
    
    1,345Total Liabilities
    
    
    19,743
    
    
    
    23,714STOCKHOLDERS EQUITYPreferred Stock
    
    
    22
    
    
    
    Common stock
    
    
    2,760
    
    
    
    2,440Additional paid-in capital
    
    
    37,666
    
    
    
    10,312Retained earnings
    
    
    35,340
    
    
    
    45,592Accumulated other comprehensive loss, net of income
tax of $434 and $394 at 2008 and 2007, respectively
    
    
    651
    
    
    
    590Total Stockholders Equity
    
    
    76,439
    
    
    
    58,934Total Liabilities and Stockholders Equity
    
    $
    96,182
    
    
    $
    82,648
 F-38




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 26: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) (Continued)
 Condensed Statements of Income
Years Ended December 31, 2008, 2007 and 2006
 2008
    
    
    2007
    
    
    2006(In thousands)IncomeDividends from subsidiaries
    
    $
    654
    
    
    $
    12,495
    
    
    $
    2,104Other income
    
    
    
    
    
    
    15
    
    
    
    65654
    
    
    
    12,510
    
    
    
    2,169Expenses
    
    
    2,541
    
    
    
    2,174
    
    
    
    2,252Income (loss) before income taxes and
equity in undistributed net income of
subsidiaries
    
    
    (1,887
    )
    
    
    10,336
    
    
    
    (83
    )Credit for income taxes
    
    
    (1,117
    )
    
    
    (818
    )
    
    
    (729
    )Income (loss) before equity in
undistributed net income of
subsidiaries
    
    
    (770
    )
    
    
    11,154
    
    
    
    646Equity in undistributed
(distributions in excess of) net
income of subsidiaries
    
    
    (9,481
    )
    
    
    (6,666
    )
    
    
    6,277Net income (loss)
    
    $
    (10,251
    )
    
    $
    4,488
    
    
    $
    6,923
 F-39




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##### Table of Contents



BLUE VALLEY BAN CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008, 2007 AND 2006
 NOTE 26: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) (Continued)
 Condensed Statements of Cash Flows
Years Ended December 31, 2008, 2007 and 2006
 2008
    
    
    2007
    
    
    2006(In thousands)CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    (10,251
    )
    
    $
    4,488
    
    
    $
    6,923Items not requiring (providing) cash:Deferred income taxes
    
    
    46
    
    
    
    (42
    )
    
    
    (2,982
    )Equity in undistributed (distributions in
excess of) net income of subsidiaries
    
    
    9,481
    
    
    
    6,666
    
    
    
    (6,277
    )Restricted stock earned
    
    
    309
    
    
    
    316
    
    
    
    485Changes in:Other assets
    
    
    (207
    )
    
    
    255
    
    
    
    5,866Other liabilities
    
    
    (308
    )
    
    
    52
    
    
    
    (3,399
    )Net cash provided by (used in)
operating activities
    
    
    (930
    )
    
    
    11,735
    
    
    
    616CASH FLOW FROM INVESTING ACTIVITIESCapital contributed to subsidiary
    
    
    (19,578
    )
    
    
    (5,764
    )
    
    
    Purchase of Unison Bancorp, Inc. and subsidiary
    
    
    
    
    
    
    (10,284
    )
    
    
    Proceeds from sale of assets and liabilities of
Western National Bank
    
    
    
    
    
    
    5,834
    
    
    
    Sale of Western National Bank charter
    
    
    
    
    
    
    325
    
    
    
    Net cash used in investing activities
    
    
    (19,578
    )
    
    
    (9,889
    )
    
    
    CASH FLOWS FROM FINANCING ACTIVITIESRepayments of long-term debt
    
    
    (17,781
    )
    
    
    (1,250
    )
    
    
    (600
    )Proceeds from short-term debt
    
    
    15,000
    
    
    
    
    
    
    
    Dividends paid on common stock
    
    
    (878
    )
    
    
    (723
    )
    
    
    (596
    )Proceeds from sale of preferred stock
    
    
    21,750Proceeds from sale of common stock through the
rights offering
    
    
    5,201Proceeds from sale of common stock through ESPP
and stock options exercised
    
    
    435
    
    
    
    466
    
    
    
    538Net cash provided by (used in)
financing activities
    
    
    23,727
    
    
    
    (1,507
    )
    
    
    (658
    )INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    3,219
    
    
    
    339
    
    
    
    (42
    )CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR
    
    
    1,261
    
    
    
    922
    
    
    
    964CASH AND CASH EQUIVALENTS,
END OF YEAR
    
    $
    4,480
    
    
    $
    1,261
    
    
    $
    922
 F-40