As filed with the Securities and Exchange Commission on December 4, 2013

Registration No. 333-191958

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO 2 TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

__________________________

BLUE VALLEY BAN CORP.

(Exact name of registrant as specified in its charter)

__________________________

Kansas	6022	48-1070996
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number) __________________________	(I.R.S. Employer Identification No.)

11935 Riley

Overland Park, Kansas 66225-6128

(913) 338-1000

__________________________

Agent for Service:

Robert D. Regnier

President and Chief Executive Officer

Blue Valley Ban Corp.

11935 Riley

Overland Park, Kansas 66225-6128

(913) 338-1000

Copies of Communications to:

Steven F. Carman, Esq.

Husch Blackwell LLP

4801 Main Street, Suite 1000

Kansas City, Missouri 64112

(816) 983-8000

__________________________

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	x

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Amount to be Registered	Proposed Offering Price Per Share	Proposed Aggregate Offering Price	Amount of Registration Fee

Nontransferable common stock subscription rights	2,938,871	-----	------	----- (1)

Common Stock, par value $1.00 per share	2,000,000	$5.00	$10,000,000 (2)	$1,288.00 (3)

(1)

The nontransferable subscription rights are being issued without consideration. Pursuant to Rule 457(g) under the Securities Act of 1933, as amended, no separate registration fee is required because the rights are being registered in the same registration statement as the securities to be offered pursuant thereto.

(2)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. In no event will the aggregate maximum offering price of all securities issued pursuant to this registration statement exceed $10,000,000.

(3)

Previously Paid.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

Subject to completion, dated December 4, 2013

PRELIMINARY PROSPECTUS

Minimum of 1,000,000 and maximum of 2,000,000 Shares of Common Stock

Issuable upon the exercise of Nontransferable Subscription Rights at $5.00 per share

We are distributing to holders of our outstanding common stock, at no charge, non-transferable subscription rights to purchase up to an aggregate of 2,000,000 shares of our common stock at a cash subscription price of $5.00 per share. We must receive minimum gross proceeds of $5.0 million in the aggregate to complete the rights offering. The rights offering is subject to a limit of $10.0 million in gross proceeds.

You are receiving this prospectus because you held shares of our common stock as of the close of business on October 29, 2013, the record date for this rights offering. We have granted you one right for each share of our common stock that you owned on the record date. You may purchase one share of our common stock for every 1.4694 rights granted to you. If you exercise your rights in full, you may also exercise an oversubscription right to purchase (at the same subscription price) additional shares of common stock that may remain unsubscribed at the expiration of the rights offering.

The rights will expire if they are not exercised and paid in full (including final clearance of any checks) by 5:00 p.m., Eastern Time on January 15, 2014, unless we extend the rights offering in our sole discretion.

We are an “emerging growth company” as the term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, may elect to comply with certain reduced public company reporting requirements for future filings.

Shares of our common stock are quoted on the OTCQB under the trading symbol “BVBC.” On December _, 2013, the closing sales price for our common stock was ______ per share.

OFFERING SUMMARY

Per Share

Total

	Minimum	Maximum	Minimum	Maximum
Subscription Price	$5.000	$5.000	$5.00	$5.00
Estimated Expenses	$0.350	$0.175	$350,000.00	$350,000.0
Proceeds to us	$4.650	$4.825	$4,650,000.00	$9,650,000.00

Investing in our common stock involves a high degree of risk. We urge you to carefully read the “Risk Factors” section beginning on page 6 of this prospectus before determining whether to exercise your subscription rights.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares of our common stock are not deposits or savings accounts or other obligations of any bank or savings association, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

The date of this prospectus is December __, 2013.

About This Prospectus				ii
Cautionary Note regarding Forward-Looking Statements				ii
Questions and Answers About The Rights Offering				iv
Prospectus Summary				1
Use of Proceeds				5
Risk Factors				6
The Rights Offering				14
The Company				18
Capitalization				35
Selected Consolidated Financial Data				36
Market Price and Dividends on Our Common Stock				38
Dividends				38
Dilution				38
Material U.S. Federal Income Tax Consequences				39
Plan of Distribution				41
Description of Securities To Be Registered				42
Management’s Discussion and Analysis Of Financial Condition and Results of Operations				47
Management				79
Beneficial Ownership Table				82
Certain Relationships and Related Party Transactions				84
Indemnification of Directors, Officers, and Employees				84
Executive Compensation				85
Legal Matters				89
Experts				89
Index to Financial Statements				F-1

ABOUT THIS PROSPECTUS

You should rely only on the information provided in this prospectus. We have not authorized anyone to provide you with any different information. The information contained in this prospectus is accurate only as of the date on the front cover of this prospectus regardless of the time of delivery of this prospectus or any exercise of the subscription rights.

The distribution of this prospectus and the rights offering and sale of shares of our common shares in certain jurisdictions may be restricted by law. This prospectus does not constitute an offer of, or a solicitation of an offer to buy, any shares of common stock in any jurisdiction in which such offer or solicitation is not permitted. No action is being taken in any jurisdiction outside the United States to permit an offering of the common shares or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to those jurisdictions.

In this prospectus, all references to the “we,” “us,” “our,” “Company” and “Blue Valley” refer to Blue Valley Ban Corp., unless the context otherwise requires or where otherwise indicated. References to the “Bank” refer to the Company’s primary wholly-owned subsidiary, Bank of Blue Valley.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact, contained in this prospectus, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology.

Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or referenced elsewhere in this prospectus, which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time, and it is not possible for us to predict all risk factors. Nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.

The factors impacting these risks and uncertainties include, but are not limited to:

	•		general economic conditions, either nationally or locally in some or all of the areas in which we do business, or conditions in the securities or real estate markets or the banking industry may be less favorable than we currently anticipate;
	•		the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our control;

•

there may be increases in competitive pressure among financial institutions or from non-financial institutions;

•

changes in the interest rate environment could adversely affect our results of operations and financial condition;

•

changes in accounting principles, policies or guidelines;

•

legislative or regulatory changes may adversely affect our business;

•

changes in management’s estimate of the adequacy of the allowance for loan losses;

•

litigation or matters before regulatory agencies, whether currently existing or commencing in the future, may delay the occurrence or non-occurrence of events longer than we anticipate;

•

changes in deposit flows, loan demand or real estate values may adversely affect our business;

	•		the Company’s non-payment of dividends and accrued interest on its trust preferred securities or fixed rate cumulative preferred stock;

	•		technological changes may be more difficult or expensive than we anticipate; and

•

success or consumption of new business initiatives may be more difficult or expensive than we anticipate.

You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this prospectus. Before you invest in our common stock, you should be aware that the occurrence of the events described in the section entitled “Risk Factors” and elsewhere in this prospectus, could negatively affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this prospectus to conform our statements to actual results or changed expectations.

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QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING

The following are examples of what we anticipate will be common questions about the rights offering. The answers are based on selected information from this prospectus and may not contain all of the information that is important to you. This prospectus includes specific terms of the rights offering, as well as information regarding our business, including potential risks related to the rights offering and our common stock. We encourage you to read this prospectus in its entirety.

Q:	What is the rights offering?
A:	The rights offering is a distribution to holders of our common stock, at no charge, of nontransferable rights to purchase shares of our common stock based on your ownership of common stock as of October 29, 2013, the record date. You may purchase one whole share of our common stock at $5.00 per share for every 1.4694 rights granted to you.
Q:	What is a subscription right?
A:	A subscription right is the right to purchase a portion of a share of our common stock. Because we have 2,938,871 shares of common stock outstanding and we are targeting the sale of a maximum of 2,000,000 shares in connection with this rights offering, each subscription right carries with it a basic subscription right to purchase 0.6805 of a share of our common stock. Each subscription right also includes an oversubscription right to purchase additional shares of our common stock.
Q:	Why do I need to exercise 1.4694 rights to purchase one share of common stock?
A:	As of October 29, 2013 we had outstanding 2,938,871 shares of our common stock. By granting one right for each share of common stock, we have granted an aggregate of 2,938,871 rights. As a result, because we are targeting the sale of a maximum of 2,000,000 shares of common stock in this rights offering, you must exercise 1.4694 rights to acquire one share.
Q:	What is the basic subscription right?
A:	Each whole subscription right entitles you to purchase 0.6805 of a share of our common stock at the subscription price of $5.00 per share. We have granted to you, as a stockholder of record on the record date, a subscription right for each share of our common stock you owned at that time. Fractional shares of our common stock resulting from the exercise of the basic subscription right will be eliminated by rounding down to the nearest whole share, with the total subscription payment being adjusted accordingly. For example, if you owned 1,000 shares of our common stock on the record date, your basic subscription right would permit the purchase of 680 shares (1,000 purchase rights / 1.4694 = 680.55, with fractional shares rounded down to the nearest whole number). You may exercise all or a portion of your basic subscription right, or you may choose not to exercise any subscription rights at all. However, if you exercise less than your full basic subscription right, you will not be entitled to purchase shares under your oversubscription right.
	If you hold your shares in the name of a custodian bank, broker, dealer or other nominee, you will not receive a rights certificate. Instead, the Depository Trust Company, or DTC, will issue the appropriate number of subscription rights to your nominee record holder based on the shares of our common stock that you own at the record date. If you are not contacted by your nominee, you should contact your nominee as soon as possible.

Q:		What is the oversubscription right?
A:		If any holders of subscription rights do not fully exercise their basic subscription rights as of the expiration time of the rights offering, we will permit stockholders who do fully exercise their basic subscription rights to subscribe for additional shares of our common stock at the same subscription price per share, on the pro rata basis described below, rounded down to the nearest whole share number. This oversubscription right will be available only to stockholders who exercise their basic subscription rights in full. We may elect, in our sole discretion, to honor some or all of the oversubscription rights.
		If oversubscription requests exceed the number of shares of common stock we elect to sell, we will allocate the available shares of common stock among stockholders who oversubscribed by multiplying the number of shares requested by each stockholder through the exercise of their oversubscription rights by a fraction that equals (x) the number of shares we elect to issue through oversubscription rights divided by (y) the total number of shares requested by all subscribers through the exercise of their oversubscription rights. As described above for the basic subscription right, we will not issue fractional shares through the exercise of oversubscription rights.
Q:		How many shares may I purchase if I exercise my subscription rights?
A:		The number of shares of common stock you can purchase under your basic subscription rights will depend on the number of subscription rights you receive. You will receive one basic subscription right for each share of our common stock you hold on the record date. Each basic subscription right entitles you to purchase 0.6805 of a share of our common stock at the subscription price of $5.00 per share.
		Upon exercising your subscription rights, you may request to subscribe for additional shares on your subscription rights certificate. However, the actual number of shares for which you will be entitled to subscribe under your oversubscription rights will not be determinable until after the expiration time of the rights offering and the pro rata allocation.
Q:		What if there is an insufficient number of shares to satisfy the oversubscription requests?
A:		If there is an insufficient number of shares to fully satisfy the oversubscription requests of rightsholders, we will attempt to ensure that each subscription rightsholder who exercised his or her oversubscription right receives a pro rata number of the shares we elect to sell, rounded down to the nearest whole share number, as described above. Any excess subscription payments will be returned, without interest or deduction, promptly after the expiration of this rights offering.
Q:		Am I required to participate in the rights offering?
A:		No.
Q:		Why are we conducting the rights offering?
A:		We are conducting the rights offering to improve our earnings by eliminating double interest and compounding interest. We will achieve this goal by bringing current all previously accrued and unpaid dividends on our Subordinated Debentures, with any additional proceeds to be used for general corporate purposes. Our Board of Directors has chosen to raise capital through a rights offering to give our stockholders the opportunity to limit ownership dilution from a capital raise by allowing our current stockholders to purchase additional shares of our common stock. We cannot determine the amount of dilution that a stockholder will experience or whether the rights offering will be successful. See the section of this prospectus captioned “Use of Proceeds,” for more details.

Q:	Will the Company be issuing fractional shares of common stock?
A:	No. You may not purchase fractional shares of common stock pursuant to the exercise of subscription rights. We will accept any subscription indicating a purchase of fractional shares by rounding down to the nearest whole share number and promptly refunding without interest any payment received for a fractional share.
Q:	If I wish to exercise my rights, do I have to exercise all of my rights?
A:	No. You may exercise some or all of your rights. However, if you subscribe for fewer than all the shares represented by your basic subscription rights, your remaining rights are non-transferable and will expire at the expiration time of the rights offering. You may not sell your remaining rights. In addition, you may only participate in the oversubscription portion of this rights offering if you exercise your basic subscription rights in full.
Q:	How long will the rights offering remain open?
A:	The rights offering will remain open until 5:00 p.m., Eastern Time, on January 15, 2014 _______, 2014 unless we extend the rights offering. We reserve the right to extend the rights offering at our discretion for a period not to exceed 45 additional days beyond January 15, 2014 , in which event the term “expiration time” will mean the latest date and time to which the rights offering has been extended. We will make a public announcement of any extension by issuing a press release prior to 9:00 a.m., Eastern Time, on the next business day after the previously scheduled expiration time. In addition, if the commencement of the rights offering is delayed, the expiration time of the rights offering will be similarly delayed. In that event, we will notify you by issuing a press release. While the rights offering will remain open until 5:00 p.m., Eastern Time, on January 15, 2014, we intend to have an initial closing for all stockholders who have exercised their subscription rights by 5:00 p.m., Eastern Time, on December 23, 2013 in order to ensure we have sufficient funds to bring current all previously accrued and unpaid dividends on certain of the Subordinated Debentures and avoid default on those Subordinated Debentures. If you desire to participate in the first closing, you must allow sufficient time for delivery of your subscription documents and subscription payment to the subscription agent so that they are received by the subscription agent by 5:00 p.m., Eastern Time, on December 23, 2013.
Q:	When must I exercise my oversubscription rights?
A:	You must exercise your oversubscription rights when you exercise your basic subscription rights in full. However, the number of shares for which you will be able to purchase by exercise of your oversubscription rights cannot be determined until after the expiration time of the rights offering period.
Q:	What happens if I choose not to exercise my subscription rights?
A:	You will retain your current number of shares of our common stock held by you even if you do not exercise your subscription rights. If you choose not to exercise your subscription rights, upon completion of the offering the percentage of our capital stock held by you will decrease, however, the magnitude of the reduction will depend upon the extent to which other rightsholders subscribe in the rights offering.
Q:	Will I be charged a sales commission or a fee by the Company if I exercise my subscription rights?
A:	No. We will not charge a brokerage commission or a fee to rightsholders for exercising their subscription rights. However, if you exercise your subscription rights through a broker or nominee, then you will be responsible for any transaction fees charged by your broker or nominee.
Q:	What is the Board of Directors’ recommendation regarding whether I should exercise my rights in the rights offering?

Our Board of Directors is not making any recommendation as to whether you should exercise your subscription rights. You are urged to make your decision based on your own assessment of our business and the rights offering.

Q:	Are there any conditions to completing the rights offering?
A:	Yes. We must sell the minimum offering amount of at least $5.0 million (1,000,000 shares) of common stock for the rights offering to be completed.
Q:	If the rights offering is not completed, will my subscription payment be refunded to me?
A:	Yes. The subscription agent will hold all funds it receives in escrow until completion of the rights offering. If the rights offering is not completed, the subscription agent will return promptly, without interest, all subscription payments. We reserve the right to terminate the offering at any time if, due to market conditions or otherwise, the Board of Directors deems it advisable not to proceed with the rights offering.
Q:	Will our directors and executive officers participate in the rights offering?
A:	We expect that certain of our directors and executive officers, and certain of the directors of our primary wholly-owned subsidiary Bank of Blue Valley (the “Bank”), together with their affiliates, will participate in the rights offering, although they are not obligated to do so. We anticipate that our directors and executive officers, along with the Bank’s directors, and their affiliates, will at a minimum purchase that number of shares of common stock in this rights offering that will allow them to maintain the percentage of our common stock they currently hold and could increase the percentage of our common stock they own. We also expect that certain of our officers and directors will, if necessary, subscribe for additional shares of common stock in the aggregate amount required to raise the minimum gross proceeds. The purchase price paid by them will be the same paid by all other persons who purchase shares of our common stock in the rights offering.
Q:	How was the subscription price established?
A:	In determining the subscription price, our Board of Directors considered a number of factors, including: the price at which our stockholders might be willing to participate in the rights offering, historical and current trading prices for our common stock, the need for liquidity and capital, potential market conditions, and the desire to provide an opportunity to our stockholders to participate in the rights offering on a pro rata basis. In conjunction with its review of these factors, our Board of Directors also reviewed our history and prospects, including our past and present earnings, our prospects for future earnings, our current financial condition and regulatory status. The subscription price is not necessarily related to our book value, net worth or any other established criteria of value and may or may not be considered the fair value of our common stock. You should not assume or expect that, after this offering, our shares of common stock will trade at or above the $5.00 per share purchase price.
Q:	What is the role of KBW in the rights offering?
A:	We have entered into an agreement with Keefe, Bruyette & Woods, Inc. (“KBW”) pursuant to which KBW is acting as our financial advisor in connection with the rights offering. We have agreed to pay certain fees to, and expenses of, KBW.
Q:	Is exercising my subscription rights risky?
A:	Yes. Investing in our securities involves risks. Exercising your rights should be considered as carefully as any other equity investment. Some of the risks include the following:
		•	You may not revoke your subscription rights once you exercise them and so you could be committed to buying shares above the prevailing market value of our common stock.

vii

		•	If you do not act promptly and follow subscription instructions, then we may reject your exercise of subscription rights.
		•	For a more complete discussion of the risks associated with an investment in our common stock, you should carefully review the section captioned “Risk Factors”.
Q:	May I transfer my subscription rights if I do not want to purchase any shares?
A:	No. Your subscription rights are not transferable.
Q:	Is there a minimum subscription required to complete the rights offering?
A:	There is no individual minimum purchase requirement in the rights offering. However, we will not complete the rights offering unless we receive aggregate subscriptions of at least $5.0 million (1,000,000 shares) of common stock in the rights offering.
Q:	Is there a limit to how much common stock will be issued in the rights offering?
A:	We will accept subscriptions for a maximum of $10.0 million (2,000,000 shares) of common stock in the rights offering.
Q:	How many shares will be outstanding after the rights offering?
A:	There were 2,938,871 shares of our common stock outstanding as of October 29, 2013. If the maximum number of shares are sold in the rights offering we expect there will be 4,938,000 shares of our common stock outstanding. If the minimum number of shares are sold in the rights offering, we expect there will be 3,938,000 shares of our common stock outstanding.
Q:	After I exercise my subscription rights, can I change my mind and cancel my purchase?
A:	No. All exercises of subscription rights are irrevocable.
Q:	What are the federal income tax consequences of receiving or exercising my subscription rights as a holder of common stock?
A:	A holder of common stock will not recognize income or loss for federal income tax purposes in connection with the receipt or exercise of subscription rights in the rights offering. We urge you to consult your own tax adviser with respect to the particular tax consequences of the rights offering or any related share purchases by you. See section captioned, “Material U.S. Federal Income Tax Consequences,” for more details.
Q:	To whom should I send my forms and payment?
A:	If your shares are held in the name of a broker, or other nominee holder, then you should send your subscription documents, subscription rights certificate and subscription payment to that record holder. If you are the record holder, then you should send your subscription documents and subscription payment to American Stock Transfer & Trust Company, LLC at: By Mail, By Hand, or By Overnight Courier American Stock Transfer & Trust Company, LLC Operations Center Attn: Reorganization Department 6201 15th Avenue Brooklyn, NY 11219

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	You are solely responsible for completing delivery to the subscription agent of your subscription documents, and subscription payment. We urge you to allow sufficient time for delivery of your subscription documents and subscription payment to the subscription agent so that they are received by the subscription agent by 5:00 p.m., Eastern Time, on January 15, 2014. If you desire to participate in the first closing, you must allow sufficient time for delivery of your subscription documents and subscription payment to the subscription agent so that they are received by the subscription agent by 5:00 p.m., Eastern Time, on December 23, 2013. If you send a payment that is insufficient to purchase the number of shares you requested, or if the number of shares you requested is not specified in the forms, the payment received will be applied to exercise your subscription rights to the fullest extent possible based on the amount of the payment received, subject to our decision to sell shares under the oversubscription right and the elimination of fractional shares. Any excess subscription payments received by the subscription agent will be returned, without interest, as soon as practicable following the expiration of the rights offering.

Q:	What form of payment is required to purchase the shares of our common stock?
A:	As described in the subscription rights certificate, payments submitted to the subscription agent must be made in full United States currency by:
		•	personal or certified check to American Stock Transfer & Trust Company, LLC, drawn upon a United States bank; or
		•	wire transfer of immediately available funds to accounts maintained by American Stock Transfer & Trust Company, LLC
Q:	What should I do if I want to participate in the rights offering but my shares are held in the name of my broker, custodian bank, or other nominee?
A:	If you hold shares of our common stock through a broker, custodian bank, or other nominee, then we will ask your broker, custodian bank, or other nominee to notify you of the rights offering. If you wish to exercise your subscription rights, then you will need to have your broker, custodian bank, or other nominee act for you.
Q:	When will I receive my new shares?
A:	If you purchase stock in the rights offering by submitting a subscription rights certificate and payment, your new shares will be delivered in book entry by the Subscription Agent as soon as practicable following each closing. We will not, however, be able to begin calculations for any oversubscription pro rata allocations and adjustments until the expiration time of the rights offering. Thus, you will not receive your new shares purchased pursuant to your oversubscription rights until after the expiration time of the rights offering, even if you participate in the first closing. If your shares are held by your nominee, and you participate in the rights offering, your nominee will be credited with the shares of common stock you purchase in the rights offering as soon as practicable after each closing with respect to shares purchased pursuant to your basic subscription rights and after expiration of the rights offering with respect to any shares purchased pursuant to your oversubscription rights.
Q:	What should I do if I have other questions?
A:	If you have questions or need assistance about the procedure for exercising your rights, including the procedure if you have lost your rights certificate, please contact, AST Phoenix Advisors, which is acting as our information agent, at:

By Telephone

(866) 796-1285

(From 9:00 a.m. to 10:00 p.m., Eastern Time, Monday through Friday)

By Mail

AST Phoenix Advisors

6201 15th Avenue

Brooklyn, NY 11219


	You may also contact Bob Regnier, our President and Chief Executive Officer, at (913) 234-2240 or Mark Fortino our Chief Financial Officer, at (913) 234-2345 from 7:00 a.m. to 6:00 p.m., Central Time, Monday through Friday, if you have any questions.


	PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus or incorporated herein. Because this is a summary, it does not contain all the information that may be important to you. For a more complete understanding, you should carefully read the more detailed information set out in this prospectus, especially the “Risk Factors” section, as well as the financial statements and the related notes to those statements included elsewhere in this prospectus. The Company Blue Valley, a Kansas corporation, is a bank holding company organized in 1989. The Bank, the Company’s primary wholly-owned subsidiary, was also organized in 1989 to provide banking services to closely-held businesses and their owners, professionals and residents in Johnson County, Kansas, a high growth, demographically attractive area within the Kansas City, Missouri — Kansas Metropolitan Statistical Area (the “Kansas City MSA”). The focus of Blue Valley has been to take advantage of the current and anticipated growth in our market area as well as to serve the needs of small and mid-sized commercial customers. We believe that these customers are underserved as a result of banking consolidation in the industry generally and within our market specifically. We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act and, as such, may elect to comply with certain reduced public company reporting requirements for future filings. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, or (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. The Bank operates a total of five banking center locations in Johnson County, Kansas, including our main office, which includes a lobby banking center in Overland Park, as well as full-service offices in Leawood, Lenexa, Olathe, and Shawnee, Kansas. The Company’s lending activities are focused on commercial, commercial real estate, construction, home equity and residential real estate lending. In addition, the Bank infrequently engages in lease financing and provides consumer lending. The Company strives to identify, develop and maintain diversified lines of business that provide acceptable risk-adjusted returns. The Company seeks to develop lines of business that diversify the Bank’s revenue sources, increase the Bank’s non-interest income and offer additional value-added services to the Bank’s customers. We develop these new or existing lines of business while monitoring related risk factors. In addition to fees generated in conjunction with lending activities, the Bank derives non-interest income by providing mortgage origination, deposit and cash management services, as well as trust and investment brokerage services. In addition to the Bank, the Company has two wholly-owned subsidiaries, BVBC Capital Trust II and BVBC Capital Trust III, which issued the Subordinated Debentures. We experienced losses from the third quarter of 2008 through the second quarter of 2012. During that period, the book value of our common stock decreased from $19.97 on December 31, 2008 to $6.20 on June 30, 2012. A significant portion of this decline in the book value per common share was attributable to the valuation allowance recorded in 2011 for our deferred tax asset. The subsequent decline in the book value per common share to $4.94 as of September 30, 2013 is primarily attributable to the accrual of dividends on our Fixed Rate Cumulative Preferred Stock and unrealized losses in our Securities Available for Sale portfolio resulting from increases in market interest rates. On December 5, 2008, we issued and sold 21,750 shares of Fixed Rate Cumulative Preferred Stock, along with a ten year warrant to purchase 111,083 shares of our common stock for $29.37 per share, for a total cash price of $21.75 million to the United States Department of Treasury (the “Treasury”). The Fixed Rate Cumulative Preferred Stock is now held by third party investors unaffiliated with the U.S. government. 1



	The Board of Directors of the Company and the Bank entered into a written agreement with the Federal Reserve Bank of Kansas City as of November 4, 2009. This agreement was a result of an examination that was completed by the regulators in May 2009, and related primarily to the Bank’s asset quality. Under the terms of the agreement, the Company and the Bank agreed, among other things, to submit an enhanced written plan to strengthen credit risk management practices and improve the Bank’s position on past due loans, classified loans, and other real estate owned; review and revise its allowance for loan and lease loss methodology and maintain an adequate allowance for loan loss; maintain sufficient capital at the Company and Bank level; and improve the Bank’s earnings and overall condition. The Company and Bank also agreed not to increase or guarantee any debt, purchase or redeem any shares of stock or declare or pay any dividends without prior written approval from the Federal Reserve Bank. The Company and the Bank substantially complied with all terms of the written agreement. As a result of a November 12, 2012 regulatory examination, which noted the improved financial condition of the Company and the Bank, satisfactory risk management processes, and senior management oversight, as well as full compliance with all actionable provisions of the Written Agreement, the Federal Reserve Bank of Kansas City terminated the November 4, 2009 Written Agreement and, effective January 11, 2013, replaced it with a Memorandum of Understanding (“MOU”). The MOU’s purpose is to maintain the financial soundness of the Company and the Bank, and provides, among other things, the Company and the Bank will continue to work on improvement of asset quality, maintain an adequate allowance for loan losses, maintain adequate capital, improve earnings, and not declare or pay any dividends or increase or guarantee any debt without prior written approval from the Federal Reserve Bank and the Office of the State Banking Commissioner of Kansas (“OSBC”). Under the MOU, prior regulatory approval is currently required before the payment of any dividends by the Bank. In prior years, the Company has relied on dividends from the Bank to assist in making debt service and dividend payments. There is no assurance that the Company will resume paying dividends on its common stock. Even if the Company resumes paying dividends, future payment of cash dividends on its common stock, if any, will be subject to the prior payment of all unpaid dividends and deferred distributions on the Fixed Rate Cumulative Preferred Stock. All dividends are declared and paid at the discretion of the Company’s Board of Directors and are dependent upon our liquidity, financial condition, results of operations, capital requirements and such other factors as our Board of Directors may deem relevant. The Company has also agreed at the request of the Federal Reserve Bank of Kansas City to defer interest payments and not pay dividends on the Subordinated Debentures without prior regulatory approval in an effort to preserve capital. As a result, the Company has deferred the payment of quarterly interest related to the Subordinated Debentures issued by BVBC Capital Trust III since March 31, 2009 and the payment of quarterly interest related to the Subordinated Debentures issued by BVBC Capital Trust II since April 24, 2009. As of October 31, 2013, the Company has deferred 19 scheduled quarterly interest payments on the Subordinated Debentures issued by BVBC Capital Trust III and 19 scheduled quarterly interest payments on the Subordinated Debentures issued by BVBC Capital Trust II. As of September 30, 2013 and December 31, 2012, the Company had accrued $3.9 million and $3.2 million, respectively, for interest on the Subordinated Debentures. The Company requested and has been granted prior approval from the Federal Reserve Bank of Kansas City to use the proceeds from this offering to pay the deferred interest due on the Subordinated Debentures issued by BVBC Capital Trust II and BVBC Capital Trust III. This will improve our earnings by eliminating double interest and compounding interest on these debentures. See the section of this prospectus captioned “Use of Proceeds,” for more details. In addition, at the request of the Federal Reserve Bank of Kansas City, the Company has deferred the payment of quarterly dividends on the Fixed Rate Cumulative Preferred Stock since May 15, 2009. The Fixed Rate Cumulative Preferred Stock carries a 5% per year cumulative preferred dividend rate, payable quarterly. The dividend rate increases to 9% beginning with the May 15, 2014 quarterly payment, which will cause our quarterly dividend to increase from $271,875 to $493,375. Dividends compound if they accrue and are not paid. Failure by the Company to pay dividends on the Fixed Rate Cumulative Preferred Stock 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 Fixed Rate Cumulative Preferred Stock the right to elect two directors to the Company’s Board of Directors. That right continues until the Company pays all dividends in arrears. As of October 31, 2013, the Company has deferred 18 dividend payments. In 2012, the holder of the Fixed Rate Cumulative Preferred Stock elected James L. Gegg to serve on the Company’s Board of Directors. This board seat was terminated in 2013 upon completion of the auction of our Fixed Rate Cumulative Preferred Stock by the Treasury to private investors, almost all of whom we have been advised have
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	waived their right to elect directors. In recognition of Mr. Gegg’s valuable contributions, the Board of Directors subsequently appointed Mr. Gegg to fill a vacancy on the Board. As of September 30, 2013 and December 31, 2012, the Company had accrued $5.5 million and $4.5 million, respectively, for dividends and interest on the Fixed Rate Cumulative Preferred Stock. Our principal executive offices are located at 11935 Riley, Overland Park, Kansas 66225-6128, and our telephone number is (913) 338-1000. Our website address is http://www.bankbv.com. Information included or referred to on our website is not incorporated by reference in or otherwise a part of this prospectus.
	The Rights Offering

	Securities Offered By Us:		We are distributing to you, at no charge, a non-transferable subscription right for each share of our common stock that you owned as of 5:00 p.m., Eastern Time, on October 29, 2013, the record date, either as a holder of record or, in the case of shares held of record by custodian banks, brokers, dealers, or other nominees on your behalf, as a beneficial owner of such shares. If the rights offering is fully subscribed, the gross proceeds from the rights offering will be $10.0 million.

	Subscription Price:		$5.00 per share

	Minimum Offering:		The rights offering is conditioned upon the receipt of minimum gross proceeds of $5.0 million.

	Maximum Offering:		The rights offering is subject to a limit of $10.0 million in gross proceeds, including any oversubscription rights that we, in our sole discretion, elect to honor.

	Common Stock to be Outstanding Immediately After This Offering:		Assuming no options are exercised prior to the expiration of the rights offering and assuming the minimum or maximum number of shares are sold in the rights offering, we expect approximately 3,938,000 or 4,938,000 shares of our common stock will be outstanding, respectively, immediately after completion of the rights offering.

	Record Date:		5:00 p.m. Eastern Time on October 29, 2013.

	Basic Rights of Common Stockholders:		As a common stockholder, you are entitled to receive a subscription right for each whole share of our common stock you owned on the record date. For each basic subscription right you hold, you may purchase 0.6805 shares of our common stock.

	Oversubscription Right:		In the event that you purchase all of the shares of our common stock available to you pursuant to your basic subscription rights, you may also choose to purchase a portion of any shares of our common stock that our other stockholders do not purchase through the exercise of their basic subscription rights. The number of shares of our common stock that you purchase pursuant to this oversubscription right will be determined on a pro rata basis and will be subject to our decision to honor, in our sole discretion, the oversubscription rights.

	Nontransferability:		You may not transfer your subscription rights.

	Irrevocability:		Once you submit a subscription, you may not revoke it.

	Best Efforts Offering:		We are offering the shares on a best efforts basis. This means there is no guarantee that we will be able to sell all or any of the shares offered. We intend to pay no commissions on shares we sell in this offering. However, we have reserved the right to retain brokers or sales agents to assist us in selling the shares, if we deem it necessary.



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	No Recommendation:		Our Board of Directors is making no recommendation as to whether you should subscribe for shares pursuant to either your basic right or your oversubscription right.

	Board and Executive Officer Commitment:		We expect that certain of our directors and executive officers, and certain of the directors of the Bank, together with their affiliates, will participate in the rights offering, although they are not required to do so. The purchase price paid by them will be the same paid by all other persons who purchase shares of our common stock in the rights offering. We also expect that certain of our officers and directors will, if necessary, subscribe for additional shares of common stock in the aggregate amount required to raise the minimum gross proceeds.


	Use Of Proceeds:		We intend to use the first $4.1 million of net proceeds of the rights offering to bring current all previously accrued and unpaid dividends on the Subordinated Debentures. This will improve our earnings by eliminating double interest and compounding interest currently being paid on the Subordinated Debentures. We intend to use any remaining proceeds for general corporate purposes. See the section of this prospectus captioned “Use of Proceeds” for further details.

	Fees and Expenses:		We will pay the fees and expenses of the rights offering, estimated to be approximately $350,000.

	Risk Factors:		See the section of this prospectus captioned “Risk Factors” on page 6 and other information included in this prospectus for a discussion of certain factors that you should carefully consider before making a decision to invest in our common stock.

	Expiration Date:		The offering will terminate on January 15, 2014, unless extended by our Board of Directors for up to an additional 45 days. While the rights offering will remain open until 5:00 p.m., Eastern Time, on January 15, 2014, we intend to have an initial closing for all stockholders who have exercised their subscription rights by 5:00 p.m., Eastern Time, on December 23, 2013 in order to ensure we have sufficient funds to bring current all previously accrued and unpaid dividends on certain of the Subordinated Debentures and avoid default on those Subordinated Debentures.

	Subscription Agent and Information Agent:		We have retained American Stock Transfer & Trust Company, LLC to act as the subscription agent and AST Phoenix Advisors to as as the information agent for the rights offering. The process for you to follow in communicating with American Stock Transfer & Trust Company, LLC and AST Phoenix Advisors is set forth in the section of this prospectus captioned “QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING”.












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USE OF PROCEEDS

Assuming the sale of the minimum or maximum number of shares in the rights offering, we estimate that the aggregate net proceeds from the rights offering, after deducting estimated offering expenses of approximately $350,000, will be approximately $4.65 million or $9.65 million, respectively. If we sell more than the minimum but less than the maximum number of shares, our net proceeds will be somewhere between $4.65 million and $9.65 million. We intend to use the first $4.1 million of net proceeds to bring current all previously accrued and unpaid dividends on the Subordinated Debentures. This will improve our earnings by eliminating double interest and compounding interest currently being paid on the Subordinated Debentures. We intend to use any remaining proceeds for general corporate purposes.

The precise amounts and timing of the application of the net proceeds from this offering depend upon many factors, including, but not limited to, the amount of any such proceeds and actual funding requirements. Until the proceeds are used, the Company may invest the proceeds, depending on its cash flow requirements, in short- and long-term investments, including, but not limited to treasury bills, commercial paper, certificates of deposit, securities issued by U.S. government agencies, money market funds, repurchase agreements and other similar investments.

RISK FACTORS

Investing in our common stock involves a high degree of risk. In addition to the following risk factors and other information contained in this prospectus, including the matters under the caption “Cautionary Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition,” you should carefully consider the risks described below before deciding whether to invest in our common stock. If any of the following risks actually occur, our business, financial condition, operating results and prospects would suffer. In that case, the trading price of our common stock would likely decline and you might lose all or part of your investment. The risks described below are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our operations and business results.

Risks Related to the Rights Offering

The subscription price determined for this rights offering is not necessarily an indication of our value.

The subscription price per share was arbitrarily set by our Board of Directors after consideration of a number of factors, including: the price at which our stockholders might be willing to participate in the rights offering, historical and current trading prices for our common stock, the need for liquidity and capital, potential market conditions, and the desire to provide an opportunity to our stockholders to participate in the rights offering on a pro rata basis. In conjunction with its review of these factors, our Board of Directors also reviewed our history and prospects, including our past and present earnings, our prospects for future earnings, our current financial condition and regulatory status. The subscription price does not necessarily bear any relationship to the book value of our assets, past operations, cash flows, income, financial condition or any other established criteria for value. You should not consider the subscription price as an indication of the value of our common stock.

Because our management will have broad discretion over the use of the net proceeds from the rights offering, you may not agree with how we use the proceeds, and we may not invest the proceeds effectively.

We intend to use the proceeds of the rights offering to improve our earnings by eliminating double interest and compounding interest. We will achieve this goal by bringing current all previously accrued and unpaid dividends on our Subordinated Debentures, with any additional proceeds to be used for general corporate purposes. Our management will, however, have broad discretion in the application of the proceeds from the rights offering. Because of the number and variability of factors that will determine our use of the proceeds from the rights offering, their ultimate use may vary substantially from our currently intended use. Moreover, our management may use the proceeds for corporate purposes that may not increase our market value or make us profitable. In addition, it may take us some time to deploy the proceeds from this offering effectively in accordance with our intended uses. Management’s failure to utilize the proceeds effectively could have an adverse effect on our business, financial condition and results of operations.

All exercises of subscription rights are irrevocable, even if the market price of our common stock declines below the subscription price you have paid.

Once you exercise your subscription rights, you may not revoke them. It is possible that the market price of our common stock will decline after you elect to exercise your subscription rights. If you exercise your subscription rights and, afterwards, the public trading market price of our common stock decreases below the subscription price, you will have committed to buying shares of our common stock at a price above the prevailing market price and could have an immediate unrealized loss.

The subscription rights are not transferable and there is no market for the subscription rights.

You may not sell, give away or otherwise transfer your subscription rights. The subscription rights are only transferable by operation of law. Because the subscription rights are otherwise non-transferable, there is no market or other means for you to directly realize any value associated with the subscription rights. You must exercise the subscription rights and acquire additional shares of our common stock to realize any value from your subscription rights.

If you do not exercise your subscription rights, your percentage ownership in the Company will be diluted.

Assuming we sell the maximum amount of common stock issuable in connection with the rights offering, we will issue approximately 2,000,000 shares. If you choose not to exercise your subscription rights prior to the expiration of the rights offering, your relative ownership interest in our common stock will be diluted.

We may cancel the rights offering at any time prior to the expiration of the rights offering, and neither we nor the subscription agent will have any obligation to you except to return your exercise payments.

We may, in our sole discretion, decide not to continue with the rights offering or cancel the rights offering prior to the expiration of the rights offering. If the rights offering is cancelled, all subscription payments that the subscription agent has received will be returned, without interest, as soon as practicable.

If you do not act promptly and follow the subscription instructions, we may reject your exercise of subscription rights.

If you desire to purchase shares in the rights offering, you must act promptly to ensure that the subscription agent actually receives all required forms and payments before the expiration of the rights offering at 5:00 p.m. Eastern Time, on January 15, 2014 . If you are beneficial owner of shares, you must act promptly to ensure that your broker, custodian bank or other nominee holder acts for you and that all required forms and payments are actually received by the subscription agent before the expiration of the rights offering. We are not responsible if your broker, or other nominee holder, fails to ensure that the subscription agent receives all required forms and payments before the expiration of the rights offering. If you fail to complete and sign the required subscription forms, send an incorrect payment amount, or otherwise fail to follow the subscription procedures that apply to the exercise of your subscription rights prior to the expiration of the rights offering, the subscription agent may reject your subscription or accept it only to the extent of the payment received. Neither we nor our subscription agent undertake any responsibility to contact you concerning an incomplete or incorrect subscription form or payment, nor are we under any obligation to correct such forms or payment. We have the sole discretion to determine whether a subscription exercise properly complies with the subscription procedures.

If we do not generate the desired level of capital from the rights offering, we may try to raise additional capital and can give no assurance as to what the cost of that capital may be.

If we do not complete the rights offering or raise sufficient capital in the rights offering, we may have to sell additional securities in order to generate the desired capital. We may seek to raise additional capital through additional offerings of our common stock, preferred stock, securities convertible into common stock, or rights to acquire such securities or our common stock. The issuance of any additional shares of common stock or convertible securities in a subsequent offering could be substantially dilutive to stockholders of our common stock. Dilution is the difference between what you pay for your stock and the net tangible book value per share immediately after the additional shares are sold by us. Holders of our shares of common stock have no preemptive rights as a matter of law that entitle them to purchase their pro-rata share of any offering or shares of any class or series. The market price of our common stock could decline as a result of additional sales of shares of our common stock or the perception that such sales could occur.

New investors also may have rights, preferences, and privileges that are senior to, and that could adversely affect, our then current stockholders. For example, preferred stock would be senior to shares of our common stock.

We cannot predict or estimate the amount, timing, or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings diluting their stock holdings, adversely affecting their rights as stockholders, and/or reducing the market price of our common stock.

You will not receive any interest on funds submitted by you to the Subscription Agent in the event all or a portion of such funds are returned to you for any reason.

Funds delivered to and held by the subscription agent will be held in escrow in a segregated, non-interest bearing account. As a result, no interest will be earned on such funds while they are held pending the expiration of the rights offering. Any funds returned to you in the event of the cancellation of the rights offering, overpayment of the subscription price in connection with the basic subscription right or over-subscription privilege or otherwise will be returned to you without interest thereon.

Our position for U.S. federal income tax consequences on the receipt of the subscription rights may not be sustained by the Internal Revenue Service.

A risk exists as to the value, if any, of the subscription right. If the value is more than 15% of the value of the common stock, or you elect to allocate basis to the subscription right, a risk exists that the IRS may challenge the value of the subscription right, which could affect the amount of gain or loss recognized on the sale of particular shares of our common stock owned by you. The Company has not sought any third party appraisal for guidance on the value of the subscription rights.

Risks Related to Blue Valley

Our operations may be adversely affected if we are unable to maintain and increase our deposit base and secure adequate funding.

We fund our banking and lending activities primarily through demand, savings and time deposits and, to a lesser extent, lines of credit, sale/repurchase facilities from various financial institutions, securities sold under agreement to repurchase and FHLBank borrowings. The success of our business depends in part on our ability to maintain and increase our deposit base and our ability to maintain access to other funding sources. Our inability to obtain funding on favorable terms, on a timely basis, or at all, would adversely affect our operations and financial condition.

The loss of our key personnel could adversely affect our operations.

We are a relatively small organization and depend on the services of all of our employees. Our growth and development to date has depended in a large part on a few key employees who have primary responsibility for maintaining personal relationships with our largest customers. The unexpected loss of services of one or more of these key employees could have a material adverse effect on our operations. Our key employees are Robert D. Regnier, Mark A. Fortino, Bruce A. Easterly, and Bonnie M. McConnaughy. Each of these persons is an officer of the Bank. We do not have written employment or non-compete agreements with any of these key employees; however, if employment was terminated, Mr. Regnier would lose 16,930 Blue Valley Ban Corp. Restricted Stock Awards and Mr. Fortino, Mr. Easterly, and Ms. McConnaughy would each lose 1,600 of Blue Valley Ban Corp. Restricted Stock Awards. We carry bank owned life insurance policies on each of these executive officers.

Changes in interest rates may adversely affect our earnings and cost of funds.

Changes in interest rates affect our operating performance and financial condition in diverse ways. A substantial part of our profitability depends on the difference between the rates we receive on loans and investments and the rates we pay for deposits and other sources of funds. Our net interest spread will depend on many factors that are partly or entirely outside our control, including competition, federal monetary and fiscal policies, and economic conditions generally. Historically, net interest spreads for many financial institutions have widened and narrowed in response to these and other factors, which are often collectively referred to as “interest rate risk.” We try to minimize our exposure to interest rate risk, but are unable to eliminate it. As discussed on page [77], we use an asset/liability modeling system to analyze our current sensitivity to instantaneous and permanent changes in interest rates. The system simulates our asset and liability base and projects future net interest income results under several interest rate assumptions. This allows management to view how changes in interest rates will affect the spread between the yield received on assets and the cost of deposits and borrowed funds. Among other strategies, we attempt to mitigate the risk from increases in interest rates by maintaining a significant level of adjustable rate loans in our portfolio, and

attempt to mitigate the risk from declines in interest rates by implementing rate floors for our adjustable rate loan portfolio and managing our level of fixed rate liabilities. As illustrated in the Interest-Rate Sensitivity Analysis on page [78], as of September 30, 2013, approximately 57% of our loan portfolio has variable rates, and approximately 51% of our loan portfolio matures or reprices in 90 days or less. As a result of the number of adjustable rate loans in our portfolio, increases in interest rates will expose us to greater risk of delinquencies and defaults on such loans, which could lead to decreased earnings. In addition, increased interest rates may decrease the number of loans that we originate, which could also lead to decreased earnings.

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.

Our success is dependent to a significant extent upon the general economic conditions in the Kansas City MSA, including Johnson County, Kansas, and, in particular, the conditions for the medium- and small-sized businesses that are the focus of our customer base. Adverse changes in economic conditions in the Kansas City MSA, including Johnson County, Kansas, could impair our ability to collect loans, reduce our growth rate and have a negative effect on our overall financial condition.

If our allowance for loan losses is insufficient to absorb losses in our loan portfolio, it will adversely affect our financial condition and results of operations.

Some borrowers may not repay loans that we make to them. This risk is inherent in the banking business. Like all financial institutions, the Company maintains an allowance for loan losses to absorb probable loan losses in our loan portfolio. The level of the allowance reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio credit quality, economic and regulatory conditions and unidentified losses inherent in the current loan portfolio. However, we cannot predict loan losses with certainty, and we cannot assure you that our allowance will be sufficient to cover our future loan losses. Loan losses in excess of our reserves would have a material adverse effect on our financial condition and results of operations.

In addition, various regulatory agencies, as an integral part of the examination process, periodically review our loan portfolio. These agencies may require us to add to the allowance for loan losses based on their judgments and interpretations of information available to them at the time of their examinations. If these agencies require us to increase our allowance for loan losses, our earnings will be adversely affected in the period in which the increase occurs.

Our concentration of loans secured by real estate may continue to adversely affect our financial condition and results of operations.

As of September 30, 2013, approximately $132.8 million, or 32.69% of our loan portfolio, represented commercial real estate loans and approximately $51.0 million, or 12.54%, of our loan portfolio consisted of residential mortgage loans. A downturn in the real estate market, the deterioration in the value of collateral, and the local and national economic recessions would adversely affect our customers’ ability to sell or refinance real estate and repay their loans. In the event we are required to foreclose on a property securing one of our mortgage loans, or otherwise pursue remedies in order to protect our investment, we may be unable to recover enough value from the collateral to prevent a loss.

We may incur significant costs if we foreclose on environmentally contaminated real estate.

If we foreclose on a defaulted real estate loan to recover our investment, we may be subject to environmental liabilities in connection with the underlying real property. It is also possible that hazardous substances or wastes may be discovered on these properties during our ownership or after they are sold to a third party. If they are discovered on a property that we have acquired through foreclosure or otherwise, we may be required to remove those substances and clean up the property. We may have to pay for the entire cost of any removal and clean-up without the contribution of any other third parties. We may also be liable to tenants and other users of neighboring properties. These costs or liabilities may exceed the fair value of the property. In addition, we may find it difficult or impossible to sell the property prior to or following any environmental clean-up.

The Bank is subject to possible future repurchase and indemnification demands on mortgage loans previously sold to investors.

The Bank is subject to possible future repurchase and indemnification demands for future losses realized by investors for alleged breaches of representations and warranties on mortgage loans previously sold to investors. The financial services industry has been materially and adversely impacted by a prolonged period of negative economic conditions, including, but not limited to, high levels of unemployment, declines in asset values, as well as delinquencies and defaults on loans. These defaults on loans include, but are not limited to, possible “strategic defaults” which are characterized by borrowers that appear to have the financial means to meet the debt service requirements of their loans, however, elect not to do so because the value of the assets securing their debts may have declined below the amount of the debt or in consideration of statutory restrictions which impede a lender’s ability to exercise prudent collection efforts or foreclose in an efficient manner. The Company’s consolidated financial statements have been prepared using values and information currently available to the Company; however, there can be no assurance that the impact of these conditions will cease or reverse to mitigate possible risk of future potential losses by the Bank.

If we are not able to compete effectively in the highly competitive banking industry, our business will be adversely affected.

Our business is extremely competitive. Many of our competitors are, or are affiliates of, enterprises that have greater resources, name recognition and market presence than we do. Some of our competitors are not regulated as extensively as we are and, therefore, may have greater flexibility in competing for business. Some of these competitors are subject to similar regulation but have the advantages of established customer bases, higher lending limits, extensive branch networks, numerous ATMs, and more ability to absorb the costs of maintaining technology or other factors.

Blue Valley and the Bank are subject to extensive governmental regulation.

Blue Valley and the Bank are subject to extensive governmental regulation. Blue Valley, as a bank holding company, is regulated primarily by the Federal Reserve Bank. The Bank is a commercial bank chartered by the State of Kansas and regulated by the Federal Reserve, the Federal Deposit Insurance Corporation, and the OSBC. These federal and state bank regulators have the ability, should the situation require, to impose significant regulatory and operational restrictions as well as levy monetary fines and/or penalties upon us and the Bank. Any such restrictions imposed by federal and state bank regulators could affect the profitability of the Blue Valley and the Bank.

The Company and Bank have entered into an agreement with the Federal Reserve Bank of Kansas City, which requires us to dedicate a significant amount of resources to complying with the agreement and may have a material adverse effect on our operations and the value of our securities.

The Board of Directors of the Company and the Bank entered into a written agreement with the Federal Reserve Bank of Kansas City as of November 4, 2009. This agreement was a result of an examination that was completed by the regulators in May 2009, and related primarily to the Bank’s asset quality. Under the terms of the agreement, the Company and the Bank agreed, among other things, to submit an enhanced written plan to strengthen credit risk management practices and improve the Bank’s position on past due loans, classified loans, and other real estate owned; review and revise its allowance for loan and lease loss methodology and maintain an adequate allowance for loan loss; maintain sufficient capital at the Company and Bank level; and improve the Bank’s earnings and overall condition. The Company and Bank also agreed not to increase or guarantee any debt, purchase or redeem any shares of stock or declare or pay any dividends without prior written approval from the Federal Reserve Bank. The Company and the Bank substantially complied with all terms of the written agreement.

As a result of a November 12, 2012 regulatory examination, which noted the improved financial condition of the Company and the Bank, satisfactory risk management processes, and senior management oversight, as well as full compliance with all actionable provisions of the Written Agreement, the Federal Reserve Bank of Kansas City terminated the November 4, 2009 Written Agreement and, effective January 11, 2013, replaced it with the MOU. The MOU’s purpose is to maintain the financial soundness of the Company and the Bank, and provides among other things, the Company and the Bank will continue to work on improvement of asset quality, maintain an

adequate allowance for loan losses, maintain adequate capital, improve earnings, and not declare or pay any dividends or increase or guarantee any debt without prior written approval from the Federal Reserve Bank and the OSBC.

If the Company and Bank do not comply with the MOU, we could be subject to the assessment of civil money penalties, further regulatory sanctions, or other regulatory enforcement actions.

We are not paying dividends on our common stock and are deferring distributions on our preferred stock and subordinated debentures, and are otherwise restricted from paying cash dividends on our common stock. The failure to resume paying dividends and distributions may adversely affect us.

Under the terms of the MOU, prior regulatory approval is currently required before to the payment of any dividends by the Bank. In prior years, the Company has relied on dividends from the Bank to assist in making debt service and dividend payments. There is no assurance that the Company will resume paying dividends on its common stock. Even if the Company resumes paying dividends, future payment of cash dividends on its common stock, if any, will be subject to the prior payment of all unpaid dividends and deferred distributions on the Subordinated Debentures and the Fixed Rate Cumulative Preferred Stock. All dividends are declared and paid at the discretion of the Company’s Board of Directors and are dependent upon our liquidity, financial condition, results of operations, capital requirements and such other factors as our Board of Directors may deem relevant.

The Company has also agreed at the request of the Federal Reserve Bank of Kansas City to defer interest payments and not pay dividends on the Subordinated Debentures without prior regulatory approval in an effort to preserve capital. As a result, the Company has deferred the payment of quarterly interest related to the Subordinated Debentures issued by BVBC Capital Trust III since March 31, 2009 and the payment of quarterly interest related to the Subordinated Debentures issued by BVBC Capital Trust II since April 24, 2009. In addition, at the request of the Federal Reserve Bank of Kansas City, the Company has deferred the payment of quarterly dividends on the Fixed Rate Cumulative Preferred Stock since May 15, 2009. The Company requested and has been granted prior approval from the Federal Reserve Bank of Kansas City to use the proceeds from this offering to pay the deferred interest due on the Subordinated Debentures issued by BVBC Capital Trust II and BVBC Capital Trust III. This will improve our earnings by eliminating double interest and compounding interest on these debentures. See the section of this prospectus captioned “Use of Proceeds,” for more details.

The Fixed Rate Cumulative Preferred Stock carries a 5% per year cumulative preferred dividend rate, payable quarterly. The dividend rate increases to 9% beginning with the May 15, 2014 quarterly payment, which will cause our quarterly dividend to increase from $271,875 to $493,375. Dividends compound if they accrue and are not paid. Failure by the Company to pay dividends on the Fixed Rate Cumulative Preferred Stock 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 Fixed Rate Cumulative Preferred Stock the right to elect two directors to the Company’s Board of Directors. That right continues until the Company pays all dividends in arrears. As of October 31, 2013, the Company has deferred 18 dividend payments. In 2012, the holder of the Fixed Rate Cumulative Preferred Stock elected James L. Gegg to serve on the Company’s Board of Directors. This board seat was terminated in 2013 upon completion of the auction of our Fixed Rate Cumulative Preferred Stock by the Treasury to private investors, almost all of whom we have been advised have waived their right to elect directors. In recognition of Mr. Gegg’s valuable contributions, the Board of Directors subsequently appointed Mr. Gegg to fill a vacancy on the Board. As of September 31, 2013 and December 31, 2012, the Company had accrued $5.5 million and $4.5 million, respectively, for dividends and interest on the Fixed Rate Cumulative Preferred Stock.

As of October 31, 2013, the Company has deferred 19 scheduled quarterly interest payments on the Subordinated Debentures issued by BVBC Capital Trust III and 19 scheduled quarterly interest payments on the Subordinated Debentures issued by BVBC Capital Trust II. Deferral of more than 20 consecutive quarterly interest payments on the Subordinated Debentures would constitute an event of default, giving the trustee or holders of the Subordinated Debentures the right to declare the principal amount due and payable immediately. If the trustee or holders of the Subordinated Debentures were to declare the principal amount due and payable immediately, such event would result in a material adverse effect on the financial condition of the Company. As of September 30, 2013 and December 31, 2012, the Company had accrued $3.9 million and $3.2 million, respectively, for interest on the Subordinated Debentures. As discussed above, the Company requested and has been granted prior approval from

the Federal Reserve Bank of Kansas City to use the proceeds from this offering to pay the deferred interest due on the Subordinated Debentures issued by BVBC Capital Trust II and BVBC Capital Trust III. This will improve our earnings by eliminating double interest and compounding interest on these debentures.

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.

The Bank provides its customers with the ability to bank online. The secure transmission of confidential information over the Internet is a critical element of online banking. The Bank’s network could be vulnerable to unauthorized access, computer viruses, phishing schemes and other security problems. The Bank may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to mitigate damage caused by security breaches or viruses. To the extent that the Bank’s activities or the activities of its customers involve the storage and transmission of confidential information, security breaches and viruses could expose the Bank to claims, litigation and other possible liabilities. Any inability to prevent security breaches or computer viruses could also cause existing and potential customers to lose confidence in the Bank’s systems and could adversely affect its reputation and its ability to retain and/or grow deposits.

Risks Related to Investment in our Common Stock

We are an “Emerging Growth Company,” and any decision on our part to comply only with certain reduced disclosure requirements applicable to Emerging Growth Companies could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act enacted in April 2012, and, for as long as we continue to be an “emerging growth company,” we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years after the completion of this offering, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time or if we have total annual gross revenues of $1 billion or more during any fiscal year before that time, we would cease to be an “emerging growth company” as of the end of that fiscal year, or if we issue more than $1 billion in non-convertible debt in a three-year period, we would cease to be an “emerging growth company” immediately. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, our financial statements may not be comparable to other public companies that are not emerging growth companies.

Limited trading activity for shares of our common stock may contribute to price volatility.

While our common stock is quoted on the OTCQB, there has been limited trading activity in our common stock. The average monthly trading volume of our common stock over the past 12 months has been approximately 4,000 shares. Due to the limited trading activity of our common stock, relatively small trades may have a significant impact on the price of our common stock.

Future sales of our common stock could further depress the price of our common stock.

We cannot predict what effect, if any, future sales of our common stock, or the availability of shares for future sale, may have on the trading price of our common stock. Future sales of shares of our common stock by our existing stockholders or by us, or the perception that such sales may occur, could adversely affect the market price of shares of our common stock and may make it more difficult for you to sell your shares of our common stock at a time and price that you deem appropriate.

Our management and directors will hold a large portion of our common stock.

We anticipate that our directors, executive officers and their affiliates, will at a minimum purchase that number of shares of common stock in this rights offering that will allow them to maintain the percentage of our common stock they currently hold and could increase the percentage of our common stock they own. As a result, as a group our directors and executive officers will beneficially own approximately 2,169,000 shares of our common stock, or approximately 43.92%, of our total outstanding shares assuming we sell 2,000,000 shares of stock in the rights offering. We also expect that certain of our officers and directors, along with certain stockholders known to the Company, will if necessary, subscribe for additional shares of common stock in the aggregate amount necessary to raise the minimum gross proceeds. As a result, our management and directors, if acting together, may be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions.

Management and the directors may also have interests that differ from yours and may vote in a way that is adverse to your interests. The concentration of ownership may delay, prevent or deter a change-in-control, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

Your shares of common stock will not be an insured deposit.

The shares of our common stock that you purchase in this offering will not be a bank deposit and will not be insured or guaranteed by the FDIC or any other government agency. Your investment will be subject to investment risk, and you must be capable of affording the loss of your entire investment.

THE RIGHTS OFFERING

The Subscription Rights

We are distributing, at no charge, to the record holders of each share of our common stock, either as a holder of record or, in the case of shares held of record by custodian banks, brokers, dealers, or other nominees on your behalf, as a beneficial owner of such shares, as of 5:00 p.m., Eastern Time, on October 29, 2013, the record date, non-transferable subscription rights. The subscription rights entitle the holders of our common stock to purchase a maximum of approximately 2,000,000 shares of our common stock for an aggregate purchase price of approximately $10,000,000.

Basic Subscription Rights of Common Stockholders.

As a common stockholder, you are entitled to receive a subscription right for each whole share of our common stock you owned on the record date. For each basic subscription right you hold, you may purchase 0.6805 shares of our common stock. Fractional shares of our common stock resulting from the exercise of the basic subscription right will be eliminated by rounding down to the nearest whole share, with the total subscription payment being adjusted accordingly.

If you purchase stock in the rights offering by submitting a subscription rights certificate and payment, your new shares will be delivered in book entry by the Subscription Agent as soon as practicable after the expiration of the rights offering; however, we will not be able to begin calculations for any oversubscription pro rata allocations and adjustments until after the expiration of the rights offering. If your shares are held by your nominee, and you participate in the rights offering, your nominee will be credited with the shares of common stock you purchase in the rights offering as soon as practicable after the expiration of the rights offering.

Oversubscription Rights of Common Stockholders.

In the event that you purchase all of the shares of our common stock available to you pursuant to your basic subscription rights, you may also choose to purchase a portion of any shares of our common stock that our other stockholders do not purchase, and that we elect to sell, through the exercise of their basic subscription rights. The number of shares of our common stock that you purchase pursuant to this oversubscription right will be determined on a pro rata basis. The proration process will be repeated until all shares of common stock have been allocated.

For example, assume there are 100 shares available for purchase pursuant to the over-subscription privilege and there are two stockholders who have timely and fully exercised their basic subscription rights. Stockholder A held 50 shares as of the record date and has requested the purchase of an additional 50 shares pursuant to the over-subscription privilege. Stockholder B held 150 shares as of the record date and has requested the purchase of an additional 150 shares pursuant to the over-subscription privilege. Together, stockholders A and B held 200 shares as of the record date for the rights offering.

Stockholder A would receive 25 additional shares pursuant to the over-subscription privilege, calculated as:

50 divided by 200 (50 plus 150) equals 0.25

100 multiplied by 0.25 equals 25

Stockholder B would receive 75 additional shares pursuant to the over-subscription privilege, calculated as:

150 divided by 200 (50 plus 150) equals 0.75

100 multiplied by 0.75 equals 75

To properly exercise your over-subscription right, you must deliver the subscription payment related to your over-subscription privilege before the expiration of the rights offering. Because we will not know the total number of unsubscribed shares before the rights offering expires, if you want to maximize the number of shares you may purchase pursuant to the over-subscription rights, you will need to deliver payment in an amount equal to the aggregate subscription price for the maximum number of shares that may be available to you.

We can provide no assurances that you will actually be entitled to purchase the number of shares of common stock issuable upon the exercise of your over-subscription privilege in full at the expiration of the rights offering. If there is an insufficient number of shares available to fully satisfy the oversubscription requests of rightsholders, we will attempt to ensure each subscription rightsholder who exercised their oversubscription right receives the available shares pro rata, rounded down to the nearest whole share number, as described above. Any excess subscription payments will be returned, without interest or deduction, promptly after the expiration of this rights offering.

As described above for the basic subscription right, we will not issue fractional shares through the exercise of oversubscription rights.

Reason for the Offering / Use of Proceeds

We are conducting the rights offering to improve our earnings by eliminating double interest and compounding interest. We will achieve this goal by bringing current all previously accrued and unpaid dividends on the Subordinated Debentures, with any additional proceeds to be used for general corporate purposes. Our Board of Directors has chosen to raise capital through a rights offering to give our stockholders the opportunity to limit ownership dilution from a capital raise by allowing our current stockholders to purchase additional shares of our common stock. We cannot determine the amount of dilution that a stockholder will experience or whether the rights offering will be successful. See the section of this prospectus captioned, “Use of Proceeds” for more details.

Minimum and Maximum Offering Amounts

The rights offering is conditioned upon the receipt of minimum gross proceeds of $5.0 million. The rights offering is subject to a limit of $10.0 million in gross proceeds, including any oversubscription rights that we, in our sole discretion, elect to honor.

Withdrawal and Cancellation

Effect of Rights Offering on Existing Stockholders

If you choose not to exercise your subscription rights prior to the expiration of the rights offering, your relative ownership interest in our common stock will be diluted. We cannot determine the amount of dilution that a stockholder will experience or whether the rights offering will be successful. See section captioned, “DILUTION” for more details.

Cancellation, Modification or Revocation of Subscription Rights

Once you submit a subscription, you may neither cancel, modify or revoke it.

Subscription Agent and Information Agent

We have retained American Stock Transfer & Trust Company, LLC to act as the subscription agent and AST Phoenix Advisors to act as the information agent for the rights offering. The process for you to follow in communicating with American Stock Transfer & Trust Company, LLC and AST Phoenix Advisors is set forth in the section of this prospectus captioned “QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING.”

Method and Mode of Payment

If your shares are held in the name of a broker, or other nominee holder, then you should send your subscription documents, subscription rights certificate and subscription payment to that record

holder. If you are the record holder, then you should send your subscription documents and subscription payment to the subscription agent at:

By Mail, By Hand, or By Overnight Courier

American Stock Transfer & Trust Company, LLC

Attn: Reorganization Department

6201 15th Avenue

Brooklyn, NY 11219

You are solely responsible for completing delivery to the subscription agent of your subscription documents and subscription payment. We urge you to allow sufficient time for delivery of your subscription materials to the subscription agent so that they are received by the subscription agent by 5:00 p.m., Eastern Time, on January 15, 2014. If you desire to participate in the first closing, you must allow sufficient time for delivery of your subscription documents and subscription payment to the subscription agent so that they are received by the subscription agent by 5:00 p.m., Eastern Time, on December 23, 2013.

If you send a payment that is insufficient to purchase the number of shares you requested, or if the number of shares you requested is not specified in the forms, the payment received will be applied to exercise your subscription rights to the fullest extent possible based on the amount of the payment received, subject to our decision to sell shares under the oversubscription right and the elimination of fractional shares. Any excess subscription payments received by the subscription agent will be returned, without interest, as soon as practicable following the expiration of the rights offering.

As described in the subscription rights certificate, payments submitted to the subscription agent must be made in full United States currency by:

personal or certified check to American Stock Transfer & Trust Company, LLC, drawn upon a United States bank; or

wire transfer of immediately available funds to accounts maintained by American Stock Transfer & Trust Company, LLC

Expiration Date

The rights offering will remain open until 5:00 p.m., Eastern Time, on January 15, 2014 unless we extend the rights offering. We reserve the right to extend the rights offering at our discretion for a period not to exceed 45 additional days beyond January 15, 2014, in which event the term “expiration time” will mean the latest date and time to which the rights offering has been extended. We will make a public announcement of any extension by issuing a press release prior to 9:00 a.m., Eastern Time, on the next business day after the previously scheduled expiration time. In addition, if the commencement of the rights offering is delayed, the expiration time of the rights offering will be similarly delayed. In that event, we will notify you by issuing a press release.

While the rights offering will remain open until 5:00 p.m., Eastern Time, on January 15, 2014, we intend to have an initial closing for all stockholders who have exercised their subscription rights by 5:00 p.m., Eastern Time, on December 23, 2013 in order to ensure we have sufficient funds to bring current all previously accrued and unpaid dividends on certain of the Subordinated Debentures and avoid default on those Subordinated Debentures.

Subscription Price

Each whole subscription right entitles you to purchase 0.6805 of a share of our common stock at the subscription price of $5.00 per share. In determining the subscription price, our Board of Directors considered a number of factors, including: the price at which our stockholders might be willing to participate in the rights offering, historical and current trading prices for our common stock, the need for liquidity and capital, potential market conditions, and the desire to provide an opportunity to our stockholders to participate in the rights offering on a pro rata basis. In conjunction with its review of these factors, our Board of Directors also reviewed our history and prospects,

including our past and present earnings, our prospects for future earnings, our current financial condition and regulatory status. The subscription price is not necessarily related to our book value, net worth or any other established criteria of value and may or may not be considered the fair value of our common stock. You should not assume or expect that, after this offering, our shares of common stock will trade at or above the $5.00 per share purchase price.

Receipt of New Shares

If you purchase stock in the rights offering by submitting a subscription rights certificate and payment, your new shares will be delivered in book entry by the Subscription Agreement as soon as practicable following each closing. We will not, however, be able to begin calculations for any oversubscription pro rata allocations and adjustments until the expiration time of the rights offering. Thus, you will not receive your new shares purchased pursuant to you oversubscription rights until after the expiration time of the rights offering, even if you participate in the first closing. If your shares are held by your nominee, and you participate in the rights offering, your nominee will be credited with the shares of common stock you purchase in the rights offering as soon as practicable after each closing with respect to shares purchased pursuant to your basic subscription rights and after expiration of the rights offering with respect to any shares purchased pursuant to your oversubscription rights.

Notice to Nominees

If you are a broker, dealer, custodian bank or other nominee holder of shares of our common stock for the account of others on the record date, you should notify the beneficial owners of the shares for whom you are the nominee of the rights offering as soon as possible to learn their intentions with respect to exercising their subscription rights. You should obtain instructions from the beneficial owners of our common stock. If a registered holder of our common stock so instructs, you should complete the rights certificate and submit it to the Subscription Agent with the proper subscription payment by the expiration date. You may exercise the number of subscription rights to which all beneficial owners in the aggregate otherwise would have been entitled had they been direct holders of our common stock on the record date, provided that you as the nominee record holder, make a proper showing to the Subscription Agent by submitting the subscription rights form which is provided with your rights offering materials. If you did not receive this form, you should contact the Subscription Agent immediately to request a copy.

Beneficial Owners

If you are a beneficial owner of shares of our common stock, you will receive your subscription rights through a broker, dealer, custodian bank or other nominee we will ask your nominee to notify you of the rights offering. To indicate your intent to exercise your subscription rights, you will need to have your nominee act for you, as described above. To indicate your decision with respect to your subscription rights, you should follow the instructions of your nominee. If you wish instead to obtain a separate rights certificate, you should contact your nominee as soon as possible and request that a rights certificate be issued to you. You should contact your nominee if you do not receive notice of the rights offering, but you believe you are entitled to participate in the rights offering. We are not responsible if you do not receive the notice by mail, or otherwise from your nominee or if you receive notice without sufficient time to respond to your nominee, which may be before the 5:00 p.m., Eastern Time, January 15, 2014 expiration date.

Nontransferability of Subscription Rights

You may not transfer your subscription rights.

Validity of Subscriptions

We will resolve all questions regarding the validity and form of the exercise of your subscription rights, including time of receipt and eligibility to participate in the rights offering. Our determination will be final and binding. Once made, subscriptions and directions are irrevocable, and we will not accept any alternative, conditional or contingent subscriptions or directions. We reserve the absolute right to reject any subscriptions or directions improperly

submitted or in the case where acceptance would be unlawful. You must resolve any irregularities in connection with your subscriptions before the subscription period expires, unless we waive them in our sole discretion. Neither we nor the Subscription Agent is under any duty to notify your or your representative of any defects in your subscriptions. A subscription will be considered accepted, subject to our right to withdraw or cancel the rights offering, only when the Subscription Agent receives a properly completed and duly executed subscription rights certificate and any other required documents and the full subscription payment. Our interpretations of the terms and conditions of the rights offering will be final and binding.

Acceptance of Subscriptions

We are not making the rights offering in any state or other jurisdiction in which it is unlawful to do so. In addition, we are not distributing the subscription rights or accepting any offers to purchase any shares of our common stock from the exercise of the subscription rights to any holder that is a resident of any state or other jurisdiction where such holder would be prohibited from exercising the subscription rights or where we would be prohibited from distributing the subscription rights or accepting any offers to purchase shares of our common stock. If you are a resident of any such state or jurisdiction, you will not be eligible to participate in the rights offering and we will not accept your subscription.

No Recommendation to the Holders of Subscription Rights

Our Board of Directors is making no recommendation as to whether you should subscribe for shares pursuant to either your basic right or your oversubscription right.

Fees and Expenses

We will pay all fees charged by the Subscription Agent. We are not charging any fee or sales commission to issue subscription rights to you or to issue shares of common stock to you if you exercise your subscription rights (other than the subscription price). If you exercise your subscription rights through your broker, dealer custodial bank or other nominee record holder of your shares, you are responsible for paying any fees they may charge you.

Financial Advisor

We have entered into an agreement with KBW pursuant to which they are acting as our financial advisor in connection with the rights offering. We have agreed to pay certain fees to, and expenses of, KBW. We have also agreed to indemnify KBW and its affiliates against certain claims, liabilities and expenses related to or arising in connection with the rendering by KBW of its services.

THE COMPANY

Our Market Area

The Bank operates primarily as a community bank, serving the banking needs of small- and medium-sized companies and individuals in the Kansas City MSA. Specifically, our trade area consists of Johnson County, Kansas. We believe that coupling our strategy of providing exceptional customer service and local decision making with attractive market demographics has led to the historical growth of our total assets and deposits.

The income levels and growth rate of Johnson County, Kansas compare favorably to national averages. Johnson County’s population growth rate ranks in the top 8.85% of counties nationally, and its per capita income ranks in the top 1.34% of counties nationally. Johnson County is also a significant banking market in the State of Kansas and in the Kansas City MSA. According to available industry data, as of June 30, 2013, total deposits in Johnson County, including those of banks, thrifts and credit unions, were approximately $15.2 billion, which represented 23.53% of total deposits in the state of Kansas and 33.30% of total deposits in the Kansas City MSA. We have less than 1% share of the deposits in the Kansas City MSA and approximately 3.00% of the total deposits in Johnson County, Kansas.

As our founders anticipated, the trade area surrounding our main banking facility in Overland Park, Kansas has become one of the most highly developed retail areas in the Kansas City MSA. Our Olathe, Kansas facility is located approximately 10 miles southwest of our main office. We opened our Olathe branch in 1994 when we acquired the deposits of the Olathe branch of a failed savings and loan association. We made this acquisition because it was located in a contiguous market area and we believed that it represented a stable deposit base. In 2001, the operations of this branch were moved across the street into a more suitable location which the Bank acquired. The Shawnee, Kansas banking facility is approximately 20 miles northwest of our headquarters location. We opened our Shawnee grocery branch for the convenience of our existing customers in Shawnee, and to expand our market presence in Shawnee. During the first quarter of 2001, construction of our free-standing banking facility in Shawnee, Kansas was completed and operations commenced. The Leawood, Kansas banking facility is approximately 5 miles southeast of our headquarters location. We opened our Leawood grocery branch during October of 2002 to expand our market presence in Leawood. In 2002, we also acquired land for a 20,000 square foot branch and office building in Leawood. In the second quarter of 2004 we completed construction of our freestanding banking facility in Leawood and operations commenced in that facility. During 2003 we acquired an office building in Overland Park, Kansas approximately 1 mile northwest of our headquarters location. During 2010, the Company listed the office building for lease or possible sale. In addition to leasing space at this location to tenants, we have currently consolidated our bank operations at this location. The Lenexa, Kansas banking facility is approximately 7 miles northwest of our headquarters location. The Lenexa facility was opened in February 2007 when we acquired Unison Bancorp, Inc., and its subsidiary, Western National Bank. We made this acquisition to continue our expansion in Johnson County and to establish our first presence in the Lenexa market.

Lending Activities

Overview

Our principal loan categories include commercial, commercial real estate, construction, home equity and residential mortgages. We also offer a variety of consumer loans and infrequently engage in lease financing. Our primary source of interest income is interest earned on our loan portfolio. As of September 30, 2013, our loans represented approximately 64.21% of our total assets, our legal lending limit to any one borrower was $18.7 million, and our largest single borrower as of that date had outstanding loans of $12.2 million.

From the Company’s inception, we were successful in expanding our loan portfolio because of the commitment of our staff and the economic growth in our area of operation. Our staff has significant experience in lending and has been successful in offering our products to both potential and existing customers. We believe that we have been successful in maintaining our customers because of our staff’s attentiveness to their financial needs and the development of professional relationships with them. We strive to become a strategic business partner with our customers, not just a source of funds.

We conduct our lending activities pursuant to the lending administration policies adopted by our Board of Directors. These policies currently require the approval of our loan committee of all commercial credits in excess of $1.5 million and all real estate credits in excess of $2.5 million. Commercial loans up to $1.5 million and real estate loans up to $2.5 million can generally be approved by the Bank’s President with two loan administration officers. Our management information systems and loan review policies are designed to monitor lending sufficiently to ensure adherence to our loan policies. The following table shows the composition of our loan portfolio at September 30, 2013.

Loan Portfolio

	As of September 30, 2013
	Amount		Percent
	(In thousands)
Commercial	$	115,207		28.36	%
Commercial real estate		132,825		32.69	%
Construction		50,957		12.54	%
Home equity		45,152		11.11	%

Residential real estate		45,341	11.16	%
Lease financing		8,307	2.05	%
Consumer		8,510	2.09	%
Total loans and leases		406,299	100.00	%
Less allowance for loan losses		6,778
Loans receivable, net	$	399,521

Commercial Loans

As of September 30, 2013, approximately $115.2 million, or 28.36%, of our loan portfolio, represented commercial loans. The Bank has developed a strong reputation in providing and servicing small business and commercial loans. The commercial portfolio is the result of the business development efforts of the Bank’s seasoned commercial lending staff, our complementary product and services mix and our reputation. Commercial loans have historically been a significant portion of our loan portfolio and we expect to continue our emphasis on this loan category.

The Bank’s commercial lending activities historically have been directed to small and medium-sized companies in or near Johnson County, Kansas, with annual sales generally between $100,000 and $20 million. The Bank’s commercial customers are primarily firms engaged in manufacturing, service, retail, construction, distribution and sales with significant operations in our market areas. The Bank’s commercial loans are primarily secured by real estate, accounts receivable, inventory and equipment, and the Bank may seek to obtain guarantees from principal parties related to the borrower for its commercial loans. The Bank primarily underwrites its commercial loans on the basis of the borrower’s cash flow, financial condition and ability to service the debt, as well as the value of any underlying collateral and the financial capacity of any guarantors.

Included in commercial loans are Small Business Administration (SBA) loans which totaled approximately $1.8 million, or 1.55% of commercial loans, at September 30, 2013. In the event of default, the SBA guarantees the repayment of a portion of the principal on these loans, plus accrued interest on the guaranteed portion of the loan. Of the $1.8 million in SBA loans, $1.3 million was government guaranteed. Under the Federal Small Business Act, the SBA may guarantee up to 85% of qualified loans of $150,000 or less and up to 75% of qualified loans in excess of $150,000, up to a maximum loan amount of $5.0 million to any one borrower. The Bank is approved to participate in the SBA Certified Lender, SBA Express and Patriot Express Programs and is an active SBA lender in our market area.

Commercial lending is subject to risks specific to the business of each borrower. In order to mitigate these risks, we seek to understand the business of each borrower, place appropriate value on any guarantee or collateral pledged to secure the loan, and govern the advance and repayment of principal as well as structure the loan amortization to maintain the adequacy of the value of any collateral during the term of the loan.

Commercial Real Estate Loans

The Bank also makes loans to provide permanent financing for commercial facilities, retail and office buildings and churches. As of September 30, 2013, approximately $132.8 million, or 32.69% of our loan portfolio, represented commercial real estate loans. Our commercial real estate loans are underwritten on the basis of the appraised value of the property securing the loan, the cash flow and financial condition of the borrowing entity and property securing the loan, and the financial condition and capacity of guarantors.

Risks inherent in commercial real estate lending are related to the market value of the property securing the loan, the underlying cash flows, secondary repayment sources and documentation. Commercial real estate lending generally involves more risk than residential real estate lending because loan balances may be greater and repayment is dependent on the cash flows from the property securing the loan and/or the borrower’s operations. We attempt to mitigate these risks by carefully assessing property values, analyzing the primary source(s) of cash flow servicing the loan, analyzing financial condition and capacity of guarantors and adhering to our lending and underwriting policies and procedures.

Construction Loans

Our construction loans include loans to home building contractors and other companies and consumers for the construction of single-family and multi-family properties and commercial buildings, such as retail and office buildings as well as land development. As of September 30, 2013, approximately $51.0 million, or 12.54% of our loan portfolio, represented real estate construction loans. The builder and developer loan portfolio has been a consistent material component of our loan portfolio over our history. The Bank’s experience and reputation in this area has enabled the Bank to focus on relationships with a smaller number of select builders. Construction loans are made to qualified developers and builders to develop land for construction of residential and commercial buildings as well as to build houses to be sold following construction, pre-sold houses and model houses. These loans are generally underwritten based on several factors, including the reputation, experience, financial condition and capacity of the borrowing entity, the ratio of the loan balance to the appraised value of the property securing the loan, and general conditions of the real estate market with respect to the subdivision and surrounding area obtained from an independent third party. Construction loans are also made to individuals for houses to be constructed by builders with whom the Bank generally has an existing relationship. Such loans are made on the basis of the borrower’s financial condition and capacity, the loan to value ratio, the reputation of the builder, and the borrower’s pre-qualification for permanent financing. During the four years ending December 31, 2012, the Bank had experienced a decline in originations of construction loans from levels experienced previous to that period, specifically in residential real estate construction and land development, as a result of the continued decline in the real estate industry and the continued slowdown in new housing construction.

Risks related to construction lending include decline in the market value for the completed project, reasonableness of the construction budget, ability of the borrower to fund unforeseen cost variances over the construction budget, and the borrower’s ability to liquidate and repay the loan at a point when the loan-to-value ratio is the greatest. Among other factors, the Bank seeks to manage these risks by ensuring, throughout the construction process, that the loan to value ratio of the loan does not exceed acceptable levels, ensuring that funds disbursed are within parameters set by the original construction budget, and by properly documenting and analyzing each construction draw.

Home Equity Loans

As of September 30, 2013, our home equity loans totaled $45.2 million, or 11.11% of our loan portfolio. Home equity loans are generally secured by second liens on residential real estate. Home equity loans are subject to the same risks as other loans to individuals, including the financial strength and capacity of the borrower. The Bank attempts to mitigate these risks by carefully analyzing, verifying and documenting the borrower’s credit qualifications, employment stability, monthly income, and understanding and documenting the value of the collateral.

Residential Real Estate Loans

Our residential real estate loan portfolio consists primarily of first and second mortgage loans secured by residential properties. As of September 30, 2013, $45.3 million, or 11.16%, of our loan portfolio consisted of residential mortgage loans. The terms of these loans typically include monthly payments based on a 15 to 30 year amortization with 3 to 7 year balloon payments to mitigate interest rate risk, and they accrue interest at a fixed or variable rate. These products and terms enable us to offer credit to individuals who are self-employed or have significant income from S-corporations, limited liability companies, partnerships or investments. These individuals are often unable to satisfy the underwriting criteria permitting the sale of their mortgages into the secondary market.

In addition, we originate residential mortgage loans with the intention of selling these loans in the secondary market. During the nine months ending September 30, 2013, we originated approximately $46.3 million of residential mortgage loans held for sale, and we sold approximately $52.0 million in the secondary market. During the twelve months ending December 31, 2012, we originated approximately $83.5 million of residential mortgage loans held for sale, and we sold approximately $81.5 million in the secondary market. We originate conventional first mortgage loans through referrals from real estate brokers, builders, developers and prior customers as well as through our Internet websites. The origination of a mortgage loan from the date of initial application through closing normally takes 15 to 60 days. To reduce interest rate risk on mortgage loans sold in the secondary market, we typically acquire forward commitments from investors prior to loan closing.

Our mortgage loan credit review process is consistent with the standards set by traditional secondary market sources. The lender reviews the appraised value, credit report, debt service ratios, and other credit information gathered during the underwriting process in accordance with various laws and regulations governing real estate lending. Loans originated by the Bank are sold with servicing released to maximize per loan profits while minimizing the risks and costs associated with retaining servicing rights. Commitments are typically obtained from the purchasing investor on a loan-by-loan basis on a 30, 45 or 60-day delivery commitment. Interest rates are generally committed to the borrower when a rate commitment is obtained from the investor. Loans are funded by the Bank and purchased by the investor within 30-45 days following closing pursuant to commitments obtained from the investor. We sell conventional FHA, VA, USDA conforming and jumbo loans that are available to the Bank from the various secondary market investors for cash on a limited recourse basis. Consequently, foreclosure losses on all sold loans are primarily the responsibility of the investor and not that of the Bank. In our recent experience, the Bank has not been required to repurchase significant amounts of loans. The Bank did not repurchase any loans during the nine months ending September 30, 2013 and during the two years ending December 31, 2012, the Company repurchased one loan from an investor for which no losses have been recognized.

As with other loans to individuals, the risks related to residential mortgage loans primarily include the sufficiency of the value of collateral securing the loan and the financial condition and capacity of the borrower. The Bank attempts to manage these risks by performing a pre-funding underwriting that includes analyzing, verifying and documenting the borrower’s credit qualifications, employment stability, monthly income, identification and verification of the source and amount of down payments as well as analyzing and documenting the value of the collateral.

Lease Financing

Our lease portfolio includes capital leases that we have originated and leases that we have acquired from brokers or third parties. As of September 30, 2013, our lease portfolio totaled $8.3 million, or 2.05%, of our total loan portfolio. We provide lease financing for a variety of equipment and machinery, including office equipment, heavy equipment, telephone systems, tractor trailers and computers. Lease terms are generally from three to five years. We have provided lease financing in the past and will continue to do so on an infrequent basis for customers who maintain an ongoing relationship with the Bank through participation in other Bank product offerings. Our leases are generally underwritten based on several factors, including the overall credit worthiness, experience, current financial condition and capacity of the lessee, the amount of the financing to collateral value, and general conditions of the market.

The primary risks related to our lease portfolio are the value of the collateral securing the lease and specific risks related to the business of each borrower. To address these risks, we attempt to understand the business of each borrower, value the underlying collateral appropriately and structure the lease amortization to ensure that the value of the collateral exceeds the lease balance during the term of the lease.

Consumer Loans

As of September 30, 2013, our consumer loans totaled $8.5 million, or 2.09% of our total loan portfolio. A substantial part of this amount consisted of installment loans to individuals in our market area. Installment lending offered directly by the Bank in our market area includes loans secured by automobiles and recreational vehicles, as well as home improvement loans, unsecured lines of credit and other loans to individuals. Consumer loans are subject to the same risks as other loans to individuals, including the financial condition and capacity of the borrower. In addition, some consumer loans are subject to the additional risk that the loan is unsecured. For loans that are secured, the underlying collateral may be rapidly depreciating and may not provide an adequate source of repayment if we are required to repossess the collateral. The Bank attempts to mitigate these risks by requiring a down payment and carefully analyzing, verifying and documenting the borrower’s credit qualifications and monthly income as well as analyzing and documenting the value of the collateral.

Investment Activities

The objectives of our investment policies are to:

· secure the safety of principal;

· provide adequate liquidity;

· provide securities for use in pledging for public funds or repurchase agreements; and

· maximize after-tax income.

We conduct our investing activities pursuant to an Investment Policy adopted by our Board of Directors. The Investment Policy establishes guidelines and objectives for permissible types of investments, liquidity management, investment maturities, and investment portfolio administration. The Company invests primarily in obligations of agencies of the United States and bank qualified municipal bonds issued by state and local political subdivisions. Although direct obligations of the United States are permitted by our Investment Policy, we currently do not hold any in our portfolio. In order to ensure the safety of principal, the Company does not invest in sub-prime mortgages and typically does not invest in corporate debt or other securities even though they are permitted by our Investment Policy. In addition, we may enter into federal funds transactions with our principal correspondent banks, and depending on our liquidity position, may act as a net seller or purchaser of these funds. The sale of federal funds is effectively a short-term loan from us to another financial institution; while conversely, the purchase of federal funds is effectively a short-term loan from another financial institution to us.

Deposit Services

The principal sources of funds for the Bank are core deposits from the local market areas surrounding the Bank’s banking centers, including demand deposits, interest-bearing transaction accounts, money market accounts, savings deposits and time deposits. Transaction accounts include interest-bearing and non-interest-bearing accounts, which provide the Bank with a source of fee income, a low-cost source of funds and cross-marketing opportunities. Since 2001, the Bank has realized deposit growth from commercial checking accounts. While these accounts do not earn interest, many of them receive an earnings credit on their average balance to offset the cost of other services provided by the Bank. The Bank introduced its Performance Checking product in 2007, which has proven to be an attractive product in our market area as it pays a higher rate than most checking accounts as long as the customer meets certain signature based debit card transactional requirements and at least one direct deposit or ACH debit within each statement qualification cycle. In February 2011, the Bank introduced the Ultimate Checking product which has also been an attractive product in our market area. The Ultimate Checking product is an interest-bearing demand product that pays a higher tiered rate of interest based on certain signature based debit card transactional requirements, the dollar amount of signature based debit card transactions and the customer’s acceptance of e-statements. The Bank realizes non-interest income from the signature based debit card transactions that, when netted against the cost of the rate paid to the customer, results in a very attractive cost of funds for the Bank. The Bank also offers a money market account which is a daily access account that bears a tiered rate of interest and allows for limited check-writing ability. We believe transaction and money market accounts provide a stable source of funding for the Bank and provide us with the potential to cross-sell additional services to these account holders.

Time deposits and savings accounts also provide a relatively stable customer base and source of funding. Due to the nature and behavior of these deposit products, management reviews and analyzes our pricing strategy in comparison not only to competitor rates, but also in comparison to alternative funding sources. In setting deposit rates, management also considers profitability, the matching of term lengths of funding sources with assets, the attractiveness to customers, and rates offered by our competitors. The Bank is a member of the Certificate of Deposit Account Registry Service (“CDARS”) and Promontory Interfinancial Network Insured Cash Sweep (“ICS”) service which effectively provides depositors with Federal Deposit Insurance Corporation (“FDIC”) insurance on amounts in excess of FDIC insurance coverage limits, which is currently $250,000 per insured capacity, of certificate of deposits through CDARS, and demand and money market deposit accounts through ICS. CDARS and ICS allows the Bank to break large deposits into smaller amounts and place them in a network of other CDARS and ICS banks to reach full FDIC insurance coverage on the entire deposit account balance.

Investment Brokerage Services

In 1999, the Bank began offering investment brokerage services through an unrelated broker-dealer. These services are currently offered at all of our locations. Currently, four individuals responsible for providing these services are

joint employees of the Bank and the registered broker-dealer. As of September 30, 2013, the Bank’s investment brokerage services had assets under administration of approximately $106.5 million. Investment brokerage services provide a source of fee income for the Bank. For the nine months ended September 30, 2013 and 2012, the amount of our fee income generated from investment brokerage services was $370,000 and $312,000, respectively. For the year ending December 31, 2012, the amount of our fee income generated from investment brokerage services was $434,000.

Trust Services

The Bank began offering trust services in 1996. Until 1999, the Bank’s trust services were offered exclusively through the employees of an unaffiliated trust company. The Bank hired a full-time officer in 1999 to develop the Bank’s trust business and the trust department now has three full-time officers. Trust services are marketed to both existing Bank customers and new customers. We believe that the ability to offer trust services as a part of our financial services to customers of the Bank presents a significant cross-marketing opportunity. The services currently offered by the Bank’s trust department include the administration of personal trusts, investment management agency accounts, self-directed individual retirement accounts, qualified retirement plans, corporate trust accounts and custodial trust accounts. As of September 30, 2013, the Bank’s trust department administered 282 accounts, with assets under administration of approximately $155.3 million. Trust services provide the Bank with a source of fee income and additional deposits. For the nine months ended September 30, 2013 and 2012, the amount of our gross fee income from trust services was $413,000 and $399,000, respectively. For the year ending December 31, 2012, the amount of our gross fee income from trust services was $543,000.

Competition

The Bank encounters competition primarily in seeking deposits and in obtaining loan customers. The level of competition for deposits in our market area is high. Our principal competitors for deposits are other financial institutions within a few miles of our locations including other banks, savings institutions and credit unions. Competition among these institutions is based primarily on interest rates offered, the quality of service provided, and the convenience and accessibility of products, services and delivery channels. Additional competition for depositors’ funds comes from U.S. government securities, private issuers of debt obligations and other providers of investment alternatives for depositors.

The Bank competes in our lending, investment brokerage and trust activities with other financial institutions, such as banks and thrift institutions, credit unions, automobile financing companies, mortgage companies, securities firms, investment companies and other finance companies. Many of our competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally-insured banks and state regulations governing state-chartered banks. As a result, these non-bank competitors have some advantages over the Bank in providing certain products and services. Many of the financial institutions with which we compete are larger and possess greater financial resources, name recognition and market presence.

Trademarks

As of September 30, 2013 the Bank had the following registered trademarks:

BANK OF BLUE VALLEY

DEPOSIT I.T.

INTERNETMORTGAGE.COM

Employees

As of September 30, 2013, the Bank had 162 employees, of which 150 were full time. The Company and its other subsidiaries do not have any employees. None of the Bank’s employees are subject to a collective bargaining agreement. We consider the Bank’s relationship with its employees to be excellent.

Available Information

Our website http://www.bankbv.com. Information included to or referred to on our website is not incorporated by reference in or otherwise a part of this report. Financial information, including our annual reports can be obtained free of charge from our website.

Regulation and Supervision

The Company and its subsidiaries are extensively regulated under both federal and state laws. Laws and regulations to which the Company and the Bank are subject govern, among other things, the scope of business, investments, reserve levels, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, mergers and consolidations and the payment of dividends. These laws and regulations are intended primarily to protect depositors, not stockholders. Any change in applicable laws or regulations may have a material effect on the Company’s business and prospects, and legislative and policy changes may affect the Company’s operations. The Company cannot predict the nature or the extent of the effects on its business and earnings that fiscal or monetary policies, economic controls or new federal or state legislation may have in the future.

The following references to statutes and regulations affecting the Company and the Bank are brief summaries only and do not purport to be complete and are qualified in their entirety by reference to the actual statutes and regulations.

Applicable Legislation

The enactment of the legislation described below has affected the banking industry generally and will have an on-going effect on Blue Valley Ban Corp. and its subsidiaries.

Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law on July 21, 2010. The Dodd-Frank Act resulted in sweeping changes in the regulation of financial institutions aimed at strengthening the sound operation of the financial services sector. The Dodd-Frank Act provides for the following, among other provisions:

Establishes a new oversight regulator, the Financial Stability Oversight Council, to monitor the financial system for systemic risk and to determine which entities pose significant risk, as well as monitor financial regulatory proposals and standards.

Centralizes responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, with broad powers to enforce consumer protection laws and ensure that markets for consumer financial products and services are fair, transparent and competitive.

Amends Sarbanes-Oxley Act 404(b) to make permanent the temporary exemption for smaller reporting companies (filers with less than $75 million in market cap – Blue Valley Ban Corp. is a smaller reporting company) to comply with the independent auditor attestation requirement on the company’s evaluation of the effectiveness of internal controls over financial reporting.

Changes the assessment base for FDIC insurance assessments from the amount of total domestic deposits to average consolidated total assets less average tangible equity (Tier 1 Capital) and sets a target size for the Deposit Insurance Fund.

Permanently increases the FDIC deposit insurance per depositor from $100,000 to $250,000.

Repeals the federal prohibitions on the payment of interest on demand deposits, thus permitting depository institutions to pay interest on business transactions and other accounts.

Requires the Federal Reserve to issue rules to limit the amount of any debit card interchange fee that an issuer may receive or charge with respect to electronic debit card transactions to be reasonable and proportional to the cost incurred by the issuer with respect to the transaction. Cards issued by banks with less than $10 billion in assets are to be exempt from this requirement, thus Blue Valley Ban Corp. would be exempt from this requirement.

Implements corporate governance revisions for public companies, including proxy access requirements for stockholders and stockholder non-binding vote on executive compensation and “golden parachute’ payments.

Restricts the ability of banks to apply trust preferred securities toward regulatory capital requirements. However, Tier 1 Capital treatment for trust preferred securities issued before May 19, 2010 is grandfathered for bank holding companies with less than $15 billion in total assets. Blue Valley Ban Corp.’s Subordinated Debentures are grandfathered under this provision.

Mortgage reform and anti-predatory lending provision places new regulations on mortgage originators to ensure a borrower’s ability to repay and imposes new disclosure requirements and appraisal reforms.

The specific impact of the Dodd-Frank Act on our current activities and our financial performance will depend on the manner in which the relevant agencies develop and implement required rules and the reaction of market participants to these regulatory developments. Many provisions of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, thus making it difficult to assess the overall financial impact on us, our customers or the financial industry.

Emergency Economic Stabilization Act of 2008.

The Emergency Economic Stabilization Act of 2008 (the “EESA”) was signed into law on October 3, 2008. This legislation was principally designed to allow the Treasury and other government agencies to take action to restore liquidity and stability to the U.S. financial system. This legislation authorized the Treasury through the Troubled Asset Relief Program to purchase from financial institutions and their holding companies up to $700 billion in mortgage loans and certain other financial assets, including debt and equity securities issued by financial institutions and their holding companies. The Treasury allocated $250 billion to the Troubled Asset Relief Program (“TARP”) Capital Purchase Program (“CPP”). The CPP was designed to attract broad participation by healthy institutions, to stabilize the financial system, and to increase lending for the benefit of the U.S. economy. As part of the CPP, the Treasury purchased debt and equity securities from participating institutions. Qualified participants could sell an equity interest to the Treasury up to 3% of its risk-weighted assets. These equity instruments constitute Tier 1 Capital for eligible institutions. The Company’s Board of Directors approved the Company’s participation in the program, and the Company entered into a Securities Purchase Agreement – Standard Terms on December 5, 2008. Pursuant to the agreement, the Company issued and sold to the Treasury 21,750 shares of Fixed Rate Cumulative Perpetual Preferred Stock, along with a ten year warrant to purchase 111,083 shares of the Company’s common stock, for a total cash price of $21.75 million. On October 21, 2013, the Fixed Rate Cumulative Preferred Stock was auctioned by the Treasury for $21.26 million. As a result, the Fixed Rate Cumulative Preferred Stock is now held by third party investors unaffiliated with the U.S. government and except for certain certification and disclosure requirements we are no longer subject to the rules and regulations that were established with the CPP.

USA PATRIOT Act.

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) was signed into law on October 26, 2001. This legislation enhances the powers of domestic law enforcement organizations and makes numerous other changes aimed at countering the international terrorist threat to the security of the United States. Title III of the legislation most directly affects the financial services industry. It is intended to enhance the federal government’s ability to fight money laundering by monitoring currency transactions and suspicious financial activities. The USA PATRIOT Act has significant implications for depository institutions involved in the transfer of money. Under the USA PATRIOT Act, a financial institution must establish due diligence policies, procedures, and controls reasonably designed to detect and report money laundering through correspondent accounts and private banking accounts. Financial institutions must follow regulations adopted by the Treasury to encourage financial institutions, their regulatory authorities, and law enforcement authorities to share information about individuals, entities, and organizations engaged in or suspected of engaging in terrorist acts or money laundering activities. Financial institutions must follow regulations setting forth minimum standards regarding customer identification. These regulations require financial institutions to implement reasonable procedures for verifying the identity of any person seeking to open an account, maintain records of the information used to verify the person’s identity, and consult lists of known or suspected terrorists and terrorist organizations provided to the financial institution by government agencies. Every financial institution must establish anti-money laundering programs, including the development of internal policies and procedures, designation of a compliance officer, employee training, and an independent audit function.

Gramm-Leach-Bliley Act.

The Gramm-Leach-Bliley Act was signed into law on November 12, 1999. This major banking legislation expands the permissible activities of bank holding companies by permitting them to engage in activities, or affiliate with entities that engage in activities, that are “financial in nature.” Activities that the Gramm-Leach-Bliley Act expressly deems to be financial in nature include, among other things, securities and insurance underwriting and agency, investment management and merchant banking. The Federal Reserve and the Treasury, in cooperation with one another, determine what additional activities are “financial in nature.” With certain exceptions, the Gramm-Leach-Bliley Act similarly expands the authorized activities of subsidiaries of national banks. The provisions of the Gramm-Leach-Bliley Act authorizing the expanded powers became effective March 11, 2000.

Bank holding companies that intend to engage in activities that are “financial in nature” must elect to become “financial holding companies.” Financial holding company status is only available to a bank holding company if all of its affiliated depository institutions are “well capitalized” and “well managed,” based on applicable banking

regulations, and have a Community Reinvestment Act rating of at least “a satisfactory record of meeting community credit needs.” Financial holding companies and banks may continue to engage in activities that are financial in nature only if they continue to satisfy the well capitalized and well managed requirements. Bank holding companies that do not elect to be financial holding companies or that do not qualify for financial holding company status may engage only in non-banking activities deemed “closely related to banking” prior to adoption of the Gramm-Leach-Bliley Act. The Company voluntarily terminated its status as a financial holding company in June 2008 as the Company was no longer engaged in activities pursuant to the Bank Holding Company Act.

The Gramm-Leach-Bliley Act also calls for “functional regulation” of financial services businesses in which functionally regulated subsidiaries of bank holding companies will continue to be regulated by the regulator that ordinarily has supervised their activities. As a result, state insurance regulators will continue to oversee the activities of insurance companies and agencies, and the Securities and Exchange Commission will continue to regulate the activities of broker-dealers and investment advisers, even where the companies or agencies are affiliated with a bank holding company. Federal Reserve authority to examine and adopt rules regarding functionally regulated subsidiaries is limited.

The Gramm-Leach-Bliley Act imposed an “affirmative and continuing” obligation on all financial service providers (not just banks and their affiliates) to safeguard consumer privacy and requires federal and state regulators, including the Federal Reserve and the FDIC, to establish standards to implement this privacy obligation. With certain exceptions, the Gramm-Leach-Bliley Act prohibits banks from disclosing to non-affiliated parties any non-public personal information about customers unless the bank has provided the customer with certain information and the customer has had the opportunity to prohibit the bank from sharing the information with non-affiliates. The new privacy obligations became effective July 1, 2001.

The Gramm-Leach-Bliley Act has been and may continue to be the subject of extensive rule making by federal banking regulators and others.

Basel III Capital Requirements.

On July 2, 2013, the Board of Governors of the Federal Reserve System (“Board”) approved a final rule to establish a new comprehensive regulatory capital framework for all US banking organizations. On July 9, 2013, the final rule was approved (as an interim final rule) by the Federal Deposit Insurance Corporation (“FDIC”). The Regulatory Capitol Framework (Basel III) implements several changes to the US regulatory capital framework required by the Dodd-Frank Act. The new US capital framework imposes higher minimum capital requirements, additional capital buffers above those minimum requirements, a more restrictive definition of capital, and higher risk weights for various enumerated classifications of assets, the combined impact of which effectively results in substantially more demanding capital standards for US banking organizations.

The Basel III final rule establishes a new common equity tier 1 capital (“CET1”) requirement, an increase in the tier 1 capital requirement from 4.0% to 6.0% and maintains the current 8.0% total capital requirement. The new CET1 and minimum tier 1 capital requirements are effective January 1, 2015. In addition to these minimal capital ratios, the Basel final rule requires that all banking organizations maintain a “capital conservation buffer” consisting of common equity tier 1 capital (“CET1”) in an amount equal to 2.5% of risk-weighted assets in order to avoid restrictions on their ability to make capital distributions and to pay certain discretionary bonus payments to executive officers. Consequently, the capital conservation buffer effectively increases the minimum CET1 capital, tier 1 capital, and total capital requirements for US banking organizations to 7.0%, 8.5%, and 10.5%, respectively. Banking organizations with capital levels that fall within the buffer will be required to limit dividends, share repurchases or redemptions (unless replaced within the same calendar quarter by capital instruments of equal or higher quality), and discretionary bonus payments. The capital conservation buffer is phased in over a 5-year period beginning January 1, 2016.

As required by Dodd-Frank, the Basel III final rule requires that capital instruments such as trust preferred securities and cumulative preferred shares be phased-out of tier 1 capital by January 1, 2016, for banking organizations that had $15 billion or more in total consolidated assets as of December 31, 2009 and permanently grandfathers as tier 1 capital such instruments issued by these smaller entities prior to May 19, 2010 (provided they do not exceed 25 percent of tier 1 capital). The Subordinated Debentures are grandfathered under this provision.

The Basel III final rule provides banking organizations under $250 billion in total consolidated assets or under $10 billion in foreign exposures with a one-time “opt-out” right to continue excluding Accumulated Other Comprehensive Income from CET1 capital. The election to opt out must be made on the banking organization’s first Call Report filed after January 1, 2015.

The Basel III final rule requires that goodwill and other intangible assets (other than mortgage servicing assets), net of associated deferred tax liabilities (“DTLs”), be deducted from CET1 capital. Additionally, deferred tax assets (“DTAs”) that arise from net operating loss and tax credit carryforwards, net of associated DTLs and valuation allowances, are fully deducted from CET1 capital. However, DTAs arising from temporary differences that could not be realized through net operating loss carrybacks, along with mortgage servicing assets and “significant” (defined as greater than 10% of the issued and outstanding common stock of the unconsolidated financial institution) investments in the common stock of unconsolidated “financial institutions” are partially includible in CET1 capital, subject to deductions defined in the final rule.

Based on a preliminary assessment of the impact of Basel III and in consideration of the capital plan for the Company, management of the Company anticipates that the Company and Bank will be in compliance with the Basel III guidelines within the implementation periods.

Bank Holding Company Regulation

The Company is a registered bank holding company subject to periodic examination by the Federal Reserve and required to file periodic reports of its operations and such additional information as the Federal Reserve may require.

Investments and Activities.

A bank holding company must obtain approval from the Federal Reserve before:

Acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after the acquisition, it would own or control more than 5% of the shares of the bank or bank holding company (unless it already owns or controls the majority of the shares);

Acquiring all or substantially all of the assets of another bank or bank holding company; or

Merging or consolidating with another bank holding company.

The Federal Reserve will not approve any acquisition, merger or consolidation that would have a substantially anticompetitive result unless the anticompetitive effects of the proposed transaction are clearly outweighed by a greater public interest in meeting the convenience and needs of the community to be served. The Federal Reserve also considers capital adequacy and other financial and managerial factors in reviewing acquisitions or mergers.

With certain exceptions, a bank holding company is also prohibited from:

Acquiring or retaining direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company; and

Engaging, directly or indirectly, in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries.

Bank holding companies may, however, engage in businesses found by the Federal Reserve to be “financial in nature,” as described above. Finally, subject to certain exceptions, the Bank Holding Company Act, the Change in Bank Control Act, and the Federal Reserve’s implementing regulations, require Federal Reserve approval prior to any acquisition of “control” of a bank holding company, such as Blue Valley Ban Corp. In general, a person or company is presumed to have acquired control if it acquires 10% of the outstanding shares of a bank or bank holding company and is conclusively determined to have acquired control if it acquires 25% or more of the outstanding shares of a bank or bank holding company.

Source of Strength.

The Federal Reserve expects the Company to act as a source of financial strength and support for the Bank and to take measures to preserve and protect the Bank in situations where additional investments in the Bank may not otherwise be warranted. The Federal Reserve may require a bank holding company to terminate any activity or relinquish control of a non-bank subsidiary (other than a non-bank subsidiary of a bank) upon the Federal Reserve’s determination that the activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company. Further, federal bank regulatory authorities have additional discretion to require a bank holding company to divest itself of any bank or non-bank subsidiary if the agency determines that divestiture may aid the depository institution’s financial condition. As of September 30, 2013, BVBC Capital Trust II and BVBC Capital Trust III are the Company’s only active direct subsidiaries that are not banks.

Capital Requirements.

The Federal Reserve uses capital adequacy guidelines in its examination and regulation of bank holding companies and banks. If the capital falls below minimum guideline levels, a bank holding company, among other things, may be denied approval to acquire or establish additional banks or non-bank businesses. The Federal Reserve’s capital guidelines establish a risk-based requirement expressed as a percentage of total risk-weighted assets and a leverage requirement expressed as a percentage of total average assets. The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8%, of which at least one-half must be Tier 1 capital (which consists principally of stockholders’ equity with adjustments for disallowed deferred tax assets). The leverage requirement consists of a minimum ratio of Tier 1 capital to total average assets of 4%.

The risk-based and leverage standards presently used by the Federal Reserve are minimum requirements, and higher capital levels may be required if warranted by the particular circumstances or risk profiles of individual banking organizations. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions, which is Tier 1 capital less all intangible assets, well above the minimum levels.

Dividends.

The Federal Reserve has issued a policy statement concerning the payment of cash dividends by bank holding companies. The policy statement provides that a bank holding company experiencing earnings weaknesses should not pay cash dividends exceeding its net income or which could only be funded in ways that weakened the bank holding company’s financial health, such as by borrowing. The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies. As a result of an agreement with the Federal Reserve Bank and the Office of the State Banking Commissioner of Kansas, prior regulatory approval is currently required prior to the payment of any dividends by the Company or Bank.

As long as the Fixed Rate Cumulative Preferred Stock is outstanding, dividend payments and repurchases or redemptions relating to certain equity securities are prohibited until all accrued and unpaid dividends are paid on preferred stock, subject to certain limited exceptions. At the request of the Federal Reserve Bank of Kansas City, the Company has deferred the payment of quarterly dividends on the Fixed Rate Cumulative Preferred Stock since May 15, 2009. The Fixed Rate Cumulative Preferred Stock carries a 5% per year cumulative preferred dividend rate, payable quarterly. The dividend rate increases to 9% beginning with the May 15, 2014 quarterly payment, which will cause our quarterly dividend to increase from $271,875 to $493,375. Dividends compound if they accrue and are not paid. Failure by the Company to pay dividends on the Fixed Rate Cumulative Preferred Stock 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 Fixed Rate Cumulative Preferred Stock the right to elect two directors to the Company’s Board of Directors. That right continues until the Company pays all dividends in arrears. As of October 31, 2013, the Company has deferred 18 dividend payments. In 2012, the holder of the Fixed Rate Cumulative Preferred Stock, elected James L. Gegg to serve on the Company’s Board of Directors. This board seat was terminated in 2013 upon completion of the auction of our Fixed Rate Cumulative Preferred Stock by the Treasury to private investors, almost

all of whom have waived their right to elect directors. In recognition of Mr. Gegg’s valuable contributions, the Board of Directors subsequently appointed Mr. Gegg to the Board on a full-time basis. As of September 30, 2013 and December 31, 2012, the Company had accrued $5.5 million and $4.5 million, respectively, for dividends and interest on the Fixed Rate Cumulative Preferred Stock.

Bank Regulations

The Bank operates under a Kansas state bank charter and is subject to regulation by the Office of the State Bank Commissioner and the Federal Reserve Bank. The Office of the State Bank Commissioner and the Federal Reserve Bank regulate or monitor all areas of the Bank’s operations, including capital requirements, issuance of stock, declaration of dividends, interest rates, deposits, loans, investments, borrowings, record keeping, establishment of branches, acquisitions, mergers, information technology and employee responsibility and conduct. The Office of the State Bank Commissioner places limitations on activities of the Bank, including the issuance of capital notes or debentures and the holding of real estate and personal property, and requires the Bank to maintain a certain ratio of reserves against deposits. The Office of the State Bank Commissioner requires the Bank to file a report annually, in addition to any periodic report requested.

As a result of a November 12, 2012 regulatory examination, which noted the improved financial condition of the Company and the Bank, satisfactory risk management processes, and senior management oversight, as well as full compliance with all actionable provisions of the Written Agreement, the Federal Reserve Bank of Kansas City terminated the November 4, 2009 Written Agreement and, effective January 11, 2013, replaced it with a Memorandum of Understanding. The MOU’s purpose is to maintain the financial soundness of the Company and the Bank, and provides among other things, the Company and the Bank will continue to work on improvement of asset quality, maintain an adequate allowance for loan losses, maintain adequate capital, improve earnings, and not declare or pay any dividends or increase or guarantee any debt without prior written approval from the Federal Reserve Bank and the OSBC.

Deposit Insurance.

The FDIC, through its Deposit Insurance Fund, insures the Bank’s deposit accounts up to the applicable limits of the FDIC. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act permanently raised the current standard maximum deposit insurance amount to $250,000. The FDIC bases deposit insurance premiums on each FDIC-insured institution based on the perceived risk each bank presents to its Deposit Insurance Fund. Each institution is assigned to one of the four risk categories based on its capital, supervisory ratings and other factors. In October 2010, the FDIC adopted a new deposit insurance fund restoration plan to ensure the fund reaches 1.35% by September 30, 2020, as required by the Dodd-Frank Act. Under the new restoration plan, the FDIC at least semi-annually will update its loss and income projections for the deposit insurance fund, and, if needed, will increase or decrease assessment rates, following notice, and recommend rulemaking if required.

In addition to deposit insurance premiums, institutions also pay an assessment based on insured deposits to service debt issued by the Financing Corporation (FICO assessment), a federal agency established to finance the recapitalization of the former Federal Savings and Loan Insurance Corporation. FICO assessment rate is adjusted quarterly to reflect changes in the assessment bases of the fund. The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a hearing, that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated

any applicable law, regulation, order, or any condition imposed in writing by, or written agreement with, the FDIC. The FDIC may also suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance if the institution has no tangible capital. Management is not aware of any activity or condition that could result in termination of the deposit insurance of the Bank.

Capital Requirements.

The FDIC has established the following minimum capital standards for state-chartered, insured non-member banks, such as the Bank: (1) a leverage requirement consisting of a minimum ratio of Tier 1 capital to total average assets of 4%; and (2) a risk-based capital requirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital. These capital requirements are minimum requirements, and higher capital levels may be required if warranted by the particular circumstances or risk profiles of individual institutions.

Tier 1 capital generally consists of equity capital and non cumulative perpetual preferred stock, adjusted for such items as net unrealized gains (losses) on available-for-sale securities, disallowed deferred tax assets and disallowed servicing assets. Total risk-based capital consists of Tier 1 capital (as defined above) plus allowance and loan losses up to a maximum of 1.25% of risk-weighted assets and certain permanent and maturing capital instruments that do not qualify as Tier 1 capital.

The federal banking regulators also have broad power to take “prompt corrective action” to resolve the problems of undercapitalized institutions. The extent of the regulators’ powers depends upon whether the institution in question is “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Under the prompt corrective action rules, an institution is:

“Well capitalized” if the institution has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or greater, and the institution is not subject to an order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure.

“Adequately capitalized” if the institution has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater, and a leverage ratio of 4% or greater.

“Undercapitalized” if the institution has a total risk-based capital ratio that is less than 8%, a Tier 1 risk-based capital ratio that is less than 4%, or a leverage ratio that is less than 4%.

“Significantly undercapitalized” if the institution has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio that is less than 3%, or a leverage ratio that is less than 3%.

“Critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to or less than 2%.

As of September 30, 2013, the Bank had capital in excess of the regulatory requirements for a “well capitalized” institution.

The federal banking regulators must take prompt corrective action with respect to capital deficient institutions. Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include:

Placing limits on asset growth and restrictions on activities, including the establishment of new branches;

Requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired;

Restricting transactions with affiliates;

Restricting the interest rate the institution may pay on deposits;

Requiring that senior executive officers or directors be dismissed;

Requiring the institution to divest subsidiaries;

Prohibiting the payment of principal or interest on subordinated debt; and

Appointing a receiver for the institution.

Companies controlling an undercapitalized institution are also required to guarantee the subsidiary institution’s compliance with the capital restoration plan subject to an aggregate limitation of the lesser of 5% of the institution’s assets at the time it received notice that it was undercapitalized or the amount of the capital deficiency when the institution first failed to meet the plan. The Federal Deposit Insurance Act generally requires the appointment of a conservator or receiver within 90 days after an institution becomes critically undercapitalized.

Federal Deposit Insurance Corporation Improvement Act.

The Bank, having over $500 million in total assets, is subject to requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA 112). The primary purpose of FDICIA 112 is to provide a framework for early risk identification in financial management through an effective system of internal controls. Annual reporting requirements under FDICIA are as follows: (1) Annual audited financial statements; (2) Management report stating management’s responsibility for preparing the institution’s annual financial statements, establishing and maintaining an adequate internal control structure and procedures for financial reporting and for complying with laws and regulations, and assessment by management of the institution’s compliance with such laws and regulations; and (3) For insured depository institutions with consolidated total assets over $1.0 billion or more, the independent public accountant who audits the institution’s financial statements shall examine, attest to, and report separately on the assertion of management concerning the effectiveness of the institution’s internal control structure and procedures for financial reporting.

Insider Transactions.

The Bank is subject to restrictions on extensions of credit to executive officers, directors, principal stockholders or any related interest of these persons. Extensions of credit must be made on substantially the same terms, including interest rates and collateral as the terms available for third parties and must not involve more than the normal risk of repayment or present other unfavorable features. The Bank is also subject to lending limits and restrictions on overdrafts to these persons.

Community Reinvestment Act Requirements.

The Community Reinvestment Act (CRA) of 1977 requires that, in connection with examinations of financial institutions within their jurisdiction, the federal banking regulators must evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those banks. These factors are also considered in evaluating mergers, acquisitions and applications to open a branch or facility. In its most recent CRA examination dated August 13, 2012, the Bank received a rating of “Satisfactory.”

State Bank Activities.

With limited exceptions, FDIC-insured state banks, like the Bank, may not make or retain equity investments of a rate or in an amount that are not permissible for national banks and also may not engage as a principal in any activity that is not permitted for a national bank or its subsidiary, respectively, unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines that the activity would not pose a significant risk to the deposit insurance fund of which the bank is a member.

Regulations Governing Extensions of Credit.

The Bank is subject to restrictions on extensions of credit to the Company and on investments in the Company’s securities and using those securities as collateral for loans. These regulations and restrictions may limit the Company’s ability to obtain funds from the Bank for its cash needs, including funds for acquisitions and for payment of dividends, interest and operating expenses. Further, the Bank Holding Company Act and Federal Reserve regulations prohibit a bank holding company and its subsidiaries from engaging in various tie-in arrangements in connection with extensions of credit, leases or sales of property or furnishing of services.

Reserve Requirements.

Effective December 27, 2012, the Federal Reserve requires all depository institutions to maintain reserves against their transaction accounts. For net transaction accounts, the first $12.4 million is exempt from reserve requirements. A three percent reserve ratio will be assessed on net transaction accounts over $12.4 million up to and including $79.5 million. A ten percent reserve ratio is assessed on net transaction accounts in excess of $79.5 million (subject to adjustment by the Federal Reserve). The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy liquidity requirements.

Other Regulations.

Interest and various other charges collected or contracted for by the Bank are subject to state usury laws and other federal laws concerning interest rates. The Bank’s loan operations are also subject to federal laws applicable to credit transactions. The Federal Truth in Lending Act governs disclosures of credit terms to consumer borrowers. The Home Mortgage Disclosure Act of 1975 requires financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves. The Equal Credit Opportunity Act prohibits discrimination on the basis of race, creed or other prohibited factors in extending credit. The Fair and Accurate Credit Transactions Act of 2003 governs the use and provision of information to credit reporting agencies. This act also requires financial institutions to establish reasonable procedures of identifying identity theft. The Fair Debt Collection Act governs the manner in which consumer debts may be collected by collection agencies. The various federal agencies charged with the responsibility of implementing these federal laws have adopted various rules and regulations. The deposit operations of the Bank are also subject to the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, the Electronic Funds Transfer Act, and Regulation E issued by the Federal Reserve to implement that Act, which govern automatic deposits to and withdrawals from the use of ATMs and other electronic banking services.

Properties

The Bank currently operates five full service banking centers in the Kansas City MSA, which includes our principal office located at 11935 Riley in Overland Park, Kansas. The portions of these premises not occupied by the Bank are leased to third parties. The following table sets forth the locations of the banking centers and other properties, dates opened, mortgage indebtedness, and occupancy dates:

Location	Year Occupied	Mortgage Indebtedness as of September 30, 2013	Occupancy
Overland Park Banking Center 11935 Riley Overland Park, KS *	1994	None	100%
Olathe Banking Center 1235 E. Santa Fe Olathe, KS **	2001	None	100%
Shawnee Banking Center 5520 Hedge Lane Terrace Shawnee, KS **	2001	None	100%
College Boulevard Office 7900 College Boulevard Overland Park, KS *	2003	None	25% by Bank 13% by Sublessor 62% Marketed for Sublease
Leawood Banking Center 13401 Mission Road Leawood, KS *	2004	None	46% by Bank 51% by Sublessor 3% Marketed for Sublease
Lenexa Banking Center 9500 Lackman Road Lenexa, KS **	2007	None	100%

* The building is owned by Blue Valley Building Corp.

** The building is owned by the Bank.

Legal Proceedings

We are periodically involved in routine litigation incidental to our business. We are not currently a party to any legal proceedings, nor are we aware of any threatened litigation, that we believe is likely to have a material adverse effect on our financial position, liquidity, or results of operations.

CAPITALIZATION

The following table shows: (i) our historical consolidated capitalization and selected financial ratios as of and for the period ending September 30, 2013; (ii) our historical consolidated capitalization and selected financial ratios as of and for the period ending September 30, 2013, as adjusted to give effect for the sale of the minimum number of shares of our common stock in the rights offering and the receipt of net proceeds of $4.3 million; and (iii) our historical consolidated capitalization and selected financial ratios as of and for the period ending September 30, 2013, as adjusted to give effect for the sale of the maximum number of shares of our common stock in the rights offering and the receipt of net proceeds of $9.3 million.

The data in the table includes the assumptions that approximately $3.9 million from the net proceeds from the rights offering will be used to bring current all previously accrued and unpaid dividends on our Subordinated Debentures, with the net remaining balance retained for general corporate purposes. We expect that accrued and unpaid dividends on our Subordinated Debentures will be approximately $4.1 million as of December 31, 2013.

You should read this table in conjunction with our consolidated financial statements and the notes to those statements included in this prospectus.

	As of and For the Nine Months Ended September 30, 2013
			Pro Forma With Deployment of Proceeds from
	Actual		$5 Million Rights Offering		$10 Million Rights Offering
Selected Financial Condition Data (at end of period)
Total assets	$	632,806	$	633,587	$	638,587
Total liabilities		596,562		592,690		592,690
Total stockholders’ equity		36,244		40,897		45,897

Selected Financial Ratios and Other Data
Net income (annualized)	$	1,603	$	1,973	$	1,973
Earnings per share (basic)		0.18		0.23		0.14
Earnings per share (diluted)		0.18		0.23		0.14

Capital Ratios (% except as otherwise noted):
Total equity to total assets		5.73		6.50		7.19
Total capital to risk-weighted assets ratio		12.71		13.59		14.42
Tier 1 capital to risk-weighted assets ratio		10.38		11.26		12.11
Tier 1 capital to average assets ratio		8.63		9.36		10.09
Book value per share	$	4.94	$	4.87	$	4.89

SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents a summary of our consolidated financial data for the nine months ended September 30, 2013 and for each of the five prior calendar years ending December 31. The information in these tables should be read in conjunction with our financial statements, the related notes, “Risk Factors,” “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. The selected statements of financial condition and statements of income data, insofar as they relate to each of the five prior calendar years have been derived from our audited consolidated financial statements. The historical results are not necessarily indicative of the results to be expected for any future period.

		As of and For the Nine Months Ended September 30,			As of and For the Year Ended December 31,
		2013			2012			2011			2010			2009			2008

Selected Statement of Income Data
Interest income:
Interest and fees on loans		$ 15,627		$	22,853		$	25,277		$	28,011		$	33,996		$	41,245
Federal funds sold and short-term investments		112			193			151			245			144			378
Available-for sale securities		1,140			1,097			1,202			1,825			1,943			3,375
Dividends on Federal Home Loan Bank
and Federal Reserve Bank Stock		154			240			225			222			211			265
Total interest and dividend income		17,033			24,383			26,855			30,303			36,294			45,263

Interest expense:
Interest-bearing demand deposits	$	237		$	700		$	1,611		$	2,343		$	2,589		$	1,394
Savings and money market deposit
accounts		207			291			346			438			490	`		2,402
Other time deposits		1,307			2,487			3,755			7,746			10,742			12,139
Funds borrowed and other interest-bearing liabilities		2,730			3,714			3,543			3,836			4,166			5,756
Total interest expense		4,481			7,192			9,255			14,363			17,987			21,691
Net interest income		12,522			17,191			17,600			15,940			18,307			23,572
Provision for loan losses		(1,700	)		1,200			3,300			3,095			21,635			17,025
Net interest income (loss) after
provision for loan losses		14,252			15,991			14,300			12,845			(3,328	)		6,567

Non-interest income:
Loans held for sale fee income		1,323			2,447			2,120			3,506			2,785			2,136
Service fees		2,585			3,452			3,220			3,083			3,250			3,299
Realized gains on available-for-sale
securities		127			-			-			885			346			702
Gain on settlement of litigation		-			-			-			-			-			1,000
Other income		1,144			1,535			984			1,145			1,664			1,010
Total non-interest income		5,179			7,434			6,324			8,619			8,045			8,147

Non-interest expense:
Salaries and employee benefits		7,961			10,587			10,955			11,753			12,272			12,500
Net occupancy expense		1,975			2,568			2,599			2,756			2,811			3,144
Goodwill impairment					-			-			-			-			4,821
Foreclosed asset expense		2,984			2,647			5,219			2,708			3,862			944
Other operating expense		5,312			7,506			7,851			8,550			8,896			7,360
Total non-interest expense		18,232			23,308			26,624			25,767			27,841			28,769
Income (loss) before income taxes		1,199			117			(6,000)			(4,303)			(23,124	)		(14,075	)
Provision (benefit) for income taxes		-			(150	)		9,823			(1,561)			(8,514	)		(3,824
Net Income		1,199			267			(15,823	)		(2,742)			(14,610	)		(10,251	)
Dividends and Accretion on Preferred Stock		816			1,106			1,106			1,105			1,045			-
Net Income (Loss) to Common Stockholders	$	383		$	$ (839	)	$	(16,929	)	$	$(3,847)		$	(15,655	)		$(10,251	)

Per Share Data
Basic earnings	$	0.13		$	(0.29	)	$	(6.03	)	$	(1.38	)	$	(5.68	)	$	(4.20	)
Diluted earnings		0.13			(0.29	)		(6.03	)		(1.38	)		(5.68	)		(4.20	)
Dividends		-			-			-			-			-			-
Book value, basic (at end of period)		4.94			6.20			6.60			12.66			14.09			19.97
Weighted average common shares
outstanding
Basic		2,907,584			2,855,566			2,806,299			2,773,039			2,754,419			2,438,809
Diluted		2,927,024			2,867,563			2,827,888			2,788,154			2,762,603			2,460,045
Dividend payout ratio		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%

Selected Financial Condition Data
(at end of period)
Total available for-sale securities	$	95,206	$	77,845		$	61,790		$	63,640		$	72,757		$	68,681
Total mortgage loans held for sale, fair value		1,966		7,621			5,686			8,162			8,752			8,157
Total loans		406,299		415,671			435,843			492,454			554,111			662,401
Total assets		632,806		657,005			654,452			723,101			773,967			815,700
Total deposits		461,468		484,466			490,413			541,218			590,110			600,868
Funds borrowed and other interest-bearing liabilities		122,525		122,779			115,806			118,505			118,208			135,129
Total stockholders’ equity		36,244		39,815			40,455			57,164			60,603			76,439
Trust assets under administration		155,328		140,976			129,580			125,702			105,071			112,688

Selected Financial Ratios and Other Data
Performance Ratios (%):
Net Interest Margin (1)		2.99		2.92			2.91			2.23			2.43			3.20
Non-interest income to average assets		1.10		1.14			0.93			1.09			0.99			1.04
Non-interest expense to average assets		3.85		3.57			3.90			3.26			3.42			3.67
Net overhead ratio (2)		2.75		2.43			2.97			2.14			2.40			2.59
Efficiency ratio (3)		102.83		94.65			111.29			104.92			105.65			90.70
Return on average assets (4)		.025		0.04			(2.32	)		(0.35	)		(1.79	)		(1.31	)
Return on average equity (5)		3.09		(4.97	)		(51.84	)		(10.25	)		(33.07	)		(17.53	)

Asset Quality Ratios (%):
Non-performing loans to total loans		0.90		1.16			2.58			6.16			6.30			6.54
Allowance for possible loan losses to:
Total loans		1.67		2.18			3.01			2.99			3.61			1.87
Non-performing loans		185.97		187.23			116.46			48.53			57.33			28.54
Net charge-offs to average loans		0.14		1.24			1.04			1.61			2.30			2.16
Non-performing loans to total assets		0.58		0.74			1.73			4.20			4.51			5.31
Non-performing assets to total assets		5.17		5.60			6.20			6.98			7.02			5.90
OREO to Non-performing assets		88.87		86.85			72.09			39.89			35.71			9.92
Texas Ratio (6)		47.01		69.43			78.92			77.44			73.73			51.50
Classified asset ratio (classified assets to Tier 1 Capital and ALLL		27.33		30.97			58.71			83.70			108.06			88.87

Balance Sheet Ratios (%):
Loans to deposits		88.04		85.80			89.48			90.99			93.90			110.24
Average interest-earning assets to
average interest-bearing liabilities		117.45		118.52			116.17			113.18			115.08			116.25

Capital Ratios-Consolidated (%):
Total equity to total assets		5.73		6.06			6.18			7.91			7.83			9.37
Total capital to risk-weighted assets ratio		12.71		12.01			12.08			12.66			12.54			13.82
Tier 1 capital to risk-weighted assets ratio		10.38		9.70			9.80			11.39			11.26			12.57
Tier 1 capital to average assets ratio		8.63		8.10			8.04			9.04			9.07			11.50
Average equity to average assets ratio		6.20		6.07			7.97			7.48			8.47			7.66

Capital Ratios-Bank (%):
Total equity to total assets		10.13		10.04			9.83			10.77			10.30			10.22
Total capital to risk-weighted assets ratio		14.44		13.37			12.98			13.15			12.67			12.22
Tier 1 capital to risk weighted assets ratio		13.18		12.11			11.72			11.88			11.39			10.97
Tier 1 capital to average assets ratio		10.95		10.08			9.61			9.41			9.16			10.00
Average equity to average assets ratio		10.37		9.91			11.16			10.01			10.42			10.74

(1)	Net interest income, on a full tax-equivalent basis, divided by average-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 (loss) divided by average total assets.

(5)	Net loss available to common stockholders divided by average common equity.

(6)	The sum of non-performing assets and loans plus past due loans > 90 days divided by tangible equity capital plus the allowance for loan losses (Bank ratio)

MARKET PRICE AND DIVIDENDS ON OUR COMMON STOCK

Shares of our common stock traded on the OTCBB beginning in July 2002 under the symbol “BVBC.” Since 2012, transactions in our common stock have been quoted on the OTCQB. As of September 30, 2013, there were approximately 180 stockholders of record of our common stock. The following table sets forth the high and low prices of the Company’s common stock since the first quarter of 2011 based on closing stock price quotations provided by Yahoo.com. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

2013

2012

2011

Fiscal Quarter		High		Low		High		Low		High		Low
First
Second	$	9.50	$	4.50	$	4.50	$	4.00	$	8.00	$	6.50
Third		7.90		7.25		4.50		3.55		8.00		5.50
Fourth		7.55		6.26		4.50		3.55		8.00		4.80
		NA		NA		4.50		4.00		6.00		4.10

The closing price of the Company’s stock as of December _____, 2013 was $_______________.

DIVIDENDS

Our ability to pay dividends on our common stock is subject to our receipt of dividends from the Bank. The ability of the Bank to pay dividends, and thus our ability to pay dividends to our stockholders, is regulated by federal banking laws. In addition, if we elect to continue to defer interest payments on the Subordinated Debentures or Fixed Rate Cumulative Preferred Stock, we will be prohibited from paying dividends on our common stock during such deferral. As a result of the MOU entered into effective January 11, 2013, approval from the Federal Reserve Bank and OSBC is currently required prior to the payment of any dividends by the Company or the Bank. After the MOU is terminated and we have brought current our obligations under the terms of the Subordinated Debentures and Fixed Rate Cumulative Preferred Rate, our Board of Directors anticipates the ability to declare future dividends, subject to limitations imposed by regulatory capital guidelines and approval, as permitted by the Company’s profitability and liquidity. However, because of the debt obligations and regulatory constraints we do not anticipate paying cash dividends to our common stockholders in the fiscal year ending 2013, nor do we know when we will resume paying cash dividends.

DILUTION

The sales price for the common stock under this rights offering is slightly greater than the book value and tangible book value as of September 30, 2013. Assuming we sell the maximum amount of common stock issuable in connection with the rights offering, we will issue approximately 2,000,000 shares. Because certain of our directors and executive officers and certain Bank directors intend to purchase shares of our common stock, if you choose not to exercise your subscription rights prior to the expiration of the rights offering, your relative ownership interest in our common stock will be diluted. In particular, dilution will be experienced by any stockholder who does not exercise any of the basic subscription rights.

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

The following discussion is a summary of the material federal income tax consequences to U.S. Holders (as defined below) of our common stock of the receipt of subscription rights in the rights offering and the ownership, exercise and disposition of the subscription rights. This discussion is a summary and does not consider all aspects of U.S. federal income taxation that may be relevant to particular U.S. Holders in the light of their individual investment circumstances or to certain types of U.S. Holders that are subject to special tax rules, including partnerships, banks, financial institutions or other “financial services” entities, broker-dealers, insurance companies, tax-exempt organizations, regulated investment companies, real estate investment trusts, retirement plans, individual retirement accounts or other tax-deferred accounts, persons who use or are required to use mark-to-market accounting, persons that received our common stock in satisfaction of our prior indebtedness to such persons, persons that hold rights or our common stock as part of a “straddle,” a “hedge” or a “conversion transaction,” persons that have a functional currency other than the U.S. dollar, investors in pass-through entities, certain former citizens or permanent residents of the United States and persons subject to the alternative minimum tax. This discussion also does not address any federal non-income, state, local or foreign tax considerations to U.S. Holders, nor does it address any tax considerations to persons other than U.S. Holders. This summary assumes that U.S. Holders have held our common stock exclusively as a “capital asset” within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the “Code.” This summary is based on the Code and applicable Treasury Regulations, rulings, administrative pronouncements and decisions as of the date hereof, all of which are subject to change or differing interpretations at any time with possible retroactive effect.

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our common stock who is (1) a citizen or an individual resident of the United States; (2) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized, or treated as created or organized, in or under the laws of the United States or any political subdivision of the United States; (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (4) a trust (a) if a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have authority to control all substantial decisions of the trust or (b) that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

If a partnership (or entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. In this event, the partner and partnership should consult their tax advisors concerning the tax treatment of the receipt of subscription rights in the rights offering and the ownership, exercise and disposition of the subscription rights.

EACH HOLDER OF OUR COMMON STOCK IS URGED TO CONSULT THEIR TAX ADVISOR REGARDING THE SPECIFIC FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSIDERATIONS OF THE RECEIPT OF SUBSCRIPTION RIGHTS IN THE RIGHTS OFFERING AND THE OWNERSHIP, EXERCISE AND DISPOSITION OF THE SUBSCRIPTION RIGHTS.

Receipt, Exercise and Expiration of the Subscription Rights; Tax Basis and Holding Period of Shares Received upon Exercise of the Subscription Rights

You should not recognize taxable income for U.S. federal income tax purposes in connection with the receipt of subscription rights in the rights offering. If you allow the subscription rights received in the offering to expire, you should not recognize any gain or loss upon the expiration of the subscription rights. You also should not recognize any gain or loss upon the exercise of the subscription rights received in the rights offering, and the tax basis of the shares of our common stock acquired through the exercise of the subscription rights should equal the sum of the subscription price for the shares and your tax basis, if any, in the subscription rights.

Your tax basis in the subscription rights will generally be zero unless either (1) the fair market value of the subscription rights on the date the subscription rights are distributed is equal to or exceeds 15% of the fair market value on that date of our common stock with respect to which the subscription rights are received or (2) you elect, in your United States federal income tax return for the taxable year in which the subscription rights are received, to

allocate part of the tax basis of the common stock to the subscription rights. In the case of (1) or (2) above, a portion of your basis in our common stock with respect to which the subscription rights are received will be allocated to the subscription rights in proportion to the respective fair market values of our common stock and the subscription rights on the date the subscription rights are distributed. The fair market value of the subscription rights on the date the subscription rights are distributed is uncertain, and Blue Valley has not obtained, and does not intend to obtain, an appraisal of the fair market value of the subscription rights on that date. In determining the fair market value of the subscription rights, you should consider all relevant facts and circumstances, including any difference between the subscription price set forth in the subscription rights and the trading price of our common stock on the date that the subscription rights are distributed, the length of the period during which the subscription rights may be exercised and the fact that the subscription rights are non-transferable. If you have tax basis in the subscription rights and you allow the subscription rights to expire, the tax basis of our common stock owned by you with respect to which such subscription rights were distributed will be restored to the tax basis of such common stock immediately before the receipt of the subscription rights in the rights offering. The holding period for the shares of our common stock acquired through the exercise of the rights will begin on the date the rights are exercised.

If you exercise the subscription rights received in this rights offering after disposing of the shares of our common stock with respect to which the subscription rights are received, then certain aspects of the tax treatment of the exercise of the subscription rights are unclear, including (1) the allocation of tax basis between our common stock previously sold and the subscription rights, (2) the impact of that allocation on the amount and timing of gain or loss recognized with respect to our common stock previously sold, and (3) the impact of that allocation on the tax basis of our common stock acquired through exercise of the subscription rights. If you exercise the subscription rights received in the rights offering after disposing of the shares of our common stock with respect to which the subscription rights are received, you should consult your tax advisor.

Sale of Shares of Our Common Stock and Receipt of Distributions on Shares of Our Common Stock

You will recognize capital gain or loss upon the sale of our common stock acquired through the exercise of subscription rights in an amount equal to the difference between the amount realized and your tax basis in our common stock that you sold. The capital gain or loss will be long-term if your holding period in the shares is more than one year.

Long-term capital gains recognized by individuals are taxable under current law at a maximum rate of 20%. Long-term capital gains recognized by corporations are taxable at ordinary corporate tax rates. If you have held your shares of our common stock for one year or less, your capital gain or loss will be short-term. Short-term capital gains are taxed at a maximum rate equal to the maximum rate applicable to ordinary income. Your ability to use any capital loss is subject to certain limitations.

Distributions, if any, on shares of our common stock acquired through the exercise of subscription rights will be taxable to you as a dividend to the extent that the cash and fair market value of property is allocable to our current and accumulated earnings and profits for the taxable year in which the distribution is made. Dividends received by corporate holders of our common stock are taxable at ordinary corporate tax rates, subject to any applicable dividends-received deduction. Dividends received by noncorporate (individual) holders of our common stock are taxed under current law at the holder’s capital gain tax rate (a maximum rate of 20%) provided that the holder meets applicable holding period and other requirements. Any distributions in excess of our current and accumulated earnings and profits will be treated as a tax-free return of basis, and any further distributions in excess of your basis in our common stock will be treated as gain from the sale or exchange of such common stock.

Medicare Tax

For taxable years beginning after December 31, 2012, a 3.8 percent tax is imposed on the net investment income of certain individuals with a modified adjusted gross income of over $200,000 ($250,000 in the case of joint filers) and on the undistributed net investment income of certain estates and trusts. For these purposes, “net investment income” will generally include interest, dividends (including dividends paid with respect to our stock), annuities, royalties, rent, net gain attributable to the disposition of property not held in a trade or business (including net gain

from the sale, exchange or other taxable disposition of shares of our stock) and certain other income, but will be reduced by any deductions properly allocable to such income or net gain.

Information Reporting and Backup Withholding

You may be subject to information reporting and/or backup withholding with respect to dividend payments on or the gross proceeds from the disposition of our common stock acquired through the exercise of subscription rights. Backup withholding may apply under certain circumstances if you (1) fail to furnish your social security or other taxpayer identification number, or TIN, (2) furnish an incorrect TIN, (3) fail to report interest or dividends properly, or (4) fail to provide a certified statement, signed under penalty of perjury, that the TIN provided is correct and that you are not subject to backup withholding. Any amount withheld from a payment under the backup withholding rules is allowable as a credit against (and may entitle you to a refund with respect to) your federal income tax liability, provided that the required information is furnished to the Internal Revenue Service. Certain persons are exempt from backup withholding, including corporations and financial institutions. You should consult your tax advisors as to your qualification for exemption from withholding and the procedure for obtaining such exemption.

Investment by IRA Investors

If you own shares of our common stock through an individual retirement account or individual retirement annuity (collectively the “IRA”) described in Section 408 of the Code, then you should consult with your tax advisers to determine whether participation in this offering will result in a non-exempt prohibited transaction under Section 4975 of the Code. “Prohibited Transactions” generally include (i) a transfer of plan income or assets to, or use of them by or for the benefit of, a disqualified person; (ii) any act of a fiduciary by which plan income or assets are used for his or her own interest; (iii) the receipt of consideration by a fiduciary for his or her own account from any party dealing with the plan in a transaction that involves plan income or assets; (iv) the sale, exchange, or lease of property between a plan and a disqualified person; (v) lending or extending credit between a plan and a disqualified person; or (vi) the furnishing of goods, services, or facilities between a plan and a disqualified person. The most likely scenario in which a prohibited transaction may occur is if the Bank is serving as trustee for your IRA. If an IRA participates in a prohibited transaction, then the IRA may lose its tax-qualified status, resulting in immediate taxation and other adverse tax consequences to the IRA beneficiary.

PLAN OF DISTRIBUTION

We are offering shares of our common stock directly to you pursuant to the rights offering. We have not engaged, nor do we intend to engage in connection with this rights offering, any underwriter, broker, dealer, placement agent or finder. KBW is acting as our financial advisor in connection with the rights offering. We have agreed to pay certain fees to, and expenses of, KBW. We have further agreed to indemnify KBW and its affiliates against certain claims, liabilities and expenses related to or arising in connection with the rendering by KBW of its services. Our directors and executive officers may participate in the solicitation of the exercise of subscription rights for the purchase of common stock. These persons will be reimbursed only for their reasonable out-of-pocket expenses incurred in connection with any solicitation. Other trained employees of Blue Valley may assist in the rights offering in ministerial capacities, providing clerical work in effecting an exercise of subscription rights or answering questions of a ministerial nature. None of our officers, directors or employees will be compensated in connection with their participation in the offering by the payment of commissions or other remuneration based either directly or indirectly on the transactions in the shares of common stock.

We have agreed to pay the subscription agent a fee plus certain expenses, which we estimate will total approximately $22,000. We estimate that our total expenses in connection with the rights offering will be approximately $350,000.

To the extent we have shares remaining available (after taking into consideration all requested over-subscription rights), we expect to offer those shares to the public at $5.00 per share purchase price. We may use the services of an underwriter, brokers, and/or dealers, although there are no present arrangements with any of the foregoing parties with respect to this offering.

DESCRIPTION OF CAPITAL STOCK

General

The Company’s authorized capital stock currently consists of 15,000,000 shares of common stock, $1.00 par value and 15,000,000 shares of $1.00 par value preferred stock. As of the record date, 2,938,871 shares of common stock and 21,750 shares of Fixed Rate Cumulative Preferred Stock were issued and outstanding.

Common Stock

Set forth below is a summary of the rights of the holders of the common stock. As described below, the rights of the holders of the common stock are subject to the rights, preferences and privileges of the holders of the Fixed Rate Cumulative Preferred Stock and any shares of preferred stock that the Company may issue in the future.

Holders of common stock are entitled to one vote per share on all matters submitted to a vote of stockholders and may not cumulate their votes for the election of directors. Thus, the holders of a majority of the shares of common stock have the power to elect all the directors, subject to the rights of preferred stockholders.

Subject to the preference in dividend rights of any series of preferred stock that may be outstanding, holders of common stock are entitled to receive dividends when and as declared by the Board of Directors from funds legally available therefor. In addition, the ability of the Company to pay dividends is subject to various laws and regulations, including limits on the sources of dividends and requirements to maintain capital at or above regulatory minimums. Each of the Company and the Bank are currently subject to additional limitations and regulatory restrictions and may not declare or pay dividends to holders of common stock without prior regulatory approval.

All outstanding shares of common stock are, and the shares of common stock to be issued hereby, when issued will be, fully paid and non-assessable.

Holders of common stock have no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to the common stock.

Subject to the preference in liquidation rights of any series of preferred stock that may be outstanding, holders of common stock are entitled to receive the net assets of the Company upon dissolution.

Preferred Stock

The rights, privileges and preferences of the Fixed Rate Cumulative Preferred Stock are set forth in Certificate of Designations adopted by the Board of Directors on December 2, 2008 (the “Certificate of Designations”). Set forth below is a summary of the material rights, preferences and privileges of the Fixed Rate Cumulative Preferred Stock. The summary is not intended to be complete and is qualified in its entirety by reference to the Certificate of Designations, which is filed as an exhibit to the registration statement of which this Prospectus forms a part. You are urged to read the Certificate of Designations in its entirety. Although the Company believes this summary covers the material terms and provisions of the Fixed Rate Cumulative Preferred Stock set forth in the Certificate of Designations, it may not contain all of the information that is important to you.

General. The Fixed Rate Cumulative Preferred Stock is a series of fixed rate cumulative perpetual preferred stock, consisting of 21,750 shares, par value $1.00 per share. The Fixed Rate Cumulative Preferred Stock has a liquidation preference amount of $1,000 per share and has no maturity date.

Dividend Rate. Dividends on the Fixed Rate Cumulative Preferred Stock are payable quarterly in arrears, if, as and when declared by the Board of Directors out of legally available funds, on a cumulative basis on the $1,000 per share liquidation preference amount plus the amount of accrued and unpaid dividends for any prior dividend periods, at a rate of (i) 5% per annum, from the original issuance date to but excluding the first day of the first dividend period commencing on or after the fifth anniversary of the original issuance date, and (ii) 9% per annum, from and after the first day of the first dividend period commencing on or after the fifth anniversary of the original issuance

date. Dividends are payable quarterly. As of October 31, 2013, the Company has deferred eighteen dividend payments on the Fixed Rate Cumulative Preferred Stock. In 2012, the holder of the Fixed Rate Cumulative Preferred Stock elected James L. Gegg to serve on the Company’s Board of Directors. This board seat was terminated in 2013 upon completion of the auction of our Fixed Rate Cumulative Preferred Stock by the Treasury to private investors, almost all of whom we have been advised have waived their right to elect directors. In recognition of Mr. Gegg’s valuable contributions, the Board of Directors subsequently appointed Mr. Gegg to fill a vacancy on the Board. The Company has accrued for the dividends and interest and has every intention to bring the obligation current as soon as permissible. As of September 30, 2013, the Company had accrued $5.5 million for the dividends and interest on outstanding Fixed Rate Cumulative Preferred Stock.

Dividends on the Fixed Rate Cumulative Preferred Stock are cumulative. If for any reason the Board of Directors does not declare a dividend on the Fixed Rate Cumulative Preferred Stock for a particular dividend period, or if the Board of Directors declares less than a full dividend, the Company will remain obligated to pay the unpaid portion of the dividend for that period and the unpaid dividend will compound on each subsequent dividend date (meaning that dividends for future dividend periods will accrue on any unpaid dividend amounts for prior dividend periods).

The Company is not obligated to pay holders of the Fixed Rate Cumulative Preferred Stock any dividend in excess of the dividends on the Fixed Rate Cumulative Preferred Stock that are payable as described above. There is no sinking fund with respect to dividends on the Fixed Rate Cumulative Preferred Stock.

Dividend Priority. The Fixed Rate Cumulative Preferred Stock has a senior rank. The Company is not free to issue other preferred stock that is senior to the Fixed Rate Cumulative Preferred Stock. If the Company were to pay a cash dividend in the future, any such dividend would have to be discontinued if a dividend were missed on the Fixed Rate Cumulative Preferred Stock. 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 dividends on the Fixed Rate Cumulative Preferred Stock are missed.

Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, holders of the Fixed Rate Cumulative Preferred Stock will be entitled to receive for each share of the Fixed Rate Cumulative Preferred Stock, out of the assets of the Company or proceeds available for distribution to the Company’s stockholders, subject to any rights of the Company’s creditors, before any distribution of assets or proceeds is made to or set aside for the holders of the common stock and any other class or series of our stock ranking junior to the Fixed Rate Cumulative Preferred Stock, payment of an amount equal to the sum of (i) the $1,000 liquidation preference amount per share and (ii) the amount of any accrued and unpaid dividends on the Fixed Rate Cumulative Preferred Stock (including dividends accrued on any unpaid dividends). To the extent the assets or proceeds available for distribution to stockholders are not sufficient to fully pay the liquidation payments owing to the holders of the Fixed Rate Cumulative Preferred Stock and the holders of any other class or series of our stock ranking equally with the Fixed Rate Cumulative Preferred Stock, the holders of the Fixed Rate Cumulative Preferred Stock and such other stock will share ratably in the distribution.

For purposes of the liquidation rights of the Fixed Rate Cumulative Preferred Stock, neither a merger or consolidation of the Company with another entity, including a merger or consolidation in which the holders of Fixed Rate Cumulative Preferred Stock receive cash, securities or other property for their shares, nor a sale, lease or exchange of all or substantially all of the Company’s assets will constitute a liquidation, dissolution or winding up of the affairs of the Company.

Redemptions and Repurchases. The terms of the Fixed Rate Cumulative Preferred Stock provide that we may redeem the Fixed Rate Cumulative Preferred Stock, at any time, in whole or in part, subject to prior approval by the appropriate federal banking agency, for a redemption price equal to 100% of the liquidation preference amount per share of Fixed Rate Cumulative Preferred Stock plus any accrued and unpaid dividends to but excluding the date of redemption (including dividends accrued on any unpaid dividends), provided that any declared but unpaid dividend payable on a redemption date that occurs subsequent to the record date for the dividend will be payable to the holder of record of the redeemed shares on the dividend record date.

No Conversion Rights. Holders of the Fixed Rate Cumulative Preferred Stock have no right to exchange or convert their shares into common stock or any other securities.

Voting Rights. The holders of the Fixed Rate Cumulative Preferred Stock do not have voting rights other than those described below, except to the extent specifically required by Kansas law.

If the Company does not pay dividends on the Fixed Rate Cumulative Preferred Stock for six or more quarterly dividend periods, whether or not consecutive, the holders of the Fixed Rate Cumulative Preferred Stock will have the right, to elect two directors to the Company’s Board of Directors.

In addition to any other vote or consent required by Kansas law or by the Company’s Articles of Incorporation, the vote or consent of the holders of at least 66-2/3% of the outstanding Fixed Rate Cumulative Preferred Stock, voting as a separate class, is required in order to do the following:

•

amend or alter the Company’s Articles of Incorporation or the Certificate of Designations for the Fixed Rate Cumulative Preferred Stock to authorize or create or increase the authorized amount of, or any issuance of, any shares of, or any securities convertible into or exchangeable or exercisable for shares of, any class or series of the Company’s capital stock ranking senior to the Fixed Rate Cumulative Preferred Stock with respect to either or both the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of the Company; or

•

amend, alter or repeal any provision of the Company’s Articles of Incorporation or the Certificate of Designations for the Fixed Rate Cumulative Preferred Stock in a manner that adversely affects the rights, preferences, privileges or voting powers of the Fixed Rate Cumulative Preferred Stock; or

•

consummate a binding share exchange or reclassification involving the Fixed Rate Cumulative Preferred Stock or a merger or consolidation of the Company with another entity, unless (i) the Fixed Rate Cumulative Preferred Stock remains outstanding or, in the case of a merger or consolidation in which the Company is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (ii) the Fixed Rate Cumulative Preferred Stock remaining outstanding or such preference securities, have such rights, preferences, privileges, voting powers, limitations and restrictions, taken as a whole, as are not materially less favorable than the rights, preferences, privileges, voting powers, limitations and restrictions of the Fixed Rate Cumulative Preferred Stock immediately prior to consummation of the transaction, taken as a whole;

provided, however, that (1) any increase in the amount of the Company’s authorized shares of preferred stock, including authorized Fixed Rate Cumulative Preferred Stock necessary to satisfy preemptive or similar rights granted by us to other persons prior to the date of the issuance of the Fixed Rate Cumulative Preferred Stock, and (2) the creation and issuance, or an increase in the authorized or issued amount, of any other series of preferred stock, or any securities convertible into or exchangeable or exercisable for any other series of preferred stock, ranking equally with and/or junior to the Fixed Rate Cumulative Preferred Stock with respect to the payment of dividends, whether such dividends are cumulative or non-cumulative and the distribution of assets upon our liquidation, dissolution or winding up, will not be deemed to adversely affect the rights, preferences, privileges or voting powers of the Fixed Rate Cumulative Preferred Stock and will not require the vote or consent of the holders of the Fixed Rate Cumulative Preferred Stock.

To the extent holders of the Fixed Rate Cumulative Preferred Stock are entitled to vote, holders of Fixed Rate Cumulative Preferred Stock will be entitled to one vote for each share then held.

The voting provisions described above will not apply if, at or prior to the time when the vote or consent of the holders of the Fixed Rate Cumulative Preferred Stock would otherwise be required, all outstanding shares of Fixed Rate Cumulative Preferred Stock have been redeemed by the Company or called for redemption upon proper notice and sufficient funds have been set aside by the Company for the benefit of the holders of Fixed Rate Cumulative Preferred Stock to effect the redemption.

The foregoing description of the Fixed Rate Cumulative Preferred Stock is qualified in its entirety by reference to the Certificate of Designations designating such series, which have been filed with the Securities and Exchange Commission and are included as an exhibit to this Prospectus.

Restrictions on Changes in Control

Certain provisions of the Kansas General Corporation Code (the “KGCC”), the Amended and Restated Articles and the Bylaws of the Company could make more difficult the acquisition of the Company by means of a tender offer, a proxy contest or otherwise or the removal of incumbent officers and directors.

These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of the Company to first negotiate with the Company. The Company believes that the benefits of increased protection of the Company’s potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure the Company outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of the terms.

The Company will be subject to the provisions of Section 17-12,100 et seq. of the KGCC (the “Business Combination Statute”). In general, the Business Combination Statute prohibits a publicly held Kansas corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date that the person became an interested stockholder unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally a “business combination” includes a merger, assets sale, stock sale, or other transaction resulting in a financial benefit to the stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three year prior, did own) 15% or more of the corporation’s outstanding voting stock. This provision may have the effect of delaying, deferring or preventing a change in control of the Company without further action by the interested stockholder.

The Company will also be subject to the provisions of Section 17-1286 of the KGCC (the “Control Share Statute”). In general, the Control Share Statute provides that shares of a Kansas corporation acquired in a “control share acquisition” have no voting rights except to the extent approved by a vote of a majority of the votes entitled to be cast on the matter, excluding shares of stock owned by the acquirer or by officer or directors who are employees of the corporation. A control share acquisition means, subject to certain exceptions, the acquisition of beneficial ownership of voting shares of stock which, if aggregated with all other shares of stock which then have voting rights and are beneficially owned by such a person, would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power: (i) 20% or more but less than 33 1/3%; (ii) 33 1/3% or more but less than a majority; or (iii) a majority of all voting power. The acquisition of shares of stock in addition to shares an acquiring person is entitled to vote as a result of having previously obtained stockholder approval does not constitute a control share acquisition unless, as a result of such acquisition, the voting power of the shares beneficially owned by the acquirer would exceed the range in respect of which voting rights had previously been granted. A number of other acquisition of shares are not deemed to constitute control share acquisitions, including good faith gifts, transfers pursuant to will, purchases pursuant to an issuance by the corporation and certain mergers involving the corporation.

If voting rights are not approved at a meeting of stockholders or if the acquiring person does not deliver an acquiring person statement as permitted by statute, then, subject to certain conditions and limitations, the corporation may redeem at market value any and all of the shares acquired in the control share acquisition. If voting rights for such shares are restored at a stockholders’ meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, stockholders who properly objected to the control share acquisition may exercise appraisal rights and receive, in exchange for their stock, the fair value of such stock. The fair value of the stock as determined for purposes of such appraisal rights may not be less than the highest price per share paid in the control share acquisition.

The Company’s Amended and Restated Articles require that the Board of Directors consist of three classes with staggered three-year terms. The number of directors in each class must be as nearly equal as possible. Thus, one class of directors will be elected at each annual meeting of stockholders of the Company, with the other classes continuing for the remainder of their respective three-year terms. The classification of the Board of Directors makes

it more difficult for the Company’s existing stockholders to replace quickly the majority of the Board of Directors as well as for another party to obtain control of the Company by replacing the majority of the Board of Directors. Since the Board of Directors has the power to retain and discharge officers of the Company, these provisions also make it more difficult for existing stockholders or another party to effect quickly a change in management.

The Company’s Bylaws, as amended, provide special meetings of stockholders can be called only by a majority of the Board of Directors, the President, or 20% or more of the stockholders. Moreover, the business permitted to be conducted at any special meeting of stockholders will be limited to the business for which the meeting was called. The Amended and Restated Articles set forth an advance notice procedure with regard to the nomination, other than by or at the direction of the Board of Directors, of candidates for election as directors and with regard to business to be brought before an annual meeting of stockholders of the Company. Stockholders will not be permitted to fill vacancies on the Board of Directors caused by resignation or newly created directorships.

The Company’s Amended and Restated Articles and Bylaws contain provisions requiring the affirmative vote of the holders of at least two-thirds of the voting stock of the Company to amend many of the foregoing provisions.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following presents management’s discussion and analysis of our financial condition and results of operations as of the dates and for the periods indicated. You should read this discussion in conjunction with our “Selected Consolidated Financial Data,” our consolidated financial statements and the accompanying notes, and other financial data contained elsewhere in this report.

This report contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of those safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, can generally be identified by use of the words “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” or the negative of these terms or other comparable terminology. We are unable to predict the actual results of its future plans or strategies with certainty. Factors which could have a material adverse effect on the operations and future prospects of the Company include, but are not limited to, fluctuations in market rates of interest and loan and deposit pricing; inability to maintain or increase deposit base and secure adequate funding; a continued deterioration of general economic conditions or the demand for housing in our market areas; deterioration in the demand for mortgage financing; legislative or regulatory changes; regulatory action; continued adverse developments in our loan or investment portfolio; any inability to obtain funding on favorable terms; our non-payment on our Subordinated Debentures or Fixed Rate Cumulative Preferred Stock; the loss of key personnel; significant increases in competition; potential unfavorable actions from rating agencies; potential unfavorable results of litigation to which we may become a party; and the possible dilutive effect of potential acquisitions or expansions. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We operate in a very competitive and rapidly changing environment. New risks emerge from time to time, and it is not possible for us to predict all risk factors. Nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Critical Accounting Policies

Please refer to Note 1 of our consolidated financial statements as of and for the period ending December 31, 2012 where we present a listing and discussion of our most significant accounting policies. After a review of these policies, we determined that accounting for the allowance for loan losses and income taxes are deemed critical accounting policies because of the valuation techniques used, and the sensitivity of certain financial statement amounts to the methods, as well as the assumptions and estimates, underlying these policies. Accounting for these critical areas requires subjective and complex judgments that could be subject to revision as new information becomes available.

As presented in Note 1 and Note 3 to the consolidated financial statements, the allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio as of the balance sheet date. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The adequacy of the allowance for loan losses is analyzed monthly based on internal loan reviews and qualitative measurements of our loan portfolio. Management assesses the adequacy of the allowance for loan losses based upon a number of factors including, among others:

· analytical reviews of loan loss experience in relationship to outstanding loans and commitments;

· 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.

The Bank computes its allowance for loan losses by assigning specific reserves to impaired loans, plus a general reserve based on loss factors applied to the rest of the loan portfolio. The specific reserve on impaired loans is computed as the amount of the loan in excess of the present value of the estimated future cash flows discounted at

the loan’s effective interest rate, or based on the loan’s observable market value or the fair value of the collateral if the loan is collateral dependent. The general reserve loss factors are determined based on such items as management’s evaluation of risk in the portfolio, local economic conditions, and historical loss experience. The Bank has further refined its risk grading system by developing associated reserve factors for each risk grade.

As discussed in Notes 1 and 12 of the December 31, 2012 consolidated financial statements, we account for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. Deferred income taxes represent the expected future tax consequences of events that have been recognized in the financial statements or income tax returns. We determine deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to the management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. We regularly monitor taxing authorities for changes in laws and regulations and their interpretations of the judicial system.

Overview

As described in the section of this prospectus captioned “Use of Proceeds,” we intend to use the net proceeds from the rights offering to improve our earnings by eliminating double interest and compounding interest. We will achieve this goal by bringing current all previously accrued and unpaid dividends on our Subordinated Debentures, with any additional proceeds to be used for general corporate purposes. The total interest expense that we recorded on our Subordinated Debentures for the quarter ending September 30, 2013 was approximately $218,000. Assuming payment by us of all previously accrued and unpaid interest on our Subordinated Debentures prior to January 1, 2014, and assuming no change in the variable interest rate on the Subordinated Debentures during the first quarter of 2014, the total interest to be paid on our Subordinated Debentures will be reduced by approximately $96,000 and will improve earnings for that period. While not recorded as an expense to us, the dividend on our Fixed Rate Cumulative Preferred Stock reduces net income available to our common stockholders, and the increase in the Fixed Rate Cumulative Preferred Stock dividend rate from 5% to 9% will cause the quarterly Fixed Rate Cumulative Preferred Stock dividend to increase from $271,875 to $493,375 beginning with the dividend payment due May 15, 2014. Assuming we raise the maximum amount of gross proceeds in this offering, such proceeds will enable us to remain focused on being proactive, staying strong and remaining steadfastly committed.

Proactive. The deteriorating economy resulted in a significant increase in our Classified and Past Due loans in 2008 and 2009. Our consistent proactive approach to addressing these credit issues is reflected in our numbers and has had a significant impact on the improvement in the quality of our balance sheet as well as our earnings and capital position. The balance of our classified loans has declined by over 75% from December 31, 2008 to September 30, 2013. Total loans past due over 30 days, which are not on non-accrual, have declined by 94% during that period. Non-Accrual Loans were reduced by 92%. During this same period we have proactively increased our reserves from 28% of Non-Accrual Loans to 186%. We continue to proactively manage our Other Real Estate Owned portfolio and have made significant progress in that area. It is no coincidence that the results from improvements in our balance sheet positively correlate with an improvement in our earnings. Although we are not satisfied with the current level of earnings, net of the costs incurred in the remediation of classified assets, we were able to generate a profit of $1.2 million (net income available to common stockholders of $383,000 after dividends on preferred stock)

for the nine months ending September 30, 2013 while significantly improving the quality of our balance sheet and improving our overall capital position.

Strong. We have always maintained a strong capital position for the Bank, but over the past five years, we have improved our Bank’s capital position. The Bank’s Total Capital to Risk Weighted Assets has improved from 12.22% at December 31, 2008 to 14.44% at September 30, 2013. The result is that the Bank’s excess capital position over what is considered to be Well Capitalized has grown from $16.3 million at December 31, 2008 to $22.9 million at September 30, 2013.

The Bank’s excess capital position over what is considered to be Adequately Capitalized has remained at approximately $30.0 million over this same time period. We believe this puts us in a strong position to capitalize on opportunities to invest in our future.

Committed. The commitment to our employees, our customers and our community has never wavered over the past five years. Through the financial crises we continued to provide benefits to our employees that many other companies reduced or eliminated. Retention of quality employees is a key component to providing superior customer service, to which the Company has always remained committed. The result of this and other such policies has been a very low level of turnover in our officer staff. Our customers continued to benefit from a high level of service including our very competitive hours of service of 91.5 hours a week that we are open. Finally the commitment of our Company, its Board of Directors, management and employees to our community has never been stronger. We continue to support civic, cultural and charitable causes in our community.

We have made significant progress. The net proceeds from this offering will enable us to continue to remain focused on being proactive, staying strong and remaining steadfastly committed.

Nine months ended September 30, 2013 and 2012: 2012 was a pivotal year for us in terms of operating results and asset quality improvement, and these trends have continued through the first nine months of 2013. We recorded net income of $1.2 million (net income available to common stockholders of $383,000 after dividends on preferred stock) compared to a net loss of $40,000 during the prior year period. Our net interest income remained relatively stable compared to the prior year period with a slight reduction of $273,000 or 2.13% to $12.6 million from $12.8 million. Additionally, our asset quality has continued to improve, which has been a contributing factor for our improved performance in 2013. Non-performing assets (non-accrual loans plus foreclosed assets held for sale) of $32.7 million as of September 30, 2013 were reduced by 10.98% from $36.8 million as of December 31, 2012 as a result of write-downs and sales of foreclosed assets held for sale, improving economic conditions and continued prudent credit administration by management. The improvements in the credit quality of our loan portfolio, in addition to recoveries to the allowance for loan losses exceeding loans charged off, precipitated the recording of a negative loan loss provision of $1.7 million for the nine months ended September 30, 2013 compared to a provision of $1.2 million during the nine months ending September 30, 2012. The recorded balance of foreclosed assets for sale declined to $29.1 million at September 30, 2013 from $31.9 million at December 31, 2012. We continue to actively market and manage these properties. For the nine months ending September 30, 2013, non-interest income declined 5.02% to $5.2 million from $5.5 million for the nine months ending September 30, 2012 and for the nine months ending September 30, 2013 non-interest expense increased 6.48% to $18.2 million from $17.1 million for the nine months ending September 30, 2012. Our income per share on a diluted basis was $0.13 for the nine months ending September 30, 2013, an improvement compared to diluted loss per share of $0.30 for the nine months ended September 30, 2012. Our year to date returns on average assets and average common stockholders’ equity for 2013 were 0.25% and 3.09%, compared to negative 0.01% and negative 6.29%, respectively, for the nine months ended September 30, 2012.

Net interest income for the nine months ending September 30, 2013 was $12.6 million, a slight decline of $273,000 or 2.13%, compared to $12.8 million for 2012. Despite a decline in total average earning assets of approximately $18.4 million or 3.14%, this relative stability of our net interest income resulted from the reduction in average balance of time deposits, our reduction in rates on deposits and diversification of our investment portfolio. Total interest income declined by approximately $1.3 million or 6.87%. Our yield on interest earning assets, on a fully tax equivalent (FTE) basis, declined 15 basis points. The $18.4 million decline in average earning assets in 2013 compared to 2012 was principally in our loan portfolio and other short-term investments, though some of the decline

in these categories was offset by increases in our investment securities portfolio. Total interest expense declined by approximately $1.1 million or 19.34%. Average interest bearing liabilities declined by approximately $20.4 million or 4.06%. The decline in interest expense was a result of the decrease in average interest bearing liabilities plus a decrease in rates paid on deposits and securities sold under agreement to repurchase (“repo accounts”), included in other interest-bearing liabilities, in 2013 compared to 2012. As market rates have declined, we have continued to lower rates on deposit accounts and repo accounts to match the current deposit and repo account rates in our market. In addition, we had account balances from various previous time deposit promotions which, upon maturity, either redeemed and the funds were withdrawn or renewed at lower market rates. Recent increases in longer-term market interest rates have not had a material impact on our net interest income due to the repricing characteristics of our interest earning assets and interest-bearing liabilities, and the indices upon which their rates are derived. Future changes in interest rates can impact our operating performance and financial condition in diverse ways. Our net interest spread will depend on many factors that are partly or entirely outside our control, including competition, federal monetary and fiscal policies, and economic conditions generally. Our analysis of the impact of changes in interest rates on page [77] indicates that, at September 30, 2013, in the event of a sudden and sustained increase in prevailing market rates, our net interest income would be expected to increase. This is a result of the Bank’s asset sensitive position and loans repricing at a higher rate in a rising rate environment. In the decreasing rate scenarios, the adjustable rate assets (loans) reprice to lower rates faster than our liabilities, but our liabilities – long-term FHLB advances and existing time deposits – would not decrease in rate as much as market rates. In addition, fixed rate loans might experience an increase in prepayments, further decreasing yields on earning assets and causing net income to decrease. The Bank has placed floors on its loans over the last several years which would limit the decline in yield earned on the loan portfolio in a declining rate environment.

As described in the section captioned “Use of Proceeds,” the proceeds from this rights offering will improve our earnings by eliminating double interest and compounding interest by bringing current all previously accrued and unpaid dividends on our Subordinated Debentures, with any additional proceeds to be used for general corporate purposes. Even with this deployment of the proceeds, will continue to have to service the Subordinated Debentures.

Analysis of the credit quality of our loan portfolio and other factors used to determine the level of the Allowance for Loan Losses precipitated a $1.7 million negative provision for loan loss during 2013 compared to a provision for loan losses of $1.2 million in 2012. In addition to a decline in the balance of the total loan portfolio, we have experienced declining trends in classified and non-performing loans in 2013 and experienced a relatively high ratio of net recoveries to loans charged off during the first nine months of 2013. The provision for loan losses recorded in 2012 was primarily related to declines in collateral values of commercial and commercial real estate loans.

Non-interest income increased 5.02% to $5.2 million in 2013 compared to $5.5 million in 2012. The decline in non-interest income resulted from a $441,000 decline in loans held for sale fee income that was partially offset by $127,000 of gains realized from the sale of available for sale investment securities. Mortgage loans held for sale income declined $441,000 or 25.01% to $1.3 million in 2013 compared to $1.8 million in 2012 as a result of fluctuations in mortgage interest rates during 2013.

Non-interest expense increased 6.48% to $18.2 million in 2013 from $17.1 million in 2012. The increase in non-interest expense was primarily attributed to increases of $1.1 million or 56.41%, in foreclosed assets expense, $277,000, or 3.60%, in salaries and employee benefits expenses and $708,000 in miscellaneous other operating expense, partially offset by reductions in FDIC premiums and regulatory fees and professional fees included in other operating expenses of $438,000, or 38.36% and $682,000, or 63.42%, respectively, compared to 2012. We recorded a provision for losses on foreclosed assets held for sale of $2.0 million in 2013, compared to a provision of $500,000 in 2012. This increase is principally the result of the write-down of the recorded value of a single unique foreclosed asset held for sale. Other expenses related to foreclosed assets held for sale declined $420,000, or 29.71% in 2013. The decline in FDIC premiums and regulatory fees expense have primarily resulted from improvements in our asset quality and the decline in the professional fees resulted from reductions in legal and accounting expenses from our decision to discontinue filing reports with the Securities and Exchange Commission as well as improvements in asset quality.

Total assets at September 30, 2013, were $632.8 million, a decrease of $24.2 million, or 3.68%, from $657.0 million at December 31, 2012. Deposits and stockholders’ equity at September 30, 2013 were $461.5 million and $36.2

million, respectively, compared with $484.5 million and $39.8 million, respectively, at December 31, 2012, decreases of $23.0 million, or 4.74%, and $3.6 million, or 8.97%, respectively. The decline in stockholders’ equity is primarily due to the change in accumulated other comprehensive income of $4.0 million, resulting from the impact of changes in market interest rates on the unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes.

Loans at September 30, 2013 totaled $406.3 million, a decrease of $9.4 million, or 2.25%, compared to $415.7 million at December 31, 2012. The loan to deposit ratio at September 30, 2013 was 88.04% compared to 85.80% at December 31, 2012. Our funding philosophy for loans not held for sale is primarily to increase deposits from retail and commercial deposit sources and secondarily use other borrowing sources as necessary to fund loans within the limits of the Bank’s capital base.

Years ended December 31, 2012 and 2011: For the year ending December 31, 2012, we recorded net income of $267,000 compared to the net loss of $15.8 million in 2011. The net loss for 2011 was primarily attributed to the $12.6 million valuation allowance recorded for our deferred tax asset. We realized numerous improvements to operating results in 2012 as a result of improving trends in asset quality. Total classified and non-performing loans of $23.1 million and $4.8 million, respectively, as of December 31, 2012 were demonstrably improved from $45.2 million and $11.3 million, respectively, as of December 31, 2011 resulting from continuing prudent credit administration by management. The improvements in the credit quality of our loan portfolio precipitated a reduction to the loan loss provision to $1.2 million in 2012 compared to a provision of $3.3 million in 2011. The recorded balance of foreclosed assets held for sale increased to $31.9 million at December 31, 2012 from $29.2 million at December 31, 2011 as we continued to resolve problem loans. We continue to actively market and manage these properties. Net interest margin on a fully tax equivalent (FTE) basis improved 1 basis point despite a decline in average earning assets of approximately $15.2 million. Non-interest income increased 17.55% to $7.4 million from $6.3 million in 2012 compared to 2011. Non-interest expense declined $3.3 million, or 12.45%, in 2012 compared to 2011 primarily as a result of a decline in foreclosed asset expense. Loss per share on a diluted basis was $0.29 for year ended December 31, 2012, an improvement of 95.19% compared to diluted loss per share of $6.03 for the previous year. Our returns on average assets and average common stockholders’ equity for 2012 were 0.04% and negative 4.97%, compared to negative 2.32% and negative 51.84%, respectively, for 2011.

Net interest income for 2012 was $17.2 million, a slight decline of $409,000, or 2.32%, compared to $17.6 million for 2011. This decline was principally due to the decline in the average balance of interest earning assets, partially offset by the decline in the average rate paid on interest bearing deposits and a decline in the average balance of time deposits. Total interest and dividend income declined $2.5 million, or 9.20%, to $24.4 million in 2012 from $26.9 million in 2011. Our FTE yield on interest earning assets declined 29 basis points due to the impact of a persistently low interest rate environment and competitive pressures on the loan portfolio yield. In addition to the decline on the yield of earning asset, the average balance of earning assets declined $15.2 million in 2012 compared to 2011. The decline in average earning assets in 2012 was primarily caused by a decline in our loan portfolio, a higher yielding component of earning assets, though the impact of the decline in the average balance was partially offset by an increase in federal funds sold and other short term investments, a lower yielding component of earning assets. This shift of assets was due to the decreased demand for loans, as a result of the current economic environment, as well as competitive pressures. We were able to mitigate the impact of the decrease in the average balance of and yield on earning assets by reducing rates paid on interest bearing deposits during 2012. Total interest expense decreased $2.1 million, or 22.29%, to $7.2 million in 2012 from $9.3 million in 2011. The average rate on interest bearing deposits declined to 0.92% in 2012 from 1.41% in 2011. As market rates declined, we continued to lower its rates on deposit accounts to match the current deposit rates in our market. In addition, we had account balances from various previous time deposit promotions which, upon maturity, either redeemed and the funds were withdrawn or renewed at lower market rates.

The provision for loan losses in 2012 was $1.2 million compared to $3.3 million in 2012. Analysis of the credit quality of our loan portfolio and other factors used to determine the level of the Allowance for Loan Losses precipitated the reduction in the provision for loan loss during 2012 compared to 2011. In addition to a decline in the balance of the total loan portfolio, we experienced declining trends in classified and non-performing loans in 2012. Total classified and non-performing loans of $23.1 million and $4.8 million, respectively, as of December 31, 2012 marked a significant improvement from $45.2 million and $11.3 million, respectively, as of December 31,

2011, and resulted from continuing prudent credit administration by management. The provision for loan losses recorded in 2012 was primarily related to declines in collateral values of commercial and commercial real estate loans.

Non-interest income increased 17.55% to $7.4 million in 2012 compared to $6.3 million in 2011. The increase in non-interest income in 2012 was a result of an increase in loans held for sale income, other service charge income, mark to market adjustments on commitments to sell loans, and rental income on foreclosed assets held for sale. Mortgage loans held for sale income increased $327,000, or 15.42%, to $2.4 million in 2012 from $2.1 million in 2011 as a result of declines in mortgage interest rates. Other service charge income increased $196,000, or 8.61%,

to $2.5 million in 2012 from $2.3 million in 2011. This increase is primarily due to increased debit card interchange fee income.

Non-interest expense declined $3.3 million, or 12.45%, to $23.3 million in 2012 from $26.6 million in 2011. The decrease in non-interest expense was primarily attributed to a lower foreclosed asset expense, which declined $2.6 million, or 49.28%, compared to 2011, and a reduction of FDIC premiums and regulatory fees, included in other operating expense. We recorded a provision for losses on foreclosed assets held for sale of $867,000 in 2012, compared to a provision of $3.2 million in 2011. The decrease was the result of a relative stabilization of the value of our foreclosed assets held for sale.

Total assets at December 31, 2012, were $657.0 million, an increase of $2.6 million, or 0.39%, from $654.5 million at December 31, 2011. Deposits and stockholders’ equity at December 31, 2012 were $484.5 million and $39.8 million, decreases of $5.9 million, or 1.21%, and $640,000, or 1.58%, respectively, compared to $490.4 million and $40.5 million at December 31, 2011.

Loans at December 31, 2012 totaled $415.7 million, a decrease of $23.1 million, or 5.28%, compared to $438.8 million at December 31, 2011. The loan to deposit ratio at December 31, 2012 was 85.80% compared to 89.48% at December 31, 2011.

Net Interest Income

A primary component of our net income is our net interest income. Net interest income is determined by the spread between the fully tax equivalent (FTE) yields we earn on our interest-earning assets and the rates we pay on our interest-bearing liabilities, as well as the relative amounts of such assets and liabilities. FTE net interest margin is determined by dividing FTE net interest income by average interest-earning assets. The following discussion should be read along with analysis of the “Average Balances, Yields and Rates” table on pages [54 – 55].

Nine months ended September 30, 2013 and 2012. FTE net interest income decreased slightly to $12.7 million for 2013 from $12.9 million in 2012, a decrease of $190,000, or 1.49%.

FTE interest income for 2013 was $17.1 million, a decrease of $1.3 million, or 6.88%, from $18.4 million in 2012. The decrease was a result of an overall decline in yields on average earning assets, a decline in the average earning asset volume and a change in the earning asset mix. The overall yield on average earning assets declined 15 basis points to 4.05% in 2013 compared to 4.20% in 2012. This decline was realized primarily in the yield on loans, which declined 24 basis points. In addition, the average outstanding balance of loans decreased $23.9 million in 2013, or 5.49%, compared to 2012. The average balance of federal funds sold and other short-term investments also decreased $16.8 million, or 22.13% in 2013 compared to 2012. The declines in these earning asset categories were partially offset by an increase in the combined average balance of taxable and non-taxable available for sale investment securities of $21.5 million, or 33.70% in 2013 compared to 2012, as we deployed excess liquidity and diversified its investment portfolio. The decline in the average balance of higher yielding loans in 2013 was a result of loan payoffs, suppressed loan demand due to current economic conditions and competitive factors. The change in the mix of the available for sale securities portfolio enabled the average FTE yield on available-for-sale securities to increase by approximately 26 basis points in 2013 to 1.96% from 1.70%.

Interest expense for 2013 was $4.5 million, a decrease of $1.1 million, or 19.35%, from $5.6 million in 2012. The decline in interest expense resulted from a decrease in the average balance of time deposits and the average rate paid

on interest-bearing deposits and repo agreements, included in other interest-bearing liabilities. The average rate on interest bearing deposits declined to 0.66% in 2013 from 0.96% in 2012 and the average rate paid on repo agreements declined to 0.08% in 2013 from 0.25% in 2012. As market rates have declined, we continued to lower its rates on deposit accounts and repo agreements to match the current deposit and repo agreement rates in our market. Further, as a result, we continued to have time deposit account balances from various previous time deposit promotions which, upon maturity, either redeemed and the funds were withdrawn or renewed at lower market rates.

Years ended December 31, 2012 and 2011. FTE net interest income for 2012 decreased to $17.2 million from $17.6 million in 2011, a decrease of $351,000, or 1.99%.

FTE interest income for 2012 was $24.4 million, a decrease of $2.4 million, or 8.99%, from $26.9 million in 2011. The decrease was a result of an overall decline in yields on average earning assets, a decline in the average earning asset volume and a change in the earning asset mix. The overall yield on average earning assets decreased 29 basis points to 4.14% compared to 4.43% in 201l. This decline was realized primarily in yields on loans and loans held for sale, with respective declines of 12 basis points and 51 basis points. In addition, the average outstanding balance of loans declined $35.0 million, or 7.54% in 2012 compared to 2011. Partially offsetting the decline in the average balance of loans, the average balance of federal funds sold and other short-term investments increased by $19.5 million, or 30.72% in 2012 compared to 2011. The decline in the average balance of higher yielding loans in 2013 was a result of loan payoffs, suppressed loan demand due to current economic conditions and competitive factors. The average balance for available-for-sale securities was materially unchanged at $66.8 million in 2012 compared to 2011. The yields on taxable available-for-sale securities continued to decline, to an average rate of 1.55% in 2012 from an average rate of 1.80% in 2011. As higher yielding securities matured or were called, the funds from the maturities were reinvested in a lower-yielding interest rate environment. However, we diversified its investment portfolio in 2012 with the purchase of non-taxable investment securities available for sale which earned an average FTE yield of 3.88%. Consequently, the average FTE yield for total investment securities available for sale was 1.73% in 2012, compared to 1.80% in 2011.

Interest expense for 2012 was $7.2 million, a decrease of $2.1 million, or 22.29%, from $9.3 million in 2011. The decline in interest expense resulted from a decrease in the average rate paid on average interest-bearing deposits and a decrease in the average balance of time deposits. The average rate paid on total average interest-bearing deposits decreased to 0.92% for the year ended December 31, 2012, compared to 1.41% in 2011, a decrease of 49 basis points. As market rates declined, we lowered its rates on deposit accounts to match the current deposit rates in our market. Further, as a result, we continued to have time deposit account balances from various previous time deposit promotions which, upon maturity, either redeemed and the funds were withdrawn or renewed at lower market rates.

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

Average Balances, Yields and Rates

	Nine Months Ended September 30,
	2013									2012
	Average Balance				Interest		Avg. Yield/Rate			Average Balance			Interest		Avg. Yield/Rate
(unaudited, in thousands)
Assets
Federal funds sold and other short-term investments		$	59,301		$	112		0.25	%	$	76,149		$	139		0.24	%
Available-for-sale securities – taxable			70,694			861		1.63	%		60,737			717		1.58	%
Available-for-sale securities – non taxable			14,767			391		3.54	%		3,182			96		4.04	%
Mortgage loans held for sale			4,274			108		3.37	%		3,575			96		3.58	%
Loans, net of unearned discount and fees			410,926			15,518		5.05	%		434,816			17,212		5.29	%
FHLBank and Federal Reserve Bank Stock			6,591			154		3.12	%		6,460			150		3.09	%
Total earning assets			566,553			17,144		4.05	%		584,919			18,410		4.20	%
Cash and due from banks – non-interest bearing			17,314								24,014
Allowance for loan losses			(8,817	)							(10,940	)
Premises and equipment, net			15,572								15,814
Other assets			39,354								39,398
Total assets		$	629,976							$	653,205
Liabilities and Stockholders’ Equity
Deposits-interest bearing:
Interest-bearing demand accounts		$	121,033		$	237		0.26	%	$	128,521		$	592		0.61	%
Savings and money market deposits			108,165			207		0.29	%		93,043			223		0.32	%
Time deposits			124,266			1,307		1.41	%		163,365			1,961		1.60	%
Total interest-bearing deposits			353,464			1,751		0.66	%		384,929			2,776		0.96	%

Other interest-bearing liabilities	$	30,964	$	19	0.08	%	$	17,740	$	33	0.25	%
Long-term debt		97,944		2,711	3.70	%		100,128		2,747	3.66	%
Total interest-bearing liabilities		482,372		4,481	1.24	%		502,797		5,556	1.48	%
Non-interest bearing deposits		97,850						101,364
Other liabilities		11,376						9,319
Stockholders’ equity		38,378						39,725
Total liabilities and stockholders’ equity	$	629,976					$	653,205
FTE Net interest income/spread			$	12,663	2.80	%			$	12,854	2.73	%
FTE Net interest margin					2.99	%					2.94	%

	Year Ended December 31,
	2012									2011
	Average Balance				Interest		Avg. Yield/Rate			Average Balance			Interest		Avg. Yield/Rate
(unaudited, in thousands)
Assets
Federal funds sold and other short-term investments		$	83,186		$	193		0.23	%	$	63,635		$	151		0.24	%
Available-for-sale securities – taxable			61,710			958		1.55	%		66,913			1202		1.80	%
Available-for-sale securities – non taxable			5,084			197		3.88	%		-			-
Mortgage loans held for sale			4,107			143		3.47	%		3,820			152		3.98	%
Loans, net of unearned discount and fees			430,008			22,710		5.28	%		465,053			25,125		5.40	%
FHLBank and Federal Reserve Bank Stock			6,473			240		3.71	%		6,377			225		3.53	%
Total earning assets			590,568			24,441		4.14	%		605,798			26,855		4.43	%
Cash and due from banks – non-interest bearing			17,366								33,724
Allowance for loan losses			(10,544	)							(13,708	)
Premises and equipment, net			15,742								16,048
Other assets			39,832								41,104
Total assets		$	652,964							$	682,966
Liabilities and Stockholders’ Equity
Deposits-interest bearing:
Interest-bearing demand accounts		$	126,500		$	700		0.55	%	$	133,531		$	1,611		1.21	%
Savings and money market deposits			96,176			291		0.30	%		82,462			346		0.42	%
Time deposits			156,739			2,487		1.59	%		188,906			3,755		1.99	%
Total interest-bearing deposits			379,415			3,478		0.92	%		404,899			5,712		1.41	%
Other interest-bearing liabilities			18,674			44		0.23	%		17,045			41		0.24	%
Long-term debt			100,213			3,670		3.66	%		99,537			3,502		3.52	%
Total interest-bearing liabilities			498,302			7,192		1.44	%		521,481			9,255		1.77	%
Non-interest bearing deposits			105,226								98,927
Other liabilities			9,779								8,151
Stockholders’ equity			39,657								54,407
Total liabilities and stockholders’ equity		$	652,964							$	$682,966
FTE Net interest income/spread						17,249		2.70	%				$	17,600		2.66	%
FTE Net interest margin								2.92	%							2.91	%

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

changes in 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


	Six Months Ended June 30,									Year Ended December 31,
	2013 Compared to 2012									2012 Compared to 2011
	(unaudited)
	Change Due to Rate			Change Due to Volume			Total Change			Change Due to Rate			Change Due to Volume				Total Change
	(in thousands)
Federal funds sold and other short-term investments	$	5		$	(32	)	$	(27	)	$	(3	)	$	45		$	42
Available-for-sale securities – taxable		24			120			144			(163	)		(81	)		(244	)
Available-for-sale securities – non taxable		(12	)		307			295			-			197			197
Mortgage loans held for sale		(6	)		18			12			(19	)		10			(9	)
Loans, net of unearned discount and fees		(784	)		(910	)		(1,694	)		(564	)		(1,851	)		(2,415	)
FHL Bank and Federal Reserve Bank Stock		1			3			4			11			4			15
Total interest income		(772	)		(494	)		(1,266	)		(738	)		(1,676	)		(2,414	)
Interest-bearing demand accounts		(340	)		(15	)		(355	)		(873	)		(38	)		(911	)
Savings and money market deposits		(45	)		29			(16	)		(97	)		42			(55	)
Time deposits		(242	)		(412	)		(654	)		(754	)		(514	)		(1,268	)
Other interest-bearing liabilities		(22	)		8			(14	)		(1	)		4			3
Long-term debt		26			(62	)		(36	)		143			25			168
Total interest expense		(623	)		(452	)		(1,075	)		(1,582	)		(481	)		(2,063	)
Net interest income	$	(149	)	$	42		$	191		$	844		$	(1,195	)		$ (351	)

Provision for Loan Losses

We make provisions for loan losses in amounts management deems necessary to maintain the allowance for loan losses at an appropriate level. The allowance for loan losses is based upon the analysis of numerous factors, including general economic conditions, analysis of impaired and classified loans, general reserve factors, changes in loan mix, and current and historical charge-offs by loan type. The historical charge off information currently utilized is based on a three year weighted average of net charge offs by loan type with greater weight given to more current data due to the assessed relevance. Our credit administration function performs monthly analyses on the loan portfolio to assess and report on risk levels, delinquencies, internal ranking system and overall credit exposure. Management and the Bank’s Board of Directors review the allowance for loan losses monthly, including assessment of the factors listed above. Economic conditions monitored include, but are not limited to: Johnson County, KS and U.S. unemployment rates; trends in home sales; consumer confidence; trends in U.S. Gross Domestic Product and leading economic indicators; foreclosure rates; commercial real estate vacancy rates; stock market performance; inflation; and interest rates. The allowance for loan losses represents our best estimate of probable losses that have been incurred as of the respective balance sheet dates.

Nine months ended September 30, 2013 and 2012. Analysis of the credit quality of our loan portfolio in addition to a higher ratio of recoveries to the allowance for loan losses compared to loans charged off and other factors used to determine the level of the Allowance for Loan Losses precipitated a $1.7 million negative provision for loan losses during the nine months ended September 30, 2013 compared to a provision for loan losses of $1.2 million during the nine months ended September 30, 2012. In addition, we experienced a decline in the balance of the total loan portfolio. During the nine month period ending September 30, 2013, we charged off loans totaling $870,000 to the allowance for loan losses and received recoveries totaling $291,000, compared to the nine month period ending September 30, 2012, when we charged off loans totaling $5.6 million to the allowance for loan losses and received recoveries totaling $584,000. The provision for loan losses recorded during the nine month period ending September 30, 2012 was primarily related to declines in collateral values of commercial loans. The allowance for

loan losses as a percentage of loans was 1.67% at September 30, 2013, compared to 2.18% at December 31, 2012. Management believes they have identified the significant classified and non-performing loans and will continue to exercise prudent efforts to pursue collection of these loans. If real estate and general economic conditions are more adverse than management anticipates and losses increase, we could experience higher than anticipated loan losses in the future.

Years ended December 31, 2012 and 2011. During the year ended December 31, 2012, we recorded a $1.2 million provision for loan losses compared to $3.3 million for the year ended December 31, 2011, a decrease of $2.1 million, or 63.64%. In 2012, we experienced a reduction in non-performing loans by $6.5 million, or 57.29%. During the year ending December 31, 2012, we charged off loans totaling $6.1 million to the allowance for loan losses and received recoveries totaling $785,000, compared to the previous year, when we charged off loans totaling $5.5 million to the allowance for loan losses and received recoveries totaling $672,000. The provision for loan losses recorded in 2012 was primarily related to declines in collateral values of commercial and commercial real estate loans. The allowance for loan losses as a percentage of loans was 2.18% at December 31, 2012, compared to 3.01% in 2011.

Non-interest Income

The following table describes the items of our non-interest income for the periods indicated:

NON-INTEREST INCOME

	Nine months ended September 30,				Year ended December 31,
	(unaudited)
	2013		2012		2012		2011		2010
(in thousands)
Loans held for sale fee income	$	1,323	$	1,764	$	2,447	$	2,120	$	3,506
NSF charges and service fees		261		291		980		944		1,062
Other service charges		2,324		2,293		2,472		2,276		2,021
Realized gains on available-for-sale securities		127		-		-		-		885
Other income		1,144		1,105		1,535		984		1,145
Total non-interest income	$	5,179	$	5,453	$	7,434	$	6,324	$	8,619

Nine months ended September 30, 2013 and 2012. Non-interest income declined $274,000 to $5.2 million in 2013 compared to $5.5 million in 2012, a decline of 5.02%. The decline in non-interest income was primarily the result of a $441,000 decline in loans held for sale fee income that was partially offset by $127,000 of gains realized from the sale of available for sale investment securities. Securities were sold at a gain during 2013 to better position the available-for-sale securities portfolio in consideration of the current interest rate environment. No securities were sold in 2012. The decline in mortgage loans held for sale income of $441,000, or 25.00%, to $1.3 million during the nine months ended September 30, 2013, from $1.8 million in the prior year period was primarily the result of fluctuations in mortgage interest rates during 2013. Sustainability of the level of loans held for sale fee income is primarily dependent upon economic factors, the interest rate environment and the efficiency and functionality of the secondary market, and secondarily dependent on our ability to adapt to regulatory changes, introduction of new products into the market and alternative delivery channels. NSF charges and service fees income and other service charges income were not materially changed for the nine months ended September 30, 2013 compared to the prior year period. Future growth of NSF charges and service fee income and other service charge income is primarily dependent on new product development and growth in our customer base and is also subject to the impact of regulatory changes.

Years ended December 31, 2012 and 2011. Non-interest income increased $1.1 million from the prior year to $7.4 million for 2012 compared with $6.3 million for 2011, an increase of 17.55%. Loans held for sale fee income increased $327,000, or 15.42%, in 2012 compared to 2011. The volume of closed residential mortgage loans held for sale increased in 2012 to $83.5 million, from $66.0 million in 2011 as a result of the a favorable interest rate

environment and stabilizing to slightly improving economic factors. NSF charges and service fees were materially unchanged in 2012 compared to 2011. Other service charge income, which includes income from trust services, investment brokerage, merchant bankcard processing and debit card processing, increased by $196,000, or 8.61% in 2012 compared to 2011. This increase was primarily a result of increased debit & ATM card fee income, due to increased usage, and investment service fee income. Other income increased $551,000, or 56.00%, primarily due to mark to market adjustments on commitments to sell loans and an increase in rental income on foreclosed assets held for sale. The net change in fair value of mortgage loan-related commitments for 2012 was $76,000 compared to a loss of $257,000 in 2011, an increase of $333,000. The fair value on these commitments fluctuates based on the market rates for mortgage loans. Rental income on foreclosed assets held for sale increased $131,000 in 2012 compared to 2011 as a result of the transfer of a loan, secured by a leased property, to foreclosed assets held for sale in 2012.

Non-interest Expense

The following table describes the items of our non-interest expense for the periods indicated.

NON-INTEREST EXPENSE

	Nine months ended September 30,				Year ended December 31,
	(unaudited)
	2013		2012		2012		2011		2010
(in thousands)
Salaries and employee benefits	$	7,961	$	7,684	$	10,587	$	10,955	$	11,753
Net occupancy expense		1,975		1,930		2,568		2,599		2,756
Foreclosed assets expense		2,984		1,908		2,647		5,219		2,708
Other operating expense		5,312		5,600		7,506		7,851		8,550
Total non-interest expenses	$	18,232	$	17,122	$	23,308	$	26,624	$	25,767

Nine months ended September 30, 2013 and 2012. Non-interest expense increased 6.48% to $18.2 million in 2013 from $17.1 million in 2012. The increase in non-interest expense was primarily attributable to an increase of $1.1 million, or 56.41%, in foreclosed assets expense, $277,000, or 3.60%, in salaries and employee benefits expenses, and $708,000 in other operating expense partially offset by reductions in FDIC premiums and regulatory fees and professional fees included in other operating expense of $438,000, or 38.36% and $682,000, or 63.42%, respectively, compared to 2012. We recorded a provision for losses on foreclosed assets held for sale of $2.0 million in 2013, compared to a provision of $500,000 in 2012. This increase is principally the result of the write-down of the recorded value of a single unique other real estate property owned. Other expenses related to foreclosed assets held for sale, including insurance, appraisals, utilities, real estate property taxes, legal, repairs and maintenance, and associated loss on sale, declined $420,000, or 29.71% in 2013. We continue to actively maintain, manage and market these foreclosed properties with the intent to prudently facilitate their sale. The decline in FDIC premium expense and regulatory fees have primarily resulted from improvements in our asset quality as well as a decline in the Bank’s assessment base, and the decline in the professional fees have resulted from reductions in legal and accounting expenses from our 2012 suspension of filing reports with the Securities and Exchange Commission as well as improvements in asset quality.

Years ended December 31, 2012 and 2011. Non-interest expense decreased $3.3 million, or 12.45% to $23.3 million during 2012, compared to $26.6 million in the prior year. The decrease in non-interest expense was attributable to a reduction in foreclosed assets expense by $2.6 million, or 49.28%, compared to 2011. We recorded a provision for losses on foreclosed assets held for sale of $867,000 in 2012, compared to a provision of $3.2 million in 2011, a reduction of $2.3 million or 72.55% in 2012. Other expenses related to foreclosed assets held for sale, including insurance, appraisals, utilities, real estate property taxes, legal, repairs and maintenance, and associated loss on sale, declined $280,000, or 13.59% in 2012. We continue to actively maintain, manage and market these foreclosed properties with the intent to prudently facilitate their sale.

Other factors contributing to the change in non-interest expense in 2012 included a decrease in salaries and employee benefits of $368,000, or 3.36%, resulting from the reduction in the number of employees and reduction in compensation expense related to the vesting of restricted shares. Other operating expenses declined $345,000, or 4.39%, compared to the prior year, due to a reduction in FDIC premiums and regulatory fees. FDIC premiums and regulatory fees decreased resulted primarily from improvements in our asset quality as well as a decline in the Bank’s assessment base.

Income Taxes

Nine months ended September 30, 2013 and 2012. We recognized a net provision for income taxes of $0 for the nine months ending September 30, 2013 compared to a net income tax expense of $4,000 in the prior year period. The income tax provision of $422,000 recorded for the period ending September 30, 2013 was offset by the utilization of $422,000 of our valuation allowance for deferred taxes, while the income tax provision of $8,000 recorded for the period ending September 30, 2012 was offset by the utilization of $12,000 of our valuation allowance for deferred taxes.

Years ended December 31, 2012 and 2011. We recognized an income tax provision of $50,000 in 2012, compared to our income tax benefit of $2.8 million during 2011. The provision (benefit) in each year reflects our net income (loss). Our consolidated effective income tax rates, before consideration of the valuation allowance, of 43% and, 46% and 36% for the three for the years ended December 31, 2012 and 2011, respectively, and vary from the statutory rate principally due to the effects of state income taxes and non-deductible expenses. Due to our losses recorded over the four years ending December 31, 2011 and information available relating to our ability to recognize the deferred tax asset in future near term periods, we assessed the deferred tax asset during that year and recognized a $12.6 million valuation allowance on the deferred tax asset. We recognized a small portion of this valuation allowance, $150,000, in 2012, as a result of our positive earnings. As we continue to show profits in the future, additional portions of this allowance may be able to be recognized in future years.

Financial Condition

Our total assets at September 30, 2013 were $632.8 million, a decrease of $24.2 million or 3.68% from $657.0 million at December 31, 2012. Total assets at December 31, 2012 increased $2.6 million, or 0.39%, compared to $654.5 million at December 31, 2011. Total deposits at September 30, 2013 were $461.5 million, a decrease of $23.0 million or 4.75% from $484.5 million at December 31, 2012. Total deposits at December 31, 2012 decreased $5.9 million or 1.21% from $490.4 million at December 31, 2011. Stockholders’ equity was $36.2 million at September 30, 2013, a decrease of $3.5 million or 8.97% from $39.8 million at December 31, 2012. The decline in stockholders’ equity is primarily due to the change in accumulated other comprehensive income of $4.0 million, resulting from the impact of changes in market interest rates on the unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes. Total stockholders’ equity at December 31, 2012 decreased $640,000 or 1.58% from $40.5 million at December 31, 2011.

Investment securities. The primary objectives of our investment portfolio are to secure the safety of principal, to provide adequate liquidity and to provide securities for use in pledging for public funds or repurchase agreements. Income is a secondary consideration. As a result, we generally do not invest in corporate debt, sub-prime mortgages and other higher yielding investments. As of September 30, 2013 and December 31, 2012, the securities in our investment portfolio were classified as available-for-sale in order to provide management the greatest amount of flexibility in managing the overall interest rate risk of the portfolio as market conditions change over time and to provide us with an additional source of liquidity when necessary as pledging requirements permit.

Total investment securities at September 30, 2013 were $95.2 million, an increase of $17.4 million or 22.30% from $77.8 million at December 31, 2012. Total investment securities at December 31, 2012 increased $16.10 million, or 25.98%, compared to $61.8 million at December 31, 2011. The increases to the investment portfolio during 2013 and 2012 occurred as we deployed excess liquidity and diversified its investment portfolio. The Company sold approximately $5.5 million of available for sale investment securities, and realized a net-gain of $127,000 in 2013, to better position the available-for-sale investment securities portfolio in consideration of the current interest rate environment. No securities were sold in 2012. We had $29.9 million and $91.0 million in available-for-sale

securities called or mature during the nine months ended September 30, 2013 and 12 months ending December 31, 2012, respectively, and we invested $59.7 million and $107.2 million into purchases of available for sale securities during the respective periods.

The following table presents the composition of our available-for-sale investment portfolio by major category at the dates indicated.

INVESTMENT SECURITIES PORTFOLIO COMPOSITION

	At September 30,		At December 31,
	2013		2012		2011
	(unaudited)
(in thousands)
U.S. government sponsored agency securities	$	63,705	$	63,148	$	61,171
Municipal securities		18,405		14,074		-
Mortgage backed securities		7,573		-		-
SBA pool securities		4,927		-		-
Equity and other securities		596		623		619
Total	$	95,206	$	77,845	$	61,790

The following table sets forth the maturities, carrying value, and average yields for securities in our investment portfolio at September 30, 2013. Yields are presented on a tax equivalent basis. Expected maturities could differ from contractual maturities due to unscheduled repayments.

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 Securities
	Carrying Value		Average Yield	Carrying Value		Average Yield	Carrying Value		Average Yield			Carrying Value		Average Yield			Carrying Value		Average Yield
(unaudited, in thousands)
Available-For-Sale
U.S. government sponsored agency	$	-		$	-		$	4,942				$	58,763		1.73	%	$	63,705		1.75	%
Municipal securities		-			-			388		2.00	%		18,017		3.49	%		18,405		3.47	%
Mortgage backed Securities with no defined maturity		-			-			-					-					7,573		2.07	%
SBA pool securities with no defined maturity		-			-			-					-					4,927		2.27	%
Equity and other securities with no defined maturity		-			-			-					-					596		2.04	%
Total available-for-sale	$	-		$	-		$	5,330		2.02	%	$	81,722		2.14	%	$	95,206		2.06	%

Loans Held for Sale. Mortgage loans held for sale at September 30, 2013 were $2.0 million, a $5.7 million, or 74.20%, decrease from $7.6 million at December 31, 2012. Total mortgage loans held for sale at December 31, 2012 increased $1.9 million, or 34.03%, compared to $5.7 million at December 31, 2011. We have elected to carry loans held for sale at fair value. The fluctuation in both the recorded balance as of September 30, 2013 as well as in the volume of residential mortgage loans held for sale originated during the nine months ended September 30, 2013 compared to the comparable prior year period were the result of fluctuations in mortgage interest rates. The volume of loans held for sale originated during the year ending December 31, 2012 increased over 2011 primarily as a result of fluctuations in mortgage interest rates. Our principal funding source for mortgage loans held for sale are our core deposits. Core deposits are demand deposits, interest-bearing transaction accounts, savings deposits and time deposits less than $250,000 (excluding brokered deposits).

Loans. Our loan portfolio is a key source of income, and since our inception, has been a principal component of our revenue. Our loan portfolio reflects an emphasis on commercial, commercial real estate, construction, home equity

and residential real estate lending. We also offer a variety of consumer loans and infrequently engage in lease financing. We emphasize commercial lending to professionals, businesses and their owners. Commercial loans and loans secured by commercial real estate accounted for 61.05%, 62.24% and 64.83% of our total loans at September 30, 2013, December 31, 2012 and 2011, respectively.

Total loans were $406.3 million at September 30, 2013, a decrease of $9.4 million, or 2.25% from $415.7 million at December 31, 2012. Total loans at December 31, 2012 had decreased by $23.2 million, or 5.28%, compared to December 31, 2011. The decline in total loans during the nine months ended September 30, 2013 was primarily the result of a large loan pay-off in the commercial real estate loan category. The Bank experienced declines in most loan categories during 2012. These decreases were attributable to loan pay-offs, the foreclosure of approximately $4.1 million and $10.5 million of loans transferred to foreclosed property during the nine months ended September 30, 2013 and the twelve months ended December 31, 2012, respectively, as well as lower loan origination volume due to the current economic environment.

The loan to deposit ratio increased to 88.04% as of September 30, 2013 compared to 85.80% at December 31, 2012 and 89.48% at December 31, 2011.

The following table sets forth the composition of our loan portfolio by loan type as of the dates indicated. The amounts in the following table are shown net of discounts and other deductions.

						As of December 31
	September 30, 2013					2012					2011					2010					2009					2008
	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
(in thousands)	(unaudited)
Commercial	$	115,207		28.36	%	$	115,520		27.79	%	$	130,398		29.71	%	$	144,181		29.28	%	$	142,528		25.72	%	$	172,647		26.06	%
Commercial real estate		132,825		32.69			143,198		34.45			154,109		35.12			169,253		34.37			167,581		30.24			170,697		25.77
Construction		50,957		12.54			46,515		11.19			48,438		11.04			64,641		13.13			113,077		20.41			182,933		27.62
Home equity		45,152		11.11			49,529		11.92			59,750		13.61			64,289		13.05			66,586		12.02			59,257		8.94
Residential real estate		45,341		11.16			43,584		10.49			37,882		8.63			36,903		7.49			45,014		8.12			43,695		6.60
Lease financing		8,307		2.05			10,054		2.42			2,268		0.52			5,530		1.12			11,259		2.03	`		18,927		2.86
Consumer		8,510		2.09			7,271		1.74			5,998		1.37			7,657		1.56			8,066		1.46			14,245		2.15
Total loans and leases		406,299		100.00	%		415,671		100.00	%		438,843		100.00	%		492,454		100.00	%		554,111		100.00	%		662,401		100.00	%
Less allowance for loan losses		6,778					9,057					13,189					14,731					20,000					12,368
Loans, net	$	399,521				$	406,614				$	425,654				$	477,723				$	534,111				$	650,033

Collateral and Concentration. Management monitors concentrations of loans to individuals or businesses involved in a single industry over 25% of Tier 1 Capital and concentrations in excess of 10% of total loans. At September 30, 2013 and December 31, 2012, 2011 and 2010, substantially all of our loans were collateralized with real estate, inventory, accounts receivable and/or other assets or were guaranteed by the Small Business Administration. Loans to individuals and businesses in the construction industry totaled $51.0 million or 12.54% of total loans as of September 30, 2013, compared to $46.5 million or 11.19% of total loans, as of December 31, 2012. Of the $51.0 million, approximately $31.2 million were for new single family housing construction and $19.8 million were for land and subdivision development. The builder and developer loan portfolio has been a consistent component of our loan portfolio over our history. However, in recent years, new loan origination volume in this loan category slowed as a result of the decline in the real estate and construction industry. The Bank’s lending limit under federal law to any one borrower was $18.7 million at September 30, 2013. The Bank’s largest single borrower, net of participations, at September 30, 2013 had outstanding loans of $12.2 million.

The following table presents the aggregate maturities of loans in each major category of our loan portfolio as of September 30, 2013, excluding the allowance for loan and valuation losses. Additionally, the table presents the dollar amount of all loans due more than one year after September 30, 2013 which have predetermined interest rates (fixed) or adjustable interest rates (variable). Actual maturities may differ from the contractual maturities shown below as a result of renewals and prepayments or the timing of loan sales.

	As of September 30, 2013
									More than One Year
	Less than one year		One to five years		Over five years		Total		Fixed		Variable
(unaudited, in thousands)
Commercial	$	58,925	$	43,990	$	12,292	$	115,207	$	27,582	$	28,700
Commercial Real Estate		35,337		71,388		26,100		132,825		71,651		25,837
Construction		32,622		13,734		4,601		50,957		2,636		15,699

Non-performing Assets

Non-performing assets consist primarily of foreclosed real estate, non-accrual loans and loans past due 90 days or more. Generally loans are placed on non-accrual status at 90 days past due and interest accrued to date is considered a loss, unless the loan is well-secured and in the process of collection. Interest accrued but not collected for the loans placed on non-accrual or charged off is reversed against interest income. The interest on these loans is generally accounted for on a cash basis or a cost recovery method, meaning interest is not recognized until the past due balance has been collected. Loans may be returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following table sets forth our non-performing assets as of the dates indicated:

NON-PERFORMING ASSETS

	As of September 30, 2013			As of December 31,
	As of September 30, 2013			2012			2011			2010			2009			2008
(in thousands)	(unaudited)
Commercial and all other loans:
Past due 90 days or more	$	-		$	-		$	-		$	-		$	-		$	-
Non-accrual		760			1,131			2,029			2,896			1,327			2,143
Commercial real estate loans:
Past due 90 days or more		-			-			-			-			-			-
Non-accrual		50			1,537			1,340			10,088			13,267			1,951
Construction loans:
Past due 90 days or more		-			-			-			-			-			-
Non-accrual		910			910			3,058			10,417			11,205			32,110
Home equity loans:
Past due 90 days or more		-			-			-			-			-			-
Non-accrual		270			175			2,676			1,211			344			488
Residential real estate loans:
Past due 90 days or more		-			-			-			-			-			-
Non-accrual		1,655			1,084			2,204			5,553			8,404			6,129
Lease financing:
Past due 90 days or more		-			-			-			-			-			-
Non-accrual		-			-			18			140			335			475
Consumer loans:
Past due 90 days or more		-			-			-			-			-			-
Non-accrual		-			-			-			52			6			36
Debt 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		3,465			4,837			11,325			30,357			34,888			43,332
Foreclosed assets held for sale		29,091			31,936			29,246			20,144			19,434			4,783
Total non-performing assets	$	32,736		$	36,773		$	40,571		$	50,501		$	54,322		$	48,115

Total non-performing loans to total loans		0.90	%		1.16	%		2.58	%		6.16	%		6.30	%		6.54	%
Total non-performing loans to total assets		0.58	%		0.74	%		1.73	%		4.20	%		4.51	%		5.31	%
Allowance for loan losses to non-performing loans		185.97	%		187.22	%		116.46	%		48.53	%		57.33	%		28.54	%
Non-performing assets to loans and foreclosed assets held for sale		7.52	%		8.22	%		8.67	%		9.85	%		9.47	%		7.21	%

Non-performing assets. Non-performing assets declined to $32.7 million at September 30, 2013 from $36.8 million at December 31, 2012, a reduction of $4.0 million, or 10.98%. Non-performing assets at December 31, 2012 declined $3.8 million, or 9.36% from $40.6 million at December 31, 2011. Non-performing loans were reduced by $1.1 million, or 24.64% to $3.6 million as of September 30, 2013, compared to $4.8 million at December 31, 2012. Non-performing loans as of December 31, 2012 declined $6.5 million, or 57.29% from $11.3 million at December 31, 2011. These declines were attributable to loan pay-offs and pay-downs, upgrades, charge-offs and foreclosures. Future weakening in real estate and general economic conditions could cause us to experience an increase in non-performing loans and foreclosed assets held for sale. We closely monitor non-performing credit relationships and our philosophy has been to value non-performing loans at their estimated collectible value and prudently manage these situations. Foreclosed assets held for sale were $29.1 million at September 30, 2013 compared to $31.9 million as of December 31, 2012 and $29.2 million at December 31, 2011. During the nine months ending September 30, 2013 and the year ended December 31, 2012, we sold $5.4 million and $5.9 million in foreclosed

assets, respectively, and transferred $4.1 million and $10.5 million in loans to foreclosed assets, respectively. We are actively marketing these properties and working to reduce the balance of foreclosed assets held for sale.

For the five years ended December 31, 2011, our average year-end ratio of non-performing loans to total loans was 5.16%. As of September 30, 2013 and December 31, 2012, our ratio of non-performing loans to total loans was 0.90% and 1.16%, respectively, which is below our recent historical averages primarily due to the Bank’s focus on improving credit quality. As of September 30, 2013 and December 31, 2012, our ratio of allowance for loan losses to non-performing loans was 185.97% and 187.22%, respectively, compared to 116.46% at December 31, 2011. The Bank continues to aggressively manage defaults in the loan portfolio. Management intends to continue to vigorously pursue collection of all charged-off loans.

The following table sets forth the amount of gross interest income that would have been recorded had the non-accrual loans in the Non-Performing Asset table on page 64 been current and accruing during the period and the amount of interest income on the non-performing loans included in net income for the nine months ended September 30, 2013 and year ended December 31, 2012.

	Nine Months Ended September 30, 2013		Year Ended December 31, 2012
(in thousands)	(unaudited)
Gross interest income (since date of non-accrual) if the loans had been current and accruing interest	$	400	$	510
Interest income reversed at time loan placed on non-accrual		32		159
Cash interest received during the period		65		199

Impaired Loans. A loan is considered impaired when, based on current information and events, it is probable that we will not receive all scheduled payments of principal and interest due according to the contractual terms of the loan agreement. This includes loans that are delinquent 90 days or more, non-accrual loans, troubled debt restructurings and certain other loans identified by management. For loans placed on non-accrual, accrual of interest is discontinued and interest accrued but not collected is reversed against interest income at the time the loans are delinquent 90 days or when management believes that full collection of principal and interest under the original contractual terms of the loan agreement is unlikely to occur. Interest on non-accrual loans is generally accounted for on a cash basis or cost recovery method, meaning interest is not recognized until the full past due principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Impaired loans totaled $7.5 million at September, 30, 2013, $20.2 million at December 31, 2012 and $31.2 million at December 31, 2011, with related allowances for loan losses of $698,000, $3.1 million and $6.6 million, respectively.

Included in certain loan categories in the impaired loans are loans designated as troubled debt restructurings and classified as impaired. At September 30, 2013, we had $550,000 of commercial loans and $54,000 of residential real estate loans that were modified in troubled debt restructurings and classified as impaired.

Total interest income of $433,000, $1.0 million and $1.2 million was recognized on average impaired loans of $16.1 million, $26.4 million and $39.4 million for the nine months ending September 30, 2013 and years ending December 31, 2012 and 2011, respectively. Included in this total is cash basis interest income of $65,000, $199,000 and $270,000 recognized on non-accrual impaired loans during the nine months ending September 30, 2013 and years ending December 31, 2012 and 2011, respectively.

Allowance for Loan Losses. The adequacy of the allowance is analyzed monthly based on internal loan reviews and quality measurements of our loan portfolio. The allowance for loan losses is increased by provisions charged to expense and reduced by loans charged-off, net of recoveries. The Bank computes its allowance by assigning specific reserves to impaired loans, and then applies general reserves, based on loss factors, to the remainder of the loan portfolio. The loss factors are determined based on such items as management’s evaluation of risk in the portfolio, current and projected local and national economic conditions, loan growth, loan trends and classifications

and historical loss experience. Specific allowances are accrued on specific loans evaluated for impairment for which the basis of each loan, including accrued interest, exceeds the discounted amount of expected future collections of interest and principal or, alternatively, the fair value of the loan collateral.

The following table sets forth information regarding changes in our allowance for loan and valuation losses for the periods indicated.

SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION

	As of and for the Nine Months Ended September 30,		As of and for the Year Ended December 31,
	2013		2012		2011		2010		2009		2010
(in thousands)	(unaudited)
Balance at beginning of period	$	9,057	$	13,189	$	14,731	$	20,000	$	12,368	$	8,982
Loans charged-off:
Commercial loans		46		2,030		582		1,364		4,713		6,603
Commercial real estate loans		476		2,239		1,218		2,985		374		262
Construction loans		-		882		2,352		3,662		7,716		6,022
Home equity loans		-		417		725		387		653		127
Residential real estate loans		348		540		637		660		1,480		424
Lease financing		-		9		-		43		109		372
Consumer loans .		-		-		-		7		58		112
Total loans charged-off		870		6,117		5,514		9,108		15,103		13,922
Recoveries:
Commercial loans		71		179		282		390		259		223
Commercial real estate loans		12		20		91		171		123		-
Construction loans		143		481		60	&nb

BLUE VALLEY BAN CORP S-1/A