Attached files
file | filename |
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EX-15 - EX-15 - BLUE VALLEY BAN CORP | c64597exv15.htm |
EX-32.1 - EX-32.1 - BLUE VALLEY BAN CORP | c64597exv32w1.htm |
EX-31.2 - EX-31.2 - BLUE VALLEY BAN CORP | c64597exv31w2.htm |
EX-31.1 - EX-31.1 - BLUE VALLEY BAN CORP | c64597exv31w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-15933
BLUE VALLEY BAN CORP.
(Exact name of registrant as specified in its charter)
Kansas (State or other jurisdiction of incorporation or organization) |
48-1070996 (I.R.S. Employer Identification No.) |
11935 Riley Overland Park, Kansas (Address of principal executive offices) |
66225-6128 (Zip Code) |
Registrants telephone number, including area code: (913) 338-1000
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
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 definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check One):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of
the Securities Act Yes o No þ
As of March 31, 2011 the registrant had 2,843,649 shares of Common Stock ($1.00 par value)
outstanding.
Blue Valley Ban Corp.
FORM 10-Q Index
FORM 10-Q Index
2
Table of Contents
Part I. Financial Information
Item 1. | Financial Statements |
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Blue Valley Ban Corp.
Overland Park, Kansas 66225
Blue Valley Ban Corp.
Overland Park, Kansas 66225
We have reviewed the accompanying condensed consolidated balance sheet of Blue Valley Ban Corp. as
of March 31, 2011, and the related condensed consolidated statements of operations for the
three-month periods ended March 31, 2011 and 2010 and the condensed consolidated statements of
stockholders equity and cash flows for the three-month periods ended March 31, 2011 and 2010.
These interim financial statements are the responsibility of the Companys management.
We conducted our reviews in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information consists principally of
applying analytical procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the
condensed consolidated financial statements referred to above for them to be in conformity with
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December 31, 2010 and the
related consolidated statements of operations, stockholders equity and cash flows for the year
then ended (not presented herein), and in our report dated March 21, 2011 we expressed an
unqualified opinion on those consolidated financial statements. In our opinion, the information
set forth in the accompanying condensed consolidated balance sheet as of December 31, 2010 is
fairly stated, in all material respects, in relation to the consolidated balance sheet from which
it has been derived.
/s/ BKD, LLP | ||||
Kansas City, Missouri
May 10, 2011
May 10, 2011
Table of Contents
Blue Valley Ban Corp.
Condensed Consolidated Balance Sheets
March 31, 2011 and December 31, 2010
(In thousands, except share data)
March 31, 2011 and December 31, 2010
(In thousands, except share data)
March 31, 2011 | December 31, 2010 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 28,753 | $ | 37,255 | ||||
Interest-bearing deposits in other financial institutions |
79,303 | 67,526 | ||||||
Federal funds sold |
10,000 | 10,000 | ||||||
Cash and cash equivalents |
118,056 | 114,781 | ||||||
Available-for-sale securities |
55,599 | 63,640 | ||||||
Mortgage loans held for sale, fair value |
352 | 8,162 | ||||||
Loans, net of allowance for loan losses of $14,755
and $14,731 in 2011 and 2010, respectively |
462,009 | 477,723 | ||||||
Premises and equipment, net |
16,068 | 16,239 | ||||||
Foreclosed assets held for sale, net |
19,082 | 20,144 | ||||||
Interest receivable |
1,819 | 1,783 | ||||||
Deferred income taxes |
11,101 | 10,976 | ||||||
Prepaid expenses and other assets |
2,074 | 2,026 | ||||||
Federal Home Loan Bank stock, Federal Reserve Bank stock,
and other securities |
7,187 | 7,163 | ||||||
Core deposit intangible asset, at amortized cost |
429 | 464 | ||||||
Total assets |
$ | 693,776 | $ | 723,101 | ||||
See Accompanying Notes to Condensed Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm
and Report of Independent Registered Public Accounting Firm
4
Table of Contents
Blue Valley Ban Corp.
Condensed Consolidated Balance Sheets
March 31, 2011 and December 31, 2010
(In thousands, except share data)
Condensed Consolidated Balance Sheets
March 31, 2011 and December 31, 2010
(In thousands, except share data)
March 31, 2011 | December 31, 2010 | |||||||
(Unaudited) | ||||||||
LIABILITIES |
||||||||
Deposits |
||||||||
Demand |
$ | 98,297 | $ | 100,975 | ||||
Savings, NOW and money market |
218,842 | 218,407 | ||||||
Time |
198,177 | 221,836 | ||||||
Total deposits |
515,316 | 541,218 | ||||||
Other interest-bearing liabilities |
15,585 | 18,748 | ||||||
Long-term debt |
99,926 | 99,757 | ||||||
Interest payable and other liabilities |
6,581 | 6,214 | ||||||
Total liabilities |
637,408 | 665,937 | ||||||
STOCKHOLDERS EQUITY |
||||||||
Capital stock |
||||||||
Preferred stock, $1 par value, $1,000 liquidation
preference;
authorized 15,000,000 shares; issued and outstanding
2011 21,750 shares; 2010 21,750 shares |
22 | 22 | ||||||
Common stock, par value $1 per share;
authorized 15,000,000 shares; issued and outstanding
2011 2,843,649 shares; 2010 2,843,301 shares |
2,844 | 2,843 | ||||||
Additional paid-in capital |
38,361 | 38,431 | ||||||
Retained earnings |
15,137 | 15,838 | ||||||
Accumulated other comprehensive income, net of income
tax of $3 in 2011 and $20 in 2010 |
4 | 30 | ||||||
Total stockholders equity |
56,368 | 57,164 | ||||||
Total liabilities and stockholders equity |
$ | 693,776 | $ | 723,101 | ||||
See Accompanying Notes to Condensed Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm
and Report of Independent Registered Public Accounting Firm
5
Table of Contents
Blue Valley Ban Corp.
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2011 and 2010
(In thousands, except share data)
Three Months Ended March 31, 2011 and 2010
(In thousands, except share data)
March 31, 2011 | March 31, 2010 | |||||||
(Unaudited) | (Unaudited) | |||||||
INTEREST AND DIVIDEND INCOME |
||||||||
Interest and fees on loans |
$ | 6,343 | $ | 7,133 | ||||
Federal funds sold and other short-term investments |
39 | 62 | ||||||
Available-for-sale securities |
244 | 435 | ||||||
Dividends on Federal Home Loan Bank and Federal Reserve Bank
stock |
25 | 26 | ||||||
Total interest and dividend income |
6,651 | 7,656 | ||||||
INTEREST EXPENSE |
||||||||
Interest-bearing demand deposits |
474 | 680 | ||||||
Savings and money market deposit accounts |
97 | 114 | ||||||
Other time deposits |
1,099 | 2,244 | ||||||
Federal funds purchased and other interest-bearing liabilities |
10 | 9 | ||||||
Long-term debt, net |
860 | 968 | ||||||
Total interest expense |
2,540 | 4,015 | ||||||
NET INTEREST INCOME |
4,111 | 3,641 | ||||||
PROVISION FOR LOAN LOSSES |
| 250 | ||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
4,111 | 3,391 | ||||||
NON-INTEREST INCOME |
||||||||
Loans held for sale fee income |
554 | 721 | ||||||
Service fees |
723 | 737 | ||||||
Other income |
127 | 115 | ||||||
Total non-interest income |
1,404 | 1,573 | ||||||
NON-INTEREST EXPENSE |
||||||||
Salaries and employee benefits |
2,822 | 2,974 | ||||||
Net occupancy expense |
663 | 732 | ||||||
Other operating expense |
2,703 | 2,647 | ||||||
Total non-interest expense |
6,188 | 6,353 | ||||||
LOSS BEFORE INCOME TAXES |
(673 | ) | (1,389 | ) | ||||
BENEFIT FOR INCOME TAXES |
(244 | ) | (516 | ) | ||||
NET LOSS |
(429 | ) | (873 | ) | ||||
DIVIDENDS AND ACCRETION ON PREFERRED STOCK |
(272 | ) | (272 | ) | ||||
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS |
$ | (701 | ) | $ | (1,145 | ) | ||
BASIC LOSS PER SHARE |
$ | (0.25 | ) | $ | (0.41 | ) | ||
DILUTED LOSS PER SHARE |
$ | (0.25 | ) | $ | (0.41 | ) | ||
6
Table of Contents
Blue Valley Ban Corp.
Condensed Consolidated Statements of Stockholders Equity
Three Months Ended March 31, 2011 and 2010
(In thousands, except share data)
(Unaudited)
Three Months Ended March 31, 2011 and 2010
(In thousands, except share data)
(Unaudited)
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||
Comprehensive | Preferred | Common | Paid-In | Retained | Comprehensive | |||||||||||||||||||||||
Loss | Stock | Stock | Capital | Earnings | Income (Loss) | Total | ||||||||||||||||||||||
BALANCE, DECEMBER 31, 2009 |
$ | 22 | $ | 2,818 | $ | 37,975 | $ | 19,685 | $ | 103 | $ | 60,603 | ||||||||||||||||
Issuance of 3,155 shares of restricted stock,
net of forfeiture |
| 3 | 78 | | | 81 | ||||||||||||||||||||||
Issuance of 3,465 shares common stock for the
employee stock purchase plan |
| 3 | 32 | | | 35 | ||||||||||||||||||||||
Dividend on preferred stock |
| | | (272 | ) | | (272 | ) | ||||||||||||||||||||
Net loss |
$ | (873 | ) | | | | (873 | ) | | (873 | ) | |||||||||||||||||
Change in unrealized depreciation on
available-for-sale securities, net of income
taxes of $5 |
9 | | | | | 9 | 9 | |||||||||||||||||||||
$ | (864 | ) | ||||||||||||||||||||||||||
BALANCE, MARCH 31, 2010 |
$ | 22 | $ | 2,824 | $ | 38,085 | $ | 18,540 | $ | 112 | $ | 59,583 | ||||||||||||||||
BALANCE, DECEMBER 31, 2010 |
$ | 22 | $ | 2,843 | $ | 38,431 | $ | 15,838 | $ | 30 | $ | 57,164 | ||||||||||||||||
Forfeiture of 2,280 shares of restricted stock |
| (2 | ) | (88 | ) | | | (90 | ) | |||||||||||||||||||
Issuance of 2,628 shares common stock for the
employee stock purchase plan |
| 3 | 18 | | | 21 | ||||||||||||||||||||||
Dividends on preferred stock |
| | | (272 | ) | | (272 | ) | ||||||||||||||||||||
Net loss |
$ | (429 | ) | | | | (429 | ) | | (429 | ) | |||||||||||||||||
Change in unrealized depreciation on
available-for-sale securities, net of income
taxes (credit) of $(18) |
(26 | ) | | | | | (26 | ) | (26 | ) | ||||||||||||||||||
$ | (455 | ) | ||||||||||||||||||||||||||
BALANCE, MARCH 31, 2011 |
$ | 22 | $ | 2,844 | $ | 38,361 | $ | 15,137 | $ | 4 | $ | 56,368 | ||||||||||||||||
See Accompanying Notes to Condensed Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm
and Report of Independent Registered Public Accounting Firm
7
Table of Contents
Blue Valley Ban Corp.
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2011 and 2010
(In thousands)
Three Months Ended March 31, 2011 and 2010
(In thousands)
March 31, 2011 | March 31, 2010 | |||||||
(Unaudited) | (Unaudited) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net loss |
$ | (429 | ) | $ | (873 | ) | ||
Adjustments to reconcile net loss to net cash flow
From operating activities: |
||||||||
Depreciation and amortization |
404 | 260 | ||||||
Accretion of premiums and discounts on available-for-sale securities |
(3 | ) | (13 | ) | ||||
Provision for loan losses |
| 250 | ||||||
Provision for losses on foreclosed assets held for sale |
361 | 59 | ||||||
Deferred income taxes |
(107 | ) | 50 | |||||
Stock dividends on Federal Home Loan Bank (FHLB) stock |
(24 | ) | (26 | ) | ||||
Net gain on sale of foreclosed assets |
(345 | ) | (80 | ) | ||||
Restricted stock earned (forfeited) |
(90 | ) | 81 | |||||
Compensation expense related to the Employee Stock Purchase Plan (ESPP) |
1 | | ||||||
Originations of loans held for sale |
(6,244 | ) | (22,332 | ) | ||||
Proceeds from the sale of loans held for sale |
14,200 | 28,594 | ||||||
Realized gain on loans held for sale fair value adjustment |
(146 | ) | (114 | ) | ||||
Changes in: |
||||||||
Interest receivable |
(36 | ) | (10 | ) | ||||
Net fair value of loan related commitments |
354 | 164 | ||||||
Prepaid expenses and other assets |
(409 | ) | (513 | ) | ||||
Interest payable and other liabilities |
101 | 186 | ||||||
Net cash provided by operating activities |
7,588 | 5,683 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Net change in loans |
14,992 | 18,697 | ||||||
Proceeds from the sale of loan participations |
| 32 | ||||||
Purchase of premises and equipment |
(29 | ) | (49 | ) | ||||
Proceeds from the sale of foreclosed assets, net of expenses |
1,768 | 2,998 | ||||||
Purchases of available-for-sale securities |
| (44,990 | ) | |||||
Proceeds from maturities of available-for-sale securities |
8,000 | 17,000 | ||||||
Net cash provided by (used in) investing activities |
24,731 | (6,312 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Net increase (decrease) in demand deposits, money market, NOW and savings
accounts |
(2,243 | ) | 10,005 | |||||
Net increase (decrease) in time deposits |
(23,659 | ) | 61,246 | |||||
Net decrease in federal funds purchased and other interest-bearing liabilities |
(3,163 | ) | (395 | ) | ||||
Net proceeds from the sale of additional stock through ESPP |
21 | 35 | ||||||
Net cash provided by (used in) financing activities |
(29,044 | ) | 70,891 | |||||
Increase in cash and cash equivalents |
3,275 | 70,262 | ||||||
Cash and cash equivalents, beginning of period |
114,781 | 96,984 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 118,056 | $ | 167,246 | ||||
See Accompanying Notes to Condensed Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm
and Report of Independent Registered Public Accounting Firm
8
Table of Contents
Blue Valley Ban Corp.
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2011 and 2010
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2011 and 2010
(In thousands)
March 31, 2011 | March 31, 2010 | |||||||
(Unaudited) | (Unaudited) | |||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
||||||||
Cash paid during the year for: |
||||||||
Interest |
$ | 2,466 | $ | 4,144 | ||||
Income taxes, net of refunds |
| | ||||||
Noncash investing and financing activities: |
||||||||
Transfer of loans to foreclosed property |
722 | 7,222 | ||||||
Restricted stock issued, net of forfeitures |
(2 | ) | 3 | |||||
Preferred dividends accrued but not paid |
272 | 272 |
See Accompanying Notes to Condensed Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm
and Report of Independent Registered Public Accounting Firm
9
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 1: Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated financial
statements contain all adjustments necessary to present fairly Blue Valley Ban Corp.s (the
Company) condensed consolidated financial position as of March 31, 2011, and the condensed
consolidated results of its operations, changes in stockholders equity and cash flows for
the periods ended March 31, 2011 and 2010, and are of a normal recurring nature. The
condensed consolidated balance sheet of the Company, as of December 31, 2010, has been
derived from the audited consolidated balance sheet of the Company as of that date.
Certain information and note disclosures normally included in the Companys annual financial
statements prepared in accordance with accounting principles generally accepted in the United
States of America have been omitted. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and notes thereto
included in the Companys December 31, 2010 Form 10-K filed with the Securities and Exchange
Commission. The results of operations for the period are not necessarily indicative of the
results to be expected for the full year.
The report of BKD, LLP commenting upon their review accompanies the condensed
consolidated financial statements included in Item 1 of Part I.
Note 2: Recent and Future Accounting Pronouncements
On July 21, 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2010-20, Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses. This ASU amends FASB Accounting Standards Codification (ASC)
Topic 310, Receivables, to improve the disclosures that an entity provides about the credit
quality of its financing receivables and the related allowance for credit losses. As a result
of these amendments, an entity is required to disaggregate, by portfolio segment or class of
financing receivable, certain existing disclosures and provide certain new disclosures about
its financing receivables and related allowance for credit losses.
Existing disclosures are amended to require an entity to provide a rollforward schedule of the
allowance for credit losses from the beginning of the reporting period to the end of the
reporting period on a portfolio segment basis, with the ending balance further disaggregated
on the basis of the impairment method. For each disaggregated ending balance in the
rollforward schedule, the related recorded investment in financing receivables must be
disclosed. The disclosure would include the nonaccrual status of financing receivables by
class of financing receivables, as well as the impaired financing receivables by class of
financing receivables.
The amendments in the ASU also require an entity to provide the following additional
disclosures about its financing receivables: (1) the credit quality indicators of financing
receivables at the end of the reporting period by class of financing receivables; (2) the
aging of past due financing receivables at the end of the reporting period by class of
financing receivables; (3) the nature and
extent of troubled debt restructurings that occurred during the period by class of financing
receivables and their effect on the allowance for credit losses; (4) the nature and extent of
financing receivables modified as troubled debt restructurings within the previous 12 months
that defaulted during the reporting period by class of financing receivables and their effect
on the allowance for credit losses; and (5) significant purchases and sales of financing
receivables during the reporting period disaggregated by portfolio segment.
10
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 2: Recent and Future Accounting Pronouncements (Continued)
For public entities, the disclosures as of the end of a reporting period were effective for
interim and annual reporting periods ending on or after December 15, 2010. The disclosures
about activity that occurs during a reporting period were effective for interim and annual
reporting periods beginning on or after December 15, 2010. Management has adopted this update
and included the disclosures in the consolidated financial statements. The adoption of this
update had no adverse impact on the Companys consolidated financial statements.
On January 19, 2011, the FASB issued ASU 2011-01, Receivables (Topic 310) Deferral of the
Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The
amendments in this ASU temporarily delayed the effective date of the disclosures about
troubled debt restructurings in ASU 2010-20 for public entities. The effective date of the
new disclosures about troubled debt restructurings for public entities and the guidance for
determining what constitutes a troubled debt restructuring is provided in ASU 2011-02 issued
on April 5, 2011.
On April 5, 2011, the FASB issued ASU 2011-02, A Creditors Determination of Whether a
Restructuring Is a Troubled Debt Restructuring. The update is intended to assist lenders
and other creditors in determining whether a modification of terms meets the criteria to be
considered a troubled debt restructuring. The update clarifies that if a borrower does not
have access to debt at a market rate for debt with similar characteristics as the restructured
debt, the restructuring would be considered at a below-market rate, which may indicate a
concession was granted. In that circumstance, a creditor should consider all aspects of the
restructuring in determining whether it has granted a concession. If a concession has been
granted, the creditor must make a separate assessment about whether the debtor is experiencing
financial difficulties to determine if the restructure constitutes a troubled debt
restructuring. This update clarifies the guidance on a creditors evaluation of whether a
debtor is experiencing financial difficulties. The update also clarifies that a creditor is
precluded from using the effective interest rate test in the debtors guidance on
restructuring of payables when evaluating whether a restructuring constitutes a troubled debt
restructuring. The guidance is effective for public entities for the first interim or annual
period beginning on or after June 15, 2011, and is to be applied retrospectively to
modifications that occur on or after the beginning of the year of adoption. The update also
requires the disclosures about troubled debt restructuring previously deferred in ASU 2011-01
to be disclosed for the interim and annual periods beginning on or after June 15, 2011.
Management does not anticipate that this update will have a material impact on the Companys
consolidated financial statements.
11
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 3: Earnings Per Share
Basic earnings (loss) per share represents income available to common stockholders divided by
the weighted average number of shares outstanding during each year. Diluted earnings (loss)
per share reflects additional potential common shares that would have been outstanding if
dilutive potential common shares had been issued, as well as any adjustment to income that
would result from the assumed issuance. The computation of per share loss for the three
months ended March 31, 2011 and 2010 is as follows:
March 31, 2011 | March 31, 2010 | |||||||
(Unaudited) | (Unaudited) | |||||||
(In thousands, except | ||||||||
share and per share data) | ||||||||
Net loss |
$ | (429 | ) | $ | (873 | ) | ||
Preferred dividends |
(272 | ) | (272 | ) | ||||
Net loss available to common stockholders |
$ | (701 | ) | $ | (1,145 | ) | ||
Average common shares outstanding |
2,798,084 | 2,763,131 | ||||||
Average common share stock options
outstanding and restricted stock (B) |
24,522 | 13,278 | ||||||
Average diluted common shares (B) |
2,822,606 | 2,776,409 | ||||||
Basic loss per share |
$ | (0.25 | ) | $ | (0.41 | ) | ||
Diluted loss per share (A) |
$ | (0.25 | ) | $ | (0.41 | ) | ||
(A) | No shares of stock options, restricted stock or warrants were included in the computation of diluted earnings per share for any period there was a loss. | |
(B) | Warrants to purchase 111,083 shares of common stock at an exercise price of $29.37 per share were outstanding at March 31, 2011 and 2010, but were not included in the computation of diluted earnings per share because the warrants exercise price was greater than the average market price of the common shares, thus making the warrants anti-dilutive. Stock options to purchase 24,375 and 33,875 shares of common stock were outstanding at March 31, 2011 and 2010, respectively, but were not included in the computation of diluted earnings per share because the options exercise price was greater than the average market price of the common shares, thus making the options anti-dilutive. |
Income available for common stockholders is reduced by dividends declared in the period
on preferred stock (whether or not they are paid) and the accretion of the warrants.
12
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 4: Available-for-Sale Securities
The amortized cost and estimated fair value, together with gross unrealized gains and losses,
of available-for-sale securities are as follows:
March 31, 2011 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(In thousands) | ||||||||||||||||
U.S. Government
sponsored agencies |
$ | 54,993 | $ | 126 | $ | (118 | ) | $ | 55,001 | |||||||
Equity and other securities |
600 | | (2 | ) | 598 | |||||||||||
$ | 55,593 | $ | 126 | $ | (120 | ) | $ | 55,599 | ||||||||
December 31, 2010 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(In thousands) | ||||||||||||||||
U.S. Government
sponsored agencies |
$ | 62,990 | $ | 228 | $ | (179 | ) | $ | 63,039 | |||||||
Equity and other securities |
600 | 1 | | 601 | ||||||||||||
$ | 63,590 | $ | 229 | $ | (179 | ) | $ | 63,640 | ||||||||
The amortized cost and estimated fair value of available-for-sale securities at March
31, 2011, by contractual maturity are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay obligations with
or without call or prepayment penalties.
Amortized | Fair | |||||||
Cost | Value | |||||||
(In thousands) | ||||||||
Due in one year or less |
$ | 3,000 | $ | 3,013 | ||||
Due after one year through five years |
51,993 | 51,988 | ||||||
Due after five years through ten years |
| | ||||||
Due after ten years |
| | ||||||
Total |
54,993 | 55,001 | ||||||
Equity and other securities |
600 | 598 | ||||||
$ | 55,593 | $ | 55,599 | |||||
The book value and estimated fair value of securities pledged as collateral to secure
public deposits amounted to $5,002,000 and $5,012,000 at March 31, 2011 and $5,002,000 and
$5,013,000 at December 31, 2010.
13
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 4: Available-for-Sale Securities (Continued)
The Company enters into sales of securities under agreements to repurchase. The amounts
deposited under these agreements represent short-term debt and are reflected as a liability
in the consolidated balance sheets. The securities underlying the agreements are book-entry
securities. During the period, securities held in safekeeping were pledged to the depositors
under a written custodial agreement that explicitly recognizes the depositors interest in
the securities. At March 31, 2011, or at any month end during the period, no material amount
of agreements to repurchase securities sold was outstanding with any individual
entity. Information on sales of securities under agreements to repurchase is as follows:
March 31, 2011 | December 31, 2010 | |||||||
(In thousands) | ||||||||
Balance |
$ | 14,858 | $ | 17,674 | ||||
Carrying value of securities
pledged to secure agreements
to repurchase at period end |
24,978 | 27,031 | ||||||
Average balance during the
period of securities sold
under agreements to
repurchase |
16,669 | 17,922 | ||||||
Maximum amount outstanding at
any month-end during the
period |
18,633 | 21,935 |
There were no gross gains or losses realized for the three months ended March 31, 2011
and 2010, respectively, from sales of available-for-sale securities.
Certain investments in debt and marketable equity securities are reported in the financial
statements at an amount less than their historical cost. Total fair value of these
investments at March 31, 2011 and December 31, 2010, was $20,480,000 and $29,813,000, which
is approximately 36.8% and 46.8%, respectively, of the Companys available-for-sale
investment portfolio. The total unrealized losses related to these investments were $120,000
and $179,000 at March 31, 2011 and December 31, 2010, respectively. These declines in fair
value resulted primarily from recent increases in market interest rates. Based on evaluation
of available information and evidence, particularly recent volatility in market yields on
debt securities, management believes the declines in fair value for these securities are
temporary.
14
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 4: Available-for-Sale Securities (Continued)
Unrealized losses and fair value, aggregated by investment type and length of time that
individual securities have been in a continuous unrealized loss position are as follows:
March 31, 2011 | ||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
U.S. Government sponsored
agencies |
$ | 19,882 | $ | 118 | $ | | $ | | $ | 19,882 | $ | 118 | ||||||||||||
Equity and other securities |
598 | 2 | | | 598 | 2 | ||||||||||||||||||
Total temporarily
impaired securities |
$ | 20,480 | $ | 120 | $ | | $ | | $ | 20,480 | $ | 120 | ||||||||||||
December 31, 2010 | ||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
U.S. Government sponsored
agencies |
$ | 29,813 | $ | 179 | $ | | $ | | $ | 29,813 | $ | 179 | ||||||||||||
Equity and other securities |
| | | | | | ||||||||||||||||||
Total temporarily
impaired securities |
$ | 29,813 | $ | 179 | $ | | $ | | $ | 29,813 | $ | 179 | ||||||||||||
15
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 5: Loans and Allowance for Loan Losses
Categories of loans at March 31, 2011 and December 31, 2010 include the following:
March 31, 2011 | December 31, 2010 | |||||||
(In thousands) | ||||||||
Commercial loans |
$ | 140,077 | $ | 144,181 | ||||
Commercial real estate loans |
170,652 | 169,253 | ||||||
Construction loans |
56,361 | 64,641 | ||||||
Home equity loans |
60,817 | 64,289 | ||||||
Residential real estate loans |
36,892 | 36,903 | ||||||
Lease financing |
4,398 | 5,530 | ||||||
Consumer loans |
7,567 | 7,657 | ||||||
Total loans |
476,764 | 492,454 | ||||||
Less: Allowance for loan losses |
14,755 | 14,731 | ||||||
Net loans |
$ | 462,009 | $ | 477,723 | ||||
16
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 5: Loans and Allowance for Loan Losses (Continued)
The following tables present the balance in the allowance for loan losses and the recorded
investment in loans based on portfolio segment and impairment methods as of March 31, 2011
and December 31, 2010:
March 31, 2011 | ||||||||||||||||||||||||||||||||
Commercial Real | Residential Real | |||||||||||||||||||||||||||||||
(In thousands) | Commercial | Estate | Construction | Home Equity | Estate | Lease Financing | Consumer | Total | ||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||||||||||
Balance, beginning of period |
$ | 3,339 | $ | 3,974 | $ | 4,579 | $ | 1,262 | $ | 1,488 | $ | 38 | $ | 51 | $ | 14,731 | ||||||||||||||||
Provision charged to expense |
33 | 643 | (940 | ) | (5 | ) | 246 | 27 | (4 | ) | | |||||||||||||||||||||
Losses charged off |
(18 | ) | | (80 | ) | | (183 | ) | | | (282 | ) | ||||||||||||||||||||
Recoveries |
155 | | 21 | 37 | 64 | 25 | 3 | 306 | ||||||||||||||||||||||||
Balance, end of period |
$ | 3,509 | $ | 4,617 | $ | 3,580 | $ | 1,294 | $ | 1,615 | $ | 90 | $ | 50 | $ | 14,755 | ||||||||||||||||
Ending balance: individually
evaluated for impairment |
$ | 1,954 | $ | 3,506 | $ | 2,669 | $ | 559 | $ | 846 | $ | 63 | $ | | $ | 9,597 | ||||||||||||||||
Ending balance: collectively
evaluated for impairment |
$ | 1,555 | $ | 1,111 | $ | 911 | $ | 735 | $ | 769 | $ | 27 | $ | 50 | $ | 5,158 | ||||||||||||||||
Loans: |
||||||||||||||||||||||||||||||||
Ending balance |
$ | 140,077 | $ | 170,652 | $ | 56,361 | $ | 60,817 | $ | 36,892 | $ | 4,398 | $ | 7,567 | $ | 476,764 | ||||||||||||||||
Ending balance: individually
evaluated for impairment |
$ | 24,837 | $ | 29,682 | $ | 30,663 | $ | 2,816 | $ | 8,217 | $ | 825 | $ | 61 | $ | 97,101 | ||||||||||||||||
Ending balance: collectively
evaluated for impairment |
$ | 115,240 | $ | 140,970 | $ | 25,698 | $ | 58,001 | $ | 28,675 | $ | 3,573 | $ | 7,506 | $ | 379,663 |
December 31, 2010 | ||||||||||||||||||||||||||||||||
Commercial Real | Residential Real | |||||||||||||||||||||||||||||||
Commercial | Estate | Construction | Home Equity | Estate | Lease Financing | Consumer | Total | |||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||||||||||
Balance, beginning of year |
$ | 3,630 | $ | 7,253 | $ | 5,929 | $ | 1,061 | $ | 1,737 | $ | 238 | $ | 152 | $ | 20,000 | ||||||||||||||||
Provision charged to expense |
683 | (465 | ) | 2,189 | 571 | 400 | (171 | ) | (112 | ) | 3,095 | |||||||||||||||||||||
Losses charged off |
(1,364 | ) | (2,985 | ) | (3,662 | ) | (387 | ) | (660 | ) | (43 | ) | (7 | ) | (9,108 | ) | ||||||||||||||||
Recoveries |
390 | 171 | 123 | 17 | 11 | 14 | 18 | 744 | ||||||||||||||||||||||||
Balance, end of year |
$ | 3,339 | $ | 3,974 | $ | 4,579 | $ | 1,262 | $ | 1,488 | $ | 38 | $ | 51 | $ | 14,731 | ||||||||||||||||
Ending balance: individually
evaluated for impairment |
$ | 1,832 | $ | 2,617 | $ | 3,647 | $ | 576 | $ | 912 | $ | 5 | $ | 2 | $ | 9,591 | ||||||||||||||||
Ending balance: collectively
evaluated for impairment |
$ | 1,507 | $ | 1,357 | $ | 932 | $ | 686 | $ | 576 | $ | 33 | $ | 49 | $ | 5,140 | ||||||||||||||||
Loans: |
||||||||||||||||||||||||||||||||
Ending balance |
$ | 144,181 | $ | 169,253 | $ | 64,641 | $ | 64,289 | $ | 36,903 | $ | 5,530 | $ | 7,657 | $ | 492,454 | ||||||||||||||||
Ending balance: individually
evaluated for impairment |
$ | 26,444 | $ | 26,704 | $ | 35,521 | $ | 3,544 | $ | 8,691 | $ | 983 | $ | 64 | $ | 101,951 | ||||||||||||||||
Ending balance: collectively
evaluated for impairment |
$ | 117,737 | $ | 142,549 | $ | 29,120 | $ | 60,745 | $ | 28,212 | $ | 4,547 | $ | 7,593 | $ | 390,503 |
17
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 5: Loans and Allowance for Loan Losses (Continued)
The following table presents the credit risk profile of the Companys loan portfolio based on
the rating category and payment activity as of March 31, 2011 and December 31, 2010:
March 31, 2011 | December 31, 2010 | |||||||||||||||||||||||
(In thousands) | Pass | Classified | Total | Pass | Classified | Total | ||||||||||||||||||
Commercial |
$ | 130,678 | $ | 9,399 | $ | 140,077 | $ | 133,603 | $ | 10,578 | $ | 144,181 | ||||||||||||
Commercial real estate |
148,471 | 22,181 | 170,652 | 148,892 | 20,361 | 169,253 | ||||||||||||||||||
Construction |
29,420 | 26,941 | 56,361 | 35,896 | 28,745 | 64,641 | ||||||||||||||||||
Home equity |
58,372 | 2,445 | 60,817 | 61,442 | 2,847 | 64,289 | ||||||||||||||||||
Residential real estate |
31,067 | 5,825 | 36,892 | 30,115 | 6,788 | 36,903 | ||||||||||||||||||
Lease financing |
4,000 | 398 | 4,398 | 5,048 | 482 | 5,530 | ||||||||||||||||||
Consumer |
7,516 | 51 | 7,567 | 7,605 | 52 | 7,657 | ||||||||||||||||||
Total |
$ | 409,524 | $ | 67,240 | $ | 476,764 | $ | 422,601 | $ | 69,853 | $ | 492,454 | ||||||||||||
The following table presents the Companys loan portfolio aging analysis as of March 31,
2011 and December 31, 2010:
March 31, 2011 | ||||||||||||||||||||||||||||
Greater than 90 | Total Loans | Total Loans > 90 | ||||||||||||||||||||||||||
(In thousands) | 30-59 Days Past Due | 60-89 Days Past Due | Days Past Due | Total Past Due | Current | Receivable | Days & Accruing | |||||||||||||||||||||
Commercial |
$ | 378 | $ | 316 | $ | 2,234 | $ | 2,928 | $ | 137,149 | $ | 140,077 | $ | | ||||||||||||||
Commercial real estate |
2,580 | 937 | 6,448 | 9,965 | 160,687 | 170,652 | | |||||||||||||||||||||
Construction |
2,955 | 163 | 7,193 | 10,311 | 46,050 | 56,361 | | |||||||||||||||||||||
Home equity |
875 | 517 | 100 | 1,492 | 59,325 | 60,817 | | |||||||||||||||||||||
Residential real estate |
2,617 | 705 | 2,687 | 6,009 | 30,883 | 36,892 | | |||||||||||||||||||||
Lease financing |
64 | 1 | | 65 | 4,333 | 4,398 | | |||||||||||||||||||||
Consumer |
51 | | | 51 | 7,516 | 7,567 | | |||||||||||||||||||||
Total |
$ | 9,520 | $ | 2,639 | $ | 18,662 | $ | 30,821 | $ | 445,943 | $ | 476,764 | $ | | ||||||||||||||
December 31, 2010 | ||||||||||||||||||||||||||||
Greater than 90 | Total Loans | Total Loans > 90 | ||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Days Past Due | Total Past Due | Current | Receivable | Days & Accruing | ||||||||||||||||||||||
Commercial |
$ | 241 | $ | 307 | $ | 2,648 | $ | 3,196 | $ | 140,985 | $ | 144,181 | $ | | ||||||||||||||
Commercial real estate |
| | 1,247 | 1,247 | 168,006 | 169,253 | | |||||||||||||||||||||
Construction |
46 | | 7,936 | 7,982 | 56,659 | 64,641 | | |||||||||||||||||||||
Home equity |
200 | | 964 | 1,164 | 63,125 | 64,289 | | |||||||||||||||||||||
Residential real estate |
265 | 322 | 3,741 | 4,328 | 32,575 | 36,903 | | |||||||||||||||||||||
Lease financing |
20 | 51 | 114 | 185 | 5,345 | 5,530 | | |||||||||||||||||||||
Consumer |
4 | | | 4 | 7,653 | 7,657 | | |||||||||||||||||||||
Total |
$ | 776 | $ | 680 | $ | 16,650 | $ | 18,106 | $ | 474,348 | $ | 492,454 | $ | | ||||||||||||||
18
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 5: Loans and Allowance for Loan Losses (Continued)
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC
310-10-35-16), when based on current information and events, it is probable the Company will
be unable to collect the scheduled payments of principal and interest when due according to
the contractual terms of the loan agreement. Impaired loans include non-performing loans but
also
include loans modified in troubled debt restructurings where concessions have been granted to
borrowers experiencing financial difficulties. These concessions could include a reduction
in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance
or other actions intended to maximize collection.
The following table presents impaired loans for March 31, 2011 and December 31, 2010:
March 31, 2011 | ||||||||||||||||||||
Unpaid Principal | Average Investment | Interest Income | ||||||||||||||||||
(In thousands) | Recorded Balance | Balance | Specific Allowance | in Impaired Loans | Recognized | |||||||||||||||
Loans without a specific
valuation allowance: |
||||||||||||||||||||
Commercial |
$ | 273 | $ | 302 | $ | | $ | 207 | $ | | ||||||||||
Commercial real estate |
1,210 | 1,766 | | 1,829 | | |||||||||||||||
Construction |
2,726 | 2,732 | | 2,619 | | |||||||||||||||
Home equity |
489 | 499 | | 619 | | |||||||||||||||
Residential real estate |
1,203 | 1,859 | | 1,277 | 14 | |||||||||||||||
Lease financing |
26 | 53 | | 54 | 35 | |||||||||||||||
Consumer |
51 | 54 | | 51 | | |||||||||||||||
Loans with a specific
valuation allowance |
||||||||||||||||||||
Commercial |
$ | 4,559 | $ | 4,668 | $ | 1,116 | $ | 4,386 | $ | | ||||||||||
Commercial real estate |
11,926 | 11,974 | 2,031 | 9,296 | | |||||||||||||||
Construction |
20,904 | 20,928 | 1,758 | 18,275 | | |||||||||||||||
Home equity |
863 | 891 | 284 | 745 | | |||||||||||||||
Residential real estate |
4,024 | 4,870 | 466 | 4,203 | | |||||||||||||||
Lease financing |
330 | 330 | 60 | 249 | 2 | |||||||||||||||
Consumer |
| | | | | |||||||||||||||
Total: |
||||||||||||||||||||
Commercial |
$ | 4,832 | $ | 4,970 | $ | 1,116 | $ | 4,593 | $ | | ||||||||||
Commercial real estate |
$ | 13,136 | $ | 13,740 | $ | 2,031 | $ | 11,125 | $ | | ||||||||||
Construction |
$ | 23,630 | $ | 23,660 | $ | 1,758 | $ | 20,894 | $ | | ||||||||||
Home equity |
$ | 1,352 | $ | 1,390 | $ | 284 | $ | 1,364 | $ | | ||||||||||
Residential real estate |
$ | 5,227 | $ | 6,729 | $ | 466 | $ | 5,480 | $ | 14 | ||||||||||
Lease financing |
$ | 356 | $ | 383 | $ | 60 | $ | 303 | $ | 37 | ||||||||||
Consumer |
$ | 51 | $ | 54 | $ | | $ | 51 | $ | |
19
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 5: Loans and Allowance for Loan Losses (Continued)
December 31, 2010 | ||||||||||||||||||||
Unpaid Principal | Average Investment | Interest Income | ||||||||||||||||||
(In thousands) | Recorded Balance | Balance | Specific Allowance | in Impaired Loans | Recognized | |||||||||||||||
Loans without a specific
valuation allowance: |
||||||||||||||||||||
Commercial |
$ | 220 | $ | 315 | $ | | $ | 627 | $ | 24 | ||||||||||
Commercial real estate |
4,080 | 4,700 | | 3,891 | 37 | |||||||||||||||
Construction |
3,203 | 3,203 | | 3,384 | | |||||||||||||||
Home equity |
585 | 587 | | 102 | | |||||||||||||||
Residential real estate |
1,279 | 1,924 | | 1,391 | | |||||||||||||||
Lease financing |
140 | 256 | | 254 | 2 | |||||||||||||||
Consumer |
52 | 54 | | 50 | 3 | |||||||||||||||
Loans with a specific
valuation allowance |
||||||||||||||||||||
Commercial |
$ | 5,541 | $ | 5,585 | $ | 1,133 | $ | 2,834 | $ | 7 | ||||||||||
Commercial real estate |
8,022 | 8,092 | 1,110 | 10,760 | | |||||||||||||||
Construction |
22,318 | 22,430 | 3,039 | 23,662 | 20 | |||||||||||||||
Home equity |
626 | 648 | 299 | 411 | | |||||||||||||||
Residential real estate |
4,618 | 5,480 | 577 | 6,150 | | |||||||||||||||
Lease financing |
402 | 402 | 3 | 302 | | |||||||||||||||
Consumer |
| | | 12 | | |||||||||||||||
Total: |
||||||||||||||||||||
Commercial |
$ | 5,761 | $ | 5,900 | $ | 1,133 | $ | 3,461 | $ | 31 | ||||||||||
Commercial real estate |
$ | 12,102 | $ | 12,792 | $ | 1,110 | $ | 14,651 | $ | 37 | ||||||||||
Construction |
$ | 25,521 | $ | 25,633 | $ | 3,039 | $ | 27,046 | $ | 20 | ||||||||||
Home equity |
$ | 1,211 | $ | 1,235 | $ | 299 | $ | 513 | $ | | ||||||||||
Residential real estate |
$ | 5,897 | $ | 7,404 | $ | 577 | $ | 7,541 | $ | | ||||||||||
Lease financing |
$ | 542 | $ | 658 | $ | 3 | $ | 556 | $ | 2 | ||||||||||
Consumer |
$ | 52 | $ | 54 | $ | | $ | 62 | $ | 3 |
The December 31, 2010 information presented above was reclassified from the information
presented in the 2010 Form 10K, to include troubled debt restructurings that were paying as agreed
but not classified as impaired loans at December 31, 2010. This reclassification had no impact on
the calculation of the allowance for loan losses.
20
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 5: Loans and Allowance for Loan Losses (Continued)
Included in certain loan categories in the impaired loans are troubled debt restructurings
that were classified as impaired as of March 31, 2011 and December 31, 2010:
March 31, 2011 | December 31, 2010 | |||||||
(In thousands) | ||||||||
Commercial |
$ | 57 | $ | 107 | ||||
Commercial real estate |
7,205 | 7,204 | ||||||
Construction |
9,632 | 9,823 | ||||||
Home equity |
| | ||||||
Residential real estate |
727 | 180 | ||||||
Lease financing |
| 110 | ||||||
Consumer |
| | ||||||
$ | 17,621 | $ | 17,424 | |||||
In addition as of March 31, 2011 and December 31, 2010, the Company had troubled debt
restructurings included in certain loan categories in the impaired loans that were performing
in accordance with their modified terms as follows:
March 31, 2011 | December 31, 2010 | |||||||
(In thousands) | ||||||||
Commercial |
$ | 2,456 | $ | 2,865 | ||||
Commercial real estate |
2,932 | 2,013 | ||||||
Construction |
14,997 | 15,104 | ||||||
Home equity |
| | ||||||
Residential real estate |
54 | 344 | ||||||
Lease financing |
395 | 402 | ||||||
Consumer |
| | ||||||
$ | 20,834 | $ | 20,728 | |||||
As of March 31, 2011, the Company had $7,768,000 of commitments outstanding to borrowers
with troubled debt restructurings. However, these commitments are subject to approval prior
to advancement of funds to the borrower.
The following table presents the Companys non-accrual loans at March 31, 2011 and December
31, 2010:
March 31, 2011 | December 31, 2010 | |||||||
(In thousands) | ||||||||
Commercial |
$ | 2,376 | $ | 2,896 | ||||
Commercial real estate |
8,128 | 10,088 | ||||||
Construction |
10,312 | 10,417 | ||||||
Home equity |
1,352 | 1,211 | ||||||
Residential real estate |
5,173 | 5,553 | ||||||
Lease financing |
26 | 140 | ||||||
Consumer |
51 | 52 | ||||||
$ | 27,418 | $ | 30,357 | |||||
21
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 6: Short-Term Debt
The Company has a line of credit with the Federal Home Loan Bank of Topeka (FHLB) which is
collateralized by various assets including mortgage-backed loans, available-for-sale
securities and cash equivalents. At March 31, 2011 and December 31, 2010, there was no
outstanding balance on the line of credit. The variable interest rate was 0.24% on March 31,
2011 and 0.26% on December 31, 2010. At March 31, 2011 approximately $19,967,000 was
available.
The Company also has a line of credit with the Federal Reserve Bank of Kansas City which is
collateralized by various assets, including commercial and commercial real estate loans. At
March 31, 2011 and December 31, 2010, there was no outstanding balance on the line of credit.
The line of credit has a variable interest rate of federal funds rate plus 75 basis points
and at March 31, 2011 approximately $27,887,000 was available. Advances are made at the
discretion of the Federal Reserve Bank of Kansas City.
Note 7: Long-Term Debt
Long-term debt at March 31, 2011 and December 31, 2010, consisted of the following
components:
March 31, 2011 | December 31, 2010 | |||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
Federal Home Loan Bank advances (A) |
$ | 82,500 | $ | 82,500 | ||||
Less: Deferred prepayment penalty on
modification of FHLB advances |
(2,162 | ) | (2,331 | ) | ||||
Net Federal Home Loan Bank advances |
80,338 | 80,169 | ||||||
Subordinated Debentures BVBC Capital Trust II (B) |
7,732 | 7,732 | ||||||
Subordinated Debentures BVBC Capital Trust III (C) |
11,856 | 11,856 | ||||||
Total long-term debt |
$ | 99,926 | $ | 99,757 | ||||
22
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 7: Long-Term Debt (Continued) |
(A) | Due in 2013, 2014, 2015, 2016 and 2018; collateralized by various assets including mortgage-backed loans, available-for-sale securities and cash equivalents. The interest rates on the advances range from 0.34% to 4.26%. Federal Home Loan Bank advance availability is determined quarterly and at March 31, 2011, approximately $19,967,000 was available. | ||
In the third quarter of 2010, the Company repaid $42,500,000 of FHLB advances by rolling the net present value of the advances being repaid into the funding cost of $42,500,000 of new advances. A $2,569,000 penalty was associated with paying off the original FHLB advances which is amortized as an adjustment of interest expense over the remaining term of the new FHLB advances using the straight line method. This transaction reduced the effective interest rate, as well as modified the maturity date on these borrowings. | |||
(B) | Due in 2033; interest only at LIBOR + 3.25% (3.55% at March 31, 2011 and 3.54% at December 31, 2010) due quarterly; fully and unconditionally guaranteed by the Company on a subordinated basis to the extent that the funds are held by the Trust. BVBC Capital Trust II issued and sold $7,500,000 in Preferred Securities to third parties and $232,000 of Common Securities to the Company. The Company may prepay the subordinated debentures beginning in 2008, in whole or in part, at their face value plus accrued interest. | ||
(C) | Due in 2035; interest only at LIBOR + 1.60% (1.91% at March 31, 2011 and 1.90% at December 31, 2010) due quarterly; fully and unconditionally guaranteed by the Company on a subordinated basis to the extent that the funds are held by the Trust. Subordinated to the trust preferred securities (B) due in 2033. BVBC Capital Trust III issued and sold $11,500,000 in Preferred Securities to third parties and $356,000 in Common Securities to the Company. The Company may prepay the subordinated debentures beginning in 2010, in whole or in part, at their face value plus accrued interest. |
At the request of the Federal Reserve Bank of Kansas City, quarterly payments are being
deferred on the Companys outstanding trust preferred securities. Under the governing
documents of BVBC Capital Trust II and III, the quarterly payments due since April 24, 2009
for BVBC Capital Trust II and March 31, 2009 for BVBC Capital Trust III were deferred. The
Company has the right to declare such a deferral for up to 20 consecutive quarterly periods
and deferral may only be declared as long as the Company is not then in default under the
provisions of the Amended and Restated Trust Agreement. During the deferral period, interest
on the indebtedness continues to accrue and the unpaid interest is compounded. For BVBC
Capital Trust III, the Company must also accrue additional interest that is equal to the
three month LIBOR rate plus 1.60% during the deferral period. All accrued interest and
compounded interest must be paid at the end of the deferral period.
23
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 7: Long-Term Debt (Continued)
For both BVBC Capital Trust II and BVBC Capital Trust III, as long as the deferral period
continues, the Company is prohibited from: (i) declaring or paying any dividend on any of
its capital stock, which would include both its common stock and the outstanding preferred
stock issued to the United States Department of Treasury (the Treasury), or (ii) making any
payment on any debt security that is ranked pair passu with the debt securities issued by the
respective trusts. Because the Preferred Shares issued under the U.S. Treasurys Capital
Purchase Plan (the CPP) are subordinate to the trust preferred securities, the Company will
be restricted from paying dividends on these Preferred Shares until such time as all trust
preferred dividends have been brought current.
Aggregate annual maturities of long-term debt at March 31, 2011 are as follows:
(In thousands) | ||||
April 1 to December 31, 2011 |
$ | | ||
2012 |
| |||
2013 |
20,000 | |||
2014 |
7,500 | |||
2015 |
20,000 | |||
Thereafter |
54,588 | |||
102,088 | ||||
Less: Deferred prepayment penalty
on modification of FHLB advances |
(2,162 | ) | ||
$ | 99,926 | |||
Note 8: Derivative Instruments
The Company has commitments outstanding to extend credit on residential mortgages that have
not closed prior to the end of the period. As the Company enters into commitments to
originate these loans, it also enters into commitments to sell the loans in the secondary
market on a best-efforts basis. The Company acquires such commitments to reduce interest
rate risk on mortgage loans in the process of origination and mortgage loans held for sale.
These commitments to originate or sell loans on a best efforts basis are considered
derivative instruments under ASC 815. This standard requires the Company to recognize all
derivative instruments in the balance sheet and to measure those instruments at fair value.
As a result of measuring the fair value of the commitments to originate loans, the Company
recorded an increase of $1,000 in other assets, a decrease in other liabilities of $7,000 and
an increase in other income of $8,000 for the three month period ended March 31, 2011.
Additionally, the Company has commitments to sell loans that have closed prior to the end of
the period on a best efforts basis. Due to the mark to market adjustment on commitments to
sell loans held for sale the Company recorded a decrease in other assets of $362,000 and a
decrease in other income of $362,000 for the three month period ended March 31, 2011.
24
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 8: Derivative Instruments (Continued)
Total mortgage loans in the process of origination amounted to $1,497,000 at March 31, 2011.
Related forward commitments to sell mortgage loans amounted to approximately $352,000 at
March 31, 2011.
The balance of derivative instruments related to commitments to originate and sell loans at
March 31, 2011, is disclosed in Note 10, Disclosures About Fair Value of Assets and
Liabilities.
Note 9: Fair Value Option
The Company has elected to measure loans held for sale at fair value in accordance with ASC
825, Fair Value Option. This standard permits an entity to choose to measure many financial
instruments and other items at fair value. An entity will report unrealized gains and losses
on items for which the fair value option has been elected in earnings at each reporting date.
Loans held for sale is made up entirely of mortgage loans held for immediate sale in the
secondary market with servicing released. These loans are sold prior to origination at a
contracted price to an outside investor on a best efforts basis and remain on the Companys
balance sheet for a short period of time (typically 30 to 60 days). It is managements
opinion given the short-term nature of these loans, that fair value provides a reasonable
measure of the economic value of these assets. In addition, carrying such loans at fair
value eliminates some measure of volatility created by the timing of sales proceeds from
outside investors, which typically occur in the month following origination.
The difference between the aggregate fair value and the aggregate unpaid principal balance of
loans held for sale was a gain of $2,000 at March 31, 2011. A gain from fair value changes
included in loans held for sale fee income was $146,000 for the three months ended March 31,
2011. Interest income on loans held for sale is included in interest and fees on loans in
the Companys condensed consolidated statement of operations. See Note 10 for additional
disclosures regarding fair value of mortgage loans held for sale.
25
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 10: Disclosures About Fair Value of Assets and Liabilities
ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value hierarchy requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. There are three levels of inputs that may be used to measure fair
value:
Level 1 | Quoted prices in active markets for identical assets or liabilities. | ||
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | ||
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Following is a description of the valuation methodologies used for instruments measured at
fair value on a recurring basis and recognized in the Companys condensed consolidated
balance sheet, as well as the general classification of such instruments pursuant to the
valuation hierarchy.
Available-for-Sale Securities
Where quoted market prices are available in an active market, securities are classified
within Level 1 of the valuation hierarchy. Level 1 securities include exchange traded
equities. If quoted market prices are not available, then fair values are estimated by using
pricing models, quoted prices of securities with similar characteristics or discounted cash
flows. Level 2 securities include U.S. Government sponsored agencies. In certain cases
where Level 1 or Level 2 inputs are not available, securities are classified within Level 3
of the hierarchy and include other less liquid securities.
Mortgage Loans Held for Sale
Mortgage loans held for sale are valued using market prices for loans with similar
characteristics. This measurement is classified as Level 2 within the hierarchy.
Commitments to Originate Loans and Forward Sales Commitments
Commitments to originate loans and forward sales commitments are valued using a valuation
model which considers differences between quoted prices for loans with similar
characteristics in the secondary market and the committed rates. The valuation model
includes assumptions which adjust the price for the likelihood that the commitment will
ultimately result in a closed loan. These measurements are significant unobservable inputs
and are classified as Level 3 within the hierarchy.
26
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 10: Disclosures About Fair Value of Assets and Liabilities (Continued)
The following table presents the fair value measurements of assets and liabilities recognized
in the Companys condensed consolidated balance sheet and the level within the fair value
hierarchy in which the fair value measurements fall at March 31, 2011 and December 31, 2010:
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | |||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
(In thousands) | ||||||||||||||||
March 31, 2011: |
||||||||||||||||
Assets: |
||||||||||||||||
Available-for-sale securities: |
||||||||||||||||
U.S. Government sponsored agencies |
$ | 55,001 | $ | | $ | 55,001 | $ | | ||||||||
Equity and other securities |
598 | 598 | | | ||||||||||||
Mortgage loans held for sale |
352 | | 352 | | ||||||||||||
Commitments to originate loans |
2 | | | 2 | ||||||||||||
Forward sales commitments |
10 | | | 10 | ||||||||||||
Total assets |
$ | 55,963 | $ | 598 | $ | 55,353 | $ | 12 | ||||||||
Liabilities: |
||||||||||||||||
Commitments to originate loans |
$ | 2 | $ | | $ | | $ | 2 | ||||||||
Forward sales commitments |
| | | | ||||||||||||
Total liabilities |
$ | 2 | $ | | $ | | $ | 2 | ||||||||
December 31, 2010: |
||||||||||||||||
Assets: |
||||||||||||||||
Available-for-sale securities: |
||||||||||||||||
U.S. Government sponsored agencies |
$ | 63,039 | $ | | $ | 63,039 | $ | | ||||||||
Equity and other securities |
601 | 601 | | | ||||||||||||
Mortgage loans held for sale |
8,162 | | 8,162 | | ||||||||||||
Commitments to originate loans |
1 | | | 1 | ||||||||||||
Forward sales commitments |
372 | | | 372 | ||||||||||||
Total assets |
$ | 72,175 | $ | 601 | $ | 71,201 | $ | 373 | ||||||||
Liabilities: |
||||||||||||||||
Commitments to originate loans |
$ | 9 | $ | | $ | | $ | 9 | ||||||||
Forward sales commitments |
| | | | ||||||||||||
Total liabilities |
$ | 9 | $ | | $ | | $ | 9 | ||||||||
27
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 10: Disclosures About Fair Value of Assets and Liabilities (Continued)
The following table is a reconciliation of the beginning and ending balances of recurring
fair value measurements recognized in the Companys condensed consolidated balance sheet
using significant unobservable (Level 3) inputs:
Commitments to | Forward Sales | |||||||
Originate Loans | Commitments | |||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
Balance as of December 31, 2010 |
$ | (8 | ) | $ | 372 | |||
Total realized and unrealized gains (losses): |
||||||||
Included in net income |
8 | (362 | ) | |||||
Included in other comprehensive income |
| | ||||||
Transfers in and/or out due to changes in significant inputs |
| | ||||||
Balance as of March 31, 2011 |
$ | | $ | 10 | ||||
Balance as of December 31, 2009 |
$ | (47 | ) | $ | 283 | |||
Total realized and unrealized gains (losses): |
||||||||
Included in net income |
62 | (226 | ) | |||||
Included in other comprehensive income |
| | ||||||
Transfers in and/or out due to changes in significant inputs |
| | ||||||
Balance as of March 31, 2010 |
$ | 15 | $ | 57 | ||||
Realized and unrealized gains and losses noted in the table above and included in net
income for the periods ended March 31, 2011 and 2010 are reported in the condensed
consolidated statements of operations in other income.
Following is a description of the valuation methodologies used for financial and nonfinancial
instruments measured at fair value on a non-recurring basis and recognized in the
accompanying balance sheet, as well as the general classification of such instruments
pursuant to the valuation hierarchy.
28
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 10: Disclosures About Fair Value of Assets and Liabilities (Continued)
Impaired Loans (Collateral Dependent)
Loans for which it is probable that the Company will not collect all principal and interest
due according to the contractual terms are measured for impairment. Allowable methods for
determining the amount of impairment include using the fair value of the collateral for
collateral dependent loans.
If the impaired loan is identified as collateral dependent, then the fair value method of
measuring the amount of impairment is utilized. This method requires obtaining a current
independent appraisal of the collateral and applying a discount factor to the value.
Impaired loans that are collateral dependent are classified within Level 3 of the fair value
hierarchy when impairment is determined using the fair value method.
Foreclosed Assets Held for Sale
Foreclosed assets held for sale are carried at the fair value less costs to sell at the date
of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower of carrying
amount or fair value less cost to sell.
The following table presents the fair value measurement of assets and liabilities measured at
fair value on a non-recurring basis at March 31, 2011 and December 31, 2010:
Fair Value Measurements Using | ||||||||||||||||
Significant | ||||||||||||||||
Quoted Prices in | Other | |||||||||||||||
Active Markets | Observable | Unobservable | ||||||||||||||
for Identical | Inputs | Inputs | ||||||||||||||
Fair Value | Assets (Level 1) | (Level 2) | (Level 3) | |||||||||||||
(In thousands) | ||||||||||||||||
March 31, 2011: |
||||||||||||||||
Impaired loans, net of reserves |
$ | 20,909 | $ | | $ | | $ | 20,909 | ||||||||
Foreclosed assets held for
sale, net |
3,794 | | | 3,794 | ||||||||||||
Total |
$ | 24,703 | $ | | $ | | $ | 24,703 | ||||||||
December 31, 2010: |
||||||||||||||||
Impaired loans, net of reserves |
$ | 26,106 | $ | | $ | | $ | 26,106 | ||||||||
Foreclosed assets held for
sale, net |
3,360 | | | 3,360 | ||||||||||||
Total |
$ | 29,466 | $ | | $ | | $ | 29,466 | ||||||||
The following methods and assumptions were used to estimate the fair value of all other
financial instruments recognized in the accompanying consolidated balance sheets at amounts
other than fair value.
29
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 10: Disclosures About Fair Value of Assets and Liabilities (Continued)
Cash and Cash Equivalents
For these short-term instruments, the carrying amount approximates fair value.
Loans
The fair value of loans is estimated by discounting the future cash flows using the
market rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. Loans with similar characteristics were
aggregated for purposes of the calculations. The carrying amount of accrued interest
approximates its fair value.
Federal Home Loan Bank Stock, Federal Reserve Bank Stock, and other securities
The carrying amounts for these securities approximate their fair value.
Deposits
The fair value of demand deposits, savings accounts, NOW accounts and certain money
market deposits is the amount payable on demand at the reporting date (i.e., their
carrying amount). The fair value of fixed maturity time deposits is estimated using a
discounted cash flow calculation that applies the rates currently offered for deposits
of similar remaining maturities. The carrying amount of accrued interest payable
approximates its fair value.
Securities Sold Under Agreement to Repurchase and Other Interest-Bearing Liabilities
For these short-term instruments, the carrying amount is a reasonable estimate of
fair value.
Long-Term Debt
Rates currently available to the Company for debt with similar terms and remaining
maturities are used to estimate fair value of existing debt.
Commitments to Extend Credit, Letters of Credit and Lines of Credit
The fair value of commitments is estimated using the fees currently charged to enter
into similar agreements, taking into account the remaining terms of the agreements and
the present creditworthiness of the counterparties. For fixed rate loan commitments,
fair value also considers the difference between current levels of interest rates and
the committed rates. The fair value of letters of credit and lines of credit is based
on fees currently charged for similar agreements or on the estimated cost to terminate
or otherwise settle the obligations with the counterparties at the reporting date.
30
Table of Contents
Blue Valley Ban Corp.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 10: Disclosures About Fair Value of Assets and Liabilities (Continued)
The following table presents estimated fair values of the Companys financial instruments not
previously disclosed at March 31, 2011 and December 31, 2010.
March 31, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
(In thousands) | ||||||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 118,056 | $ | 118,056 | $ | 114,781 | $ | 114,781 | ||||||||
Loans, net of allowance for loan losses |
462,009 | 462,885 | 477,723 | 478,926 | ||||||||||||
Federal Home Loan Bank stock, Federal
Reserve Bank stock, and other
securities |
7,187 | 7,187 | 7,163 | 7,163 | ||||||||||||
Interest receivable |
1,819 | 1,819 | 1,783 | 1,783 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Deposits |
515,316 | 517,683 | 541,218 | 543,832 | ||||||||||||
Securities Sold Under Agreement
to Repurchase and Other
Interest-Bearing Liabilities |
15,585 | 15,585 | 18,748 | 18,748 | ||||||||||||
Long-term debt |
99,926 | 90,537 | 99,757 | 90,880 | ||||||||||||
Interest payable |
2,615 | 2,615 | 2,689 | 2,689 | ||||||||||||
Unrecognized financial instruments
(net of amortization): |
||||||||||||||||
Commitments to extend credit |
| | | | ||||||||||||
Letters of credit |
| | | | ||||||||||||
Lines of credit |
| | | |
Note 11: Dividends on Preferred Shares
At the request of the Federal Reserve Bank of Kansas City, the Company notified the United
States Department of the Treasury (the Treasury) of its intention to defer the quarterly
dividend payments on the Preferred Shares due to the Treasury since May 15, 2009. As part of
the Capital Purchase Plan, the Company entered into a letter agreement with the Treasury on
December 5, 2008, which includes a Securities Purchase Agreement-Standard Terms. As part of
the agreement, dividends compound if they accrue and are not paid. Failure by the Company to
pay the Preferred Share dividend is not an event of default. However, a failure to pay a
total of six Preferred Share dividends, whether or not consecutive, gives the holders of the
Preferred Shares the right to elect two directors to the Companys Board of Directors. That
right would continue until the Company pays all dividends in arrears. The dividend payment
due on August 15, 2010 was the sixth dividend payment deferred by the Company. At this time,
the Treasury has not elected any directors to serve on the Companys Board of Directors;
however, beginning in November 2010 the Treasury assigned an observer to attend the Companys
board meetings. The Company has accrued for the dividends and interest and has every
intention to bring the obligation current as soon as permitted. As of March 31, 2011, the
Company had accrued $2,287,000 for dividends and interest on outstanding Preferred Shares.
31
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition
and Results Of Operations
This report contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995, and is including this
statement for purposes of those safe harbor provisions. Forward-looking statements, which
are based on certain assumptions and describe future plans, strategies and expectations of
the Company, can generally be identified by use of the words anticipate, believe, can,
continue, could, estimate, expect, intend, may, plan, potential, predict,
project, should, or the negative of these terms or other comparable terminology. The
Company is unable to predict the actual results of its future plans or strategies with
certainty. Factors which could have a material adverse effect on the operations and future
prospects of the Company include, but are not limited to, fluctuations in market rates of
interest and loan and deposit pricing; inability to maintain or increase deposit base and
secure adequate funding; a continued deterioration of general economic conditions or the
demand for housing in the Companys market areas; a deterioration in the demand for mortgage
financing; legislative or regulatory changes; regulatory action; continued adverse
developments in the Companys loan or investment portfolio; any inability to obtain funding
on favorable terms; the Companys non-payment on TARP funds or Trust Preferred Securities;
the loss of key personnel; significant increases in competition; potential unfavorable
actions from rating agencies; potential unfavorable results of litigation to which the
Company may become a party; and the possible dilutive effect of potential acquisitions or
expansions. For other risk factors refer to the risk factors section of the December 31,
2010 Form 10-K filed with the SEC on March 22, 2011. 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.
General
Critical Accounting Policies
Our critical accounting policies are largely proscribed by accounting principles generally
accepted in the United States of America. After a review of our policies, we determined that
accounting for the allowance for loan losses 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. Further description of
our critical accounting policies can be found in our Annual Report on Form 10-K for the year
ended December 31, 2010.
Results of Operations
Three months ended March 31, 2011 and 2010. Net loss for the quarter ended March 31, 2011,
was $429,000 compared to net loss of $873,000 for the quarter ended March 31, 2010,
representing an improvement of $444,000, or 50.86%. The loss per share on a diluted basis
was $0.25 for the three months ended March 31, 2011, which represented an improvement of
39.02%, compared to diluted loss per share of $0.41 in the same period of 2010. The
Companys annualized returns on average assets and average stockholders equity for the three
month period ended March 31, 2011,
32
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition
and Results Of Operations
were negative 0.25% and negative 8.13%, compared to negative 0.44% and negative 12.04%,
respectively, for the same period in 2010, representing improvements of 43.18% and 32.48%,
respectively.
The Company experienced improvement in net interest income by $470,000, or 12.91%, to $4.1
million for the three month period ended March 31, 2011, as compared to $3.6 million earned
during the same period in 2010. The increase was due to a decline in the interest expense,
which decreased $1.5 million, or 36.74%, from the same period in 2010 as a result of a
decrease in rates paid on deposits. As market rates have declined, the rates on deposits
have also declined. In 2010 the Company had funds from various time deposit promotions
mature, and as those higher rate time deposits matured they were renewed at lower market
rates. In addition, the Company entered into a restructuring transaction during the third
quarter of 2010 of $42.5 million of its $82.5 million in Federal Home Loan Bank advances.
This transaction reduced the effective interest rate, as well as modified the maturity date
on these borrowings. This increase in net interest income was partially offset by the
decline in interest income by $1.0 million, or 13.13%, as compared to the same period in
2010. The lower interest income was primarily a result of a decline in the average
outstanding loan balances by $57.8 million, or 10.71%, for the three month period ended March
31, 2011, as compared to the prior year period, as a result of loan payoffs, lower loan
origination volume due to the current economic environment, and loan foreclosures.
There was no provision for loan losses for the three month period ended March 31, 2011,
compared to $250,000 for the same period in the prior year. The Company has experienced a
reduction in non-performing loans by $2.9 million, or 9.68%, since December 31, 2010 and $10.0
million, or 26.74%, since March 31, 2010, as management continues to work on improving the
credit quality of the loan portfolio. In addition, the Company has experienced a decline in
net loan charge offs with a net recovery of $24,000 at March 31, 2011, as compared to net loan
charge off of $1.0 million at March 31, 2010. Based on analysis of the loan portfolio, no
provision for loan losses was deemed necessary.
Non-interest income decreased $169,000 to $1.4 million, or 10.74%, for the three month period
ended March 31, 2011, as compared to the same period in 2010. The decline was primarily the
result of lower loans held for sale fee income during the first quarter of 2011 of $167,000,
or 23.16%, as compared with the first quarter of 2010. The decrease in loans held for sale
fee income was a result of a decline in residential mortgage loan origination and refinancing
volume as a result of the mortgage rate environment as compared to the prior year period.
Non-interest expense decreased $165,000, or 2.60%, for the three month period ended March 31,
2011, as compared to the same period in the prior year. The decrease in non-interest expense
was attributed to lower salaries and employee benefits of $152,000, or 5.11%. Salaries and
employee benefits have decreased as a result of lower commissions paid due to the decline in
the volume of mortgage loan originations and refinancing for the three months ended March 31,
2011, as compared to the same period in the prior year. Other factors contributing to the
changes was a decrease in net occupancy expense by $69,000, or 9.43%, and an increase in
other operating expense by $56,000, or 2.12%, compared to the same period in 2010.
33
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition
and Results Of Operations
Net Interest Income
Three months ended March 31, 2011 and 2010. Fully tax equivalent (FTE) net interest income
for the three month period ended March 31, 2011, was $4.1 million, an increase of $470,000,
or 12.91%, from $3.6 million for the three month period ended March 31, 2010.
FTE interest income for the current year first quarter was $6.7 million, a decrease of $1.0
million, or 13.13%, from $7.7 million in the prior year first quarter. This decrease was
primarily a result of a decline in average balances on earning assets, specifically lower
average balances on outstanding loans, federal funds sold and available-for-sale securities.
The overall yield on average earning assets increased 13 basis points to 4.36% during the
three month period ending March 31, 2011, compared to 4.23% during the same period in 2010.
The increase in yield is attributed to the decline in the volume of loans on non-accrual at
March 31, 2011 as compared to the prior year period. The average outstanding balance of
loans has declined by $57.8 million, or 10.71%, as a result of loan payoffs, lower loan
origination volume due to the current economic environment and loan foreclosures. Average
available federal funds sold and other short-term investments decreased $40.5 million, or
38.08%. The decrease in average federal funds sold and other short-term investments was a
result of a decline in average interest-bearing deposits, primarily time deposits as
discussed below. Interest income on available-for-sale securities decreased $191,000, or
43.91%, as a result of a decrease in the average balance of available-for-sale securities by
$13.1 million, or 17.15%, over the same period in the prior year. Available-for-sale
securities were sold during the second, third and fourth quarter of 2010 to reduce the long
term maturity risk within the portfolio as a result of the current rate environment. As
higher yielding securities of $115.0 million were called or matured in 2010, they were
invested at lower yields due to the current rate environment and the securities available for
investing, thus resulting in a decline in interest income.
Interest expense for the current year first quarter was $2.5 million, a decrease of $1.5
million, or 36.74%, from $4.0 million in the prior year first quarter. The decline in
interest expense resulted from a decrease in the rate paid on average interest-bearing
liabilities resulting from the impact of the lower market interest rates on interest-bearing
demand accounts, savings and money market deposits, time deposits and long-term debt. The
rate paid on total average interest-bearing liabilities decreased to 1.91% for the three
month period ending March 31, 2011, compared to 2.46% in the same period of 2010, a decrease
of 55 basis points. Total average interest-bearing liabilities decreased $121.6 million, or
18.40%, to $539.3 million during the first quarter of 2011, compared to $660.9 million during
the prior year period. The decrease was attributed to decreases in time deposits, savings
and money market deposits, and long-term debt. Average time deposits decreased $126.2
million, or 37.58%, partially as a result of the Company not renewing $30.9 million of
brokered deposits as they matured during 2010 and $6.8 million in brokered deposits that
matured in the first quarter of 2011. The Company replaced brokered funds with core deposits
by generating increased interest in our Performance Checking product and in February 2011
started offering a new product, Ultimate Checking. The Company also had several higher rate
time deposit promotions mature in 2010 and were renewed at a lower rate. As the renewal rate
for these deposits was much lower, some time deposits were not renewed. Average savings and
money market deposits decreased $9.1 million, or 10.41%, as customers have moved their funds
into interest-bearing demand accounts, specifically Ultimate Checking and Performance
Checking accounts, as these products offer a more attractive rate. The decrease in average
interest-bearing liabilities was offset by increases in average interest-bearing demand
accounts by $14.4 million, or 12.02%, as a result of the growth experienced in balances of
our Ultimate and Performance Checking products. While the balances in interest-bearing
demand deposits have increased, the
34
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition
and Results Of Operations
interest expense associated with these accounts have declined $206,000, or 30.29%, as a
result of lowering the interest rate paid on the Performance Checking accounts in response to
a decline in rates paid in the market. Interest expense for long-term debt is lower as a
result of the Companys restructuring transaction of $42.5 million of its $82.5 million
Federal Home Loan Bank advances during the third quarter of 2010, thus lowering overall
interest expense on these borrowings.
Average Balance Sheets. The following table sets forth, for the periods and as of the dates
indicated, information regarding our average balances of assets and liabilities as well as
the dollar amounts of FTE interest income from interest-earning assets and interest expense
on interest-bearing liabilities and the resultant yields or costs. Ratio, yield and rate
information are based on average daily balances where available; otherwise, average monthly
balances have been used. Non-accrual loans are included in the calculation of average
balances for loans for the periods indicated. For explanation of changes between periods
reported within the table see Net Interest Income and the Financial Condition sections under
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
35
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition
and Results Of Operations
Average Balances, Yields and Rates
Three Months Ended March 31, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Avg. | Avg. | |||||||||||||||||||||||
Average | Yield/ | Average | Yield/ | |||||||||||||||||||||
Balance | Interest | Rate | Balance | Interest | Rate | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||
Federal funds sold and other short-term investments |
$ | 65,908 | $ | 39 | 0.24 | % | $ | 106,443 | $ | 62 | 0.24 | % | ||||||||||||
Available-for-sale securities taxable |
63,396 | 244 | 1.56 | 76,518 | 435 | 2.31 | ||||||||||||||||||
Mortgage loans held for sale |
1,414 | 16 | 4.59 | 4,205 | 50 | 4.82 | ||||||||||||||||||
Loans, net of unearned discount and fees |
482,238 | 6,327 | 5.32 | 540,063 | 7,083 | 5.32 | ||||||||||||||||||
Federal Home Loan and Federal Reserve Bank Stock |
6,339 | 25 | 1.60 | 6,235 | 26 | 1.69 | ||||||||||||||||||
Total earning assets |
619,295 | 6,651 | 4.36 | 733,464 | 7,656 | 4.23 | ||||||||||||||||||
Cash and due from banks non-interest bearing |
37,145 | 37,541 | ||||||||||||||||||||||
Allowance for possible loan losses |
(14,769 | ) | (19,711 | ) | ||||||||||||||||||||
Premises and equipment, net |
16,183 | 16,866 | ||||||||||||||||||||||
Other assets |
35,838 | 38,637 | ||||||||||||||||||||||
Total assets |
$ | 693,692 | $ | 806,797 | ||||||||||||||||||||
Liabilities and Stockholders Equity |
||||||||||||||||||||||||
Deposits-interest bearing: |
||||||||||||||||||||||||
Interest-bearing demand accounts |
$ | 134,368 | $ | 474 | 1.43 | % | $ | 119,950 | $ | 680 | 2.30 | % | ||||||||||||
Savings and money market deposits |
78,679 | 97 | 0.50 | 87,817 | 114 | 0.53 | ||||||||||||||||||
Time deposits |
209,605 | 1,099 | 2.13 | 335,786 | 2,244 | 2.71 | ||||||||||||||||||
Total interest-bearing deposits |
422,652 | 1,670 | 1.60 | 543,553 | 3,038 | 2.27 | ||||||||||||||||||
Other interest-bearing liabilities |
17,359 | 10 | 0.23 | 15,875 | 9 | 0.23 | ||||||||||||||||||
Long-term debt |
99,282 | 860 | 3.51 | 101,500 | 968 | 3.87 | ||||||||||||||||||
Total interest-bearing liabilities |
539,293 | 2,540 | 1.91 | 660,928 | 4,015 | 2.46 | ||||||||||||||||||
Non-interest bearing deposits |
90,972 | 80,366 | ||||||||||||||||||||||
Other liabilities |
6,682 | 5,152 | ||||||||||||||||||||||
Stockholders equity |
56,745 | 60,351 | ||||||||||||||||||||||
Total liabilities and stockholders equity |
$ | 693,692 | $ | 806,797 | ||||||||||||||||||||
FTE Net interest income/spread |
$ | 4,111 | 2.45 | % | $ | 3,641 | 1.77 | % | ||||||||||||||||
FTE Net interest margin |
2.69 | % | 2.01 | % | ||||||||||||||||||||
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Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition
and Results Of Operations
Analysis of Changes in Net Interest Income Due to Changes in Interest Rates and Volumes.
The following table presents the dollar amount of changes in interest income and interest
expense for major components of interest-earning assets and interest-bearing liabilities. It
distinguishes between the increase or decrease related to changes in balances and changes in
interest rates. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to:
| 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. |
For explanation of changes see Net Interest Income section under Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations.
Changes in Interest Income and
Expense Volume and Rate Variances
Expense Volume and Rate Variances
Three Months Ended March 31, | ||||||||||||
2011 compared to 2010 | ||||||||||||
Change | Change | |||||||||||
Due to | Due to | Total | ||||||||||
Rate | Volume | Change | ||||||||||
(In thousands) | ||||||||||||
Federal funds sold and other short-term investments |
$ | | $ | (23 | ) | $ | (23 | ) | ||||
Available-for-sale securities taxable |
(141 | ) | (50 | ) | (191 | ) | ||||||
Mortgage loans held for sale |
(2 | ) | (32 | ) | (34 | ) | ||||||
Loans, net of unearned discount and fees |
| (756 | ) | (756 | ) | |||||||
Federal Home Loan and Federal Reserve Bank Stock |
(3 | ) | 2 | (1 | ) | |||||||
Total interest income |
(146 | ) | (859 | ) | (1,005 | ) | ||||||
Interest-bearing demand accounts |
(516 | ) | 310 | (206 | ) | |||||||
Savings and money market deposits |
(6 | ) | (11 | ) | (17 | ) | ||||||
Time deposits |
(481 | ) | (664 | ) | (1,145 | ) | ||||||
Other interest-bearing liabilities |
| 1 | 1 | |||||||||
Long-term debt |
(89 | ) | (19 | ) | (108 | ) | ||||||
Total interest expense |
(1,092 | ) | (383 | ) | (1,475 | ) | ||||||
Net interest income |
$ | 946 | $ | (476 | ) | $ | 470 | |||||
37
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
Provision for Loan Losses
The Company makes provisions for loan losses in amounts that management deems necessary to
maintain the allowance for loan losses at an appropriate level. The allowance for loan
losses is based upon the analysis of several factors, including general economic conditions,
analysis of impaired loans, the general reserve factors, changes in loan mix, classified
loans to total risk weighted capital and current and historical charge-offs by loan type.
Historical charge off information currently utilized is based on three year weighted average
of net charge offs by loan type with more weight given to more current data due to the
current economic environment. The Companys 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 Banks Board of Directors
review the allowance for loan losses monthly, considering such factors as current and
projected economic conditions, loan growth, the composition of the loan portfolio, loan
trends and classifications, and other factors. Economic conditions monitored include but are
not limited to: Johnson County, KS unemployment rate; consumer confidence; foreclosure
rates; vacant property 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.
There was no provision for loan losses recorded for the first quarter of 2011 compared to
$250,000 in the same period of 2010. The Company has experienced a reduction in
non-performing loans by $2.9 million, or 9.68%, since December 31, 2010 and $10.0 million, or
26.74% since March 31, 2010. The Company has also experienced a decline in net loan charge
offs and had net loan recoveries at March 31, 2011 of $24,000. Management assessed the loan
portfolio, specifically the non-performing loans, on a credit by credit basis, to assess the
reserve requirement. Based on analysis of the loan portfolio, no provision for loan losses
was deemed necessary for the three month period ended March 31, 2011. Management believes
they have identified the significant non-performing loans and will continue to aggressively
pursue collection of these loans. If the adverse real estate and construction industry and
general economic conditions are more prolonged than management anticipates, the Company could
experience higher than anticipated loan losses in the future.
Non-interest Income
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Loans held for sale fee income |
$ | 554 | $ | 721 | ||||
NSF charges and service fees |
223 | 283 | ||||||
Other service charges |
500 | 454 | ||||||
Other income |
127 | 115 | ||||||
Total non-interest income. |
$ | 1,404 | $ | 1,573 | ||||
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Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
Non-interest income decreased $169,000, or 10.74%, to $1.4 million during the three
month period ended March 31, 2011, from $1.6 million during the three month period ended
March 31, 2010. The decrease was the result of a lower mortgage loans held for sale fee
income of $167,000, or 23.16%, due to lower origination and refinancing volume during the
first quarter of 2011 as a result of the mortgage rate environment, as compared with the
first quarter of 2010. Sustainability of the level of our loans held for sale fee income is
primarily dependent on the economy and interest rate environment, and secondarily dependent
on our ability to develop new products and alternative delivery channels. Also contributing
to the decrease in non-interest income was a decline in service fee income, specifically
non-sufficient funds (NSF) charges and service fees. NSF and service charges fee income
decreased by $60,000, or 21.20%, due to fewer overdraft items by our customers and a decrease
in account service charges on commercial accounts.
Other changes reflected in non-interest income include an increase in other service charges
income, which includes income from trust services, investment brokerage, merchant bankcard
processing and debit card processing, by $46,000, or 10.13%, as compared to the same period
in 2010. The increase was primarily attributed to income generated from signature based
debit card transactions associated with our Ultimate and Performance Checking products and
increased activity in trust services. Other non-interest income increased by $12,000, or
10.43%, due to higher gains realized on the sale of foreclosed assets held for sale by
$211,000, or 147.63%, as a result of the sale of several larger other real estate properties
during 2011. This increase was offset by losses due to the effect of recording the net fair
value of certain mortgage loan commitments. The net fair value of mortgage loan-related
commitments recorded for the three months ended March 31, 2011 was a loss of $354,000
compared to a loss of $164,000 for the same period in 2010, an increased loss of $190,000, or
116.02%. The fair value on these commitments will fluctuate based on the market rates for
mortgage loans.
Non-interest Expense
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Salaries and employee benefits |
$ | 2,822 | $ | 2,974 | ||||
Net occupancy expense |
663 | 732 | ||||||
Other operating expenses |
2,703 | 2,647 | ||||||
Total non-interest expense |
$ | 6,188 | $ | 6,353 | ||||
Non-interest expense decreased $165,000, or 2.60%, to $6.2 million during the three month
period ended March 31, 2011, compared to $6.4 million during the prior year period. The
change was attributed to a decrease in salaries and employee benefits of $152,000, or 5.11%,
as a result of lower commissions paid during the period on residential mortgage loans
originated and sold in the secondary market as a result of the decline in the volume of
mortgage loan originations and refinancing for the period. In addition, net occupancy expense
decreased $69,000, or 9.43%, due to lower depreciation expense, telephone and repairs and
maintenance expense. Other operating expenses increased $56,000, or 2.12%, as a result of the
Company recording a $361,000 provision for other real estate in 2011 compared to $59,000 for
the same period in 2010 as a result of a decline in real estate value related to specific
foreclosed properties. This increase was partly offset
39
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
by lower Federal Deposit Insurance
Corporation (FDIC) deposit insurance assessment as a result of a decrease in the Companys
assessment base, as well as decreases in data processing expense and professional fees.
Financial Condition
Total assets for the Company at March 31, 2011, were $693.8 million, a decrease of $29.3
million, or 4.06%, compared to $723.1 million at December 31, 2010. Deposits were $515.3
million compared with $541.2 million at December 31, 2010, a decrease of $25.9 million, or
4.79%. Stockholders equity was $56.4 million at March 31, 2011, compared with $57.2 million
at December 31, 2010, a decrease of $796,000, or 1.39%.
Investments. Available-for-sale securities at March 31, 2011, totaled $55.6 million,
reflecting a 12.64% decrease from $63.6 million at December 31, 2010. The decrease was a
result of $8.0 million in available-for-sale securities being called during 2011 and not
replaced as of the end of the period.
Loans Held for Sale. Mortgage loans held for sale at March 31, 2011, totaled $352,000, a
decrease of $7.8 million, or 95.69%, compared to $8.2 million at December 31, 2010. The
volume of mortgage loans held for sale originated during 2011 slowed as a result of the
mortgage rate and economic environment.
Loans. Loans at March 31, 2011, totaled $476.8 million, reflecting a decrease of $15.7
million, or 3.19%, compared to $492.5 million at December 31, 2010. The decrease in the loan
portfolio was attributed to loans paying off, lower loan originations due to the current
economic conditions and loan foreclosures. The loan to deposit ratio at March 31, 2011, was
92.52% compared to 90.99% at December 31, 2010.
Non-performing assets consist primarily of loans past due 90 days or more, non-accrual loans
and foreclosed assets. 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. When interest accrual is discontinued, all unpaid accrued interest is
reversed against interest income. The interest on these loans is generally accounted for on
a cost recovery basis, meaning interest is not recognized until the past due balance has been
collected. Loans may be returned to accrual status when all the principal and interest
amounts contractually due are brought current and future payments are reasonably assured.
40
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
The following table sets forth our non-performing assets as of the dates indicated: |
Non-Performing Assets
As of | ||||||||||||
March 31, | March 31, | December 31, | ||||||||||
2011 | 2010 | 2010 | ||||||||||
(In thousands) | ||||||||||||
Commercial and all other loans: |
||||||||||||
Past due 90 days or more |
$ | | $ | | $ | | ||||||
Non-accrual |
2,376 | 947 | 2,896 | |||||||||
Commercial real estate loans: |
||||||||||||
Past due 90 days or more |
| | | |||||||||
Non-accrual |
8,128 | 13,094 | 10,088 | |||||||||
Construction loans: |
||||||||||||
Past due 90 days or more |
| | | |||||||||
Non-accrual |
10,312 | 16,032 | 10,417 | |||||||||
Home equity loans : |
||||||||||||
Past due 90 days or more |
| | | |||||||||
Non-accrual |
1,352 | 292 | 1,211 | |||||||||
Residential real estate loans: |
||||||||||||
Past due 90 days or more |
| | | |||||||||
Non-accrual |
5,173 | 6,692 | 5,553 | |||||||||
Lease financing: |
||||||||||||
Past due 90 days or more |
| | | |||||||||
Non-accrual |
26 | 63 | 140 | |||||||||
Consumer loans: |
||||||||||||
Past due 90 days or more |
| | | |||||||||
Non-accrual |
51 | 308 | 52 | |||||||||
Debt securities and other assets (exclude other real estate owned and
other repossessed assets): |
||||||||||||
Past due 90 days or more |
| | | |||||||||
Non-accrual |
| | | |||||||||
Total non-performing loans |
27,418 | 37,428 | 30,357 | |||||||||
Foreclosed assets held for sale |
19,082 | 23,680 | 20,144 | |||||||||
Total non-performing assets |
$ | 46,500 | $ | 61,108 | $ | 50,501 | ||||||
Total non-performing loans to total loans |
5.75 | % | 7.10 | % | 6.16 | % | ||||||
Total non-performing loans to total assets |
3.95 | % | 4.43 | % | 4.20 | % | ||||||
Allowance for loan losses to non-performing loans |
53.82 | % | 51.33 | % | 48.53 | % | ||||||
Non-performing assets to loans and foreclosed
assets held for sale |
9.38 | % | 11.09 | % | 9.85 | % |
41
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
Non-performing loans decreased to $27.4 million at March 31, 2011, from $30.4 million at
December 31, 2010. The decrease in non-performing loans was attributed to a decrease in
non-performing commercial real estate loans by $2.0 million and a decrease in commercial and
all other loans by $520,000 since December 31, 2010. The decrease in commercial real estate
loans was primarily the result of two credit relationships being upgraded to a pass rated
loan as a result of improvement in the credit quality of the borrower and the borrower has
shown a history of paying as agreed. The decrease in commercial and all other loans was the
result of larger principal payments received on two of our commercial credit relationships.
We closely monitor non-performing credit relationships and our philosophy has been to value
non-performing loans at their estimated collectible value and to aggressively manage these
situations. Foreclosed assets held for sale were $19.1 million as of March 31, 2011, as
compared to $20.1 million at December 31, 2010. The Company has sold $1.8 million in
foreclosed assets and has transferred $722,000 in loans to foreclosed property during 2011.
The Company is actively marketing these properties and working to reduce the balance of
foreclosed assets held for sale.
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Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following table sets forth information regarding changes in our allowance for loan
and valuation losses for the periods indicated.
Summary of Loan Loss Experience and Related Information
As of and for the | ||||||||||||
Three Months | Three Months | |||||||||||
Ended | Ended | Year Ended | ||||||||||
March 31, | March 31, | December 31, | ||||||||||
2011 | 2010 | 2010 | ||||||||||
(In thousands) | ||||||||||||
Balance at Beginning of Period |
$ | 14,731 | $ | 20,000 | $ | 20,000 | ||||||
Loans Charged Off |
||||||||||||
Commercial loans |
18 | 134 | 1,364 | |||||||||
Commercial real estate loans |
| | 2,985 | |||||||||
Construction loans |
80 | 853 | 3,662 | |||||||||
Home equity loans |
| 100 | 387 | |||||||||
Residential real estate loans |
183 | 80 | 660 | |||||||||
Lease financing |
| 6 | 43 | |||||||||
Consumer loans |
| | 7 | |||||||||
Total loans charged-off |
281 | 1,173 | 9,108 | |||||||||
Recoveries |
||||||||||||
Commercial loans |
155 | 111 | 390 | |||||||||
Commercial real estate loans |
| | 171 | |||||||||
Construction loans |
21 | 1 | 123 | |||||||||
Home equity loans |
37 | | 17 | |||||||||
Residential real estate loans |
64 | 2 | 11 | |||||||||
Lease financing |
25 | 6 | 14 | |||||||||
Consumer loans |
3 | 14 | 18 | |||||||||
Total recoveries |
305 | 134 | 744 | |||||||||
Net Loans Charged Off (Recovered) |
(24 | ) | 1,039 | 8,364 | ||||||||
Provision for Loan Losses |
| 250 | 3,095 | |||||||||
Balance at End of Period |
$ | 14,755 | $ | 19,211 | $ | 14,731 | ||||||
Loans Outstanding |
||||||||||||
Average |
$ | 482,238 | $ | 540,063 | $ | 518,010 | ||||||
End of period |
$ | 476,764 | $ | 527,121 | $ | 492,454 | ||||||
Ratio of Allowance for Loan Losses to
Loans Outstanding |
||||||||||||
Average |
3.06 | % | 3.56 | % | 2.84 | % | ||||||
End of period |
3.09 | % | 3.64 | % | 2.99 | % | ||||||
Ratio of Net Charge-Offs (Recoveries) to |
||||||||||||
Average loans |
(0.005 | %) | 0.19 | % | 1.61 | % | ||||||
End of period loans |
(0.005 | %) | 0.20 | % | 1.70 | % |
The allowance for loan losses as a percent of total loans was 3.09% as of March 31,
2011, compared to 2.99% as of December 31, 2010. The ratio of net charge-offs (recoveries)
to average loans has improved since December 31, 2010.
43
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Deposits. Deposits decreased by $25.9 million, or 4.79%, to $515.3 million as of March 31,
2011, compared with $541.2 million at December 31, 2010. The decrease was primarily
attributed to a decrease in time deposits of $23.7 million, or 10.67%, as a result of brokered
time deposits of $6.8 million that matured in January 2011 and were not renewed. As a result
of lower time deposit rates, as time deposits mature some have not renew or have invested
their funds in a higher yielding product such as our Ultimate or Performance Checking
accounts. The Company continues to work on replacing brokered funds with core deposits by
generating interest in the Ultimate and Performance checking products, as well as other
products offered by the Company.
Liquidity. Liquidity is measured by a financial institutions ability to raise funds through
deposits, borrowed funds, capital, or the sale of marketable assets, such as residential
mortgage loans or a portfolio of SBA loans. Other sources of liquidity, including cash flow
from the repayment of loans, are also considered in determining whether liquidity is
satisfactory. Liquidity is also achieved through growth of core deposits and liquid assets,
and accessibility to the money and capital markets. The funds are used to meet deposit
withdrawals, maintain reserve requirements, fund loans and operate the organization. Core
deposits, defined as demand deposits, interest-bearing transaction accounts, savings deposits
and time deposits less than $100,000 (excluding brokered deposits), were 78.03% and 75.22% of
our total deposits at March 31, 2011, and December 31, 2010, respectively. Although
classified as brokered deposits for regulatory purpose, funds placed through the Certificate
of Deposit Account Registry Service (CDARS) are Bank customer relationships that management
views as core deposits. If CDARS deposits under $100,000 placed in the CDARS program are
added back, our core deposit ratio would be 78.59% at March 31, 2011, and 77.63% at December
31, 2010. Generally, the Companys funding strategy is to fund loan growth with core deposits
and utilize alternative sources of funds such as advances/borrowings from the Federal Home
Loan Bank of Topeka (FHLBank), as well as the brokered deposit market to provide for
additional liquidity needs and take advantage of opportunities for lower costs. If needed,
FHLBank borrowings are used to fund originations of mortgage loans held for sale. Advance
availability with the FHLBank fluctuates depending on levels of available collateral and is
determined daily with regards to mortgage loans held for sale and quarterly with regards to
overall availability and at March 31, 2011, approximately $20.0 million was available.
In addition, the Company uses other forms of short-term debt for cash management and liquidity
management purposes on a limited basis. These forms of borrowings include federal funds
purchased and revolving lines of credit. The Bank has a line of credit with the Federal
Reserve Bank of Kansas City. The availability on the line of credit fluctuates depending on
the level of available collateral, which includes commercial and commercial real estate loans.
Availability on the line of credit at March 31, 2011, was approximately $27.9 million.
Advances are made at the discretion of the Federal Reserve Bank of Kansas City.
The Company also uses the brokered market as a source of liquidity. As of March 31, 2011,
excluding CDARS as described above, the Company had approximately $10.1 million in brokered
deposits compared to $16.9 million at December 31, 2010, a decrease of $6.8 million, or
40.29%. The decrease in brokered deposits was the result of the Company not renewing the
deposits as they matured during the first quarter of 2011.
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 dividends by the Bank. In prior years, the Company has relied on dividends from the Bank
to assist
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
in making debt service and dividend payments. The Company has also agreed at the request of
the Federal Reserve Bank to defer interest payments and not pay dividends on trust preferred
securities or any of its equity securities without prior regulatory approval in an effort to
preserve capital. As a result, the Company has deferred the quarterly payment of interest
related to trust preferred securities of BVBC Capital Trust III due since March 31, 2009 and
the quarterly payment of interest related to trust preferred securities of BVBC Capital Trust
II due since April, 24, 2009. In addition, at the request of the Federal Reserve Bank of
Kansas City, the Company notified the United States Department of the Treasury (the
Treasury) of its intention to defer the quarterly dividend payments on the Preferred Shares
since May 15, 2009. As part of the agreement with the Treasury, dividends compound if they
accrue and are not paid. Failure by the Company to pay the Preferred Share dividend is not an
event of default. However, a failure to pay a total of six Preferred Share dividends, whether
or not consecutive, gives the holders of the Preferred Shares the right to elect two directors
to the Companys Board of Directors. That right would continue until the Company pays all
dividends in arrears. The dividend payment due August 15, 2010 was the sixth dividend payment
deferred by the Company. At this time, the Treasury has not elected any directors to serve on
the Companys Board of Directors; however, they have assigned an observer to attend the
Companys board meetings. The Company has accrued for interest and the dividends and has
every intention to bring the obligation current as soon as permitted. As of March 31, 2011,
the Company has accrued $4.0 million for dividends and interest on outstanding trust preferred
securities and Preferred Shares. There are other ancillary expenses related to the legal and
accounting fees which could be incurred without the ability of the Bank to dividend to the
Company. The Company currently maintains cash balances sufficient to cover such ancillary
expenses for several years based on historical expense amounts.
The Companys Asset-Liability Management Committee utilizes a variety of liquidity monitoring
tools, including an asset/liability modeling software, to analyze and manage the Companys
liquidity. Management has established internal guidelines and analytical tools to measure
liquid assets, alternative sources of liquidity, as well as relevant ratios concerning asset
levels and purchased funds. These indicators are reported to the Banks Board of Directors
monthly.
Capital. At March 31, 2011, our total stockholders equity was $56.4 million and our equity
to asset ratio was 8.12%. At March 31, 2011, our Tier 1 capital ratio was 11.73% compared to
11.39% at December 31, 2010, while our total risk-based capital ratio was 13.04% compared to
12.66% at December 31, 2010. As of March 31, 2011, the Company had capital in excess of the
requirements for an adequately-capitalized bank holding company. At March 31, 2011, the
Banks Tier 1 capital ratio was 12.38% compared to 11.88% at December 31, 2010, while our
total risk-based capital ratio was 13.65% compared to 13.15% at December 31, 2010. As of
March 31, 2011, the Bank had capital in excess of the requirements for a well-capitalized
institution.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a continuing part of our financial strategy, we attempt to manage the impact of
fluctuations in market interest rates on our net interest income. This effort entails
providing a reasonable balance between interest rate risk, credit risk, liquidity risk and
maintenance of yield. Our funds management policy is established by our Bank Board of
Directors and monitored by our Asset/Liability Management Committee. Our funds management
policy sets standards within which we are expected to operate. These standards include
guidelines for exposure to interest rate fluctuations, liquidity, loan limits as a percentage
of funding sources, exposure to correspondent banks and brokers, and reliance on non-core
deposits. Our funds management policy also establishes the reporting requirements to our
Bank Board of Directors. Our investment policy complements our funds management policy by
establishing criteria by which we may purchase securities. These criteria include approved
types of securities, brokerage sources, terms of investment, quality standards, and
diversification. Our liquidity contingency funding plan is established by our Bank Board of
Directors and monitored by our Asset/Liability Management Committee. Our liquidity
contingency funding plan sets guidelines for the Company to monitor and control its liquidity
position as well as ensure appropriate contingency liquidity plans are actively in place and
consistent with the current and forecasted needs of the Company.
We use asset/liability modeling software to analyze the Companys current sensitivity to
instantaneous and permanent changes in interest rates. The system simulates the Companys
asset and liability base and projects future net interest income results under several
interest rate assumptions. This allows management to view how changes in interest rates will
affect the spread between the yield received on assets and the cost of deposits and borrowed
funds.
The asset/liability modeling software is also used to analyze the net economic value of
equity at risk under instantaneous shifts in interest rates. The net economic value of
equity at risk is defined as the market value of assets less the market value of liabilities
plus/minus the market value of any off-balance sheet positions. By effectively looking at
the present value of all future cash flows on or off the balance sheet, the net economic
value of equity modeling takes a longer-term view of interest rate risk.
We strive to maintain a position such that current changes in interest rates will not affect
net interest income or the economic value of equity by more than 5%, per 50 basis points.
The following table sets forth the estimated percentage change in the Bank of Blue Valleys
net interest income over the next twelve month period and net economic value of equity at
risk at March 31, 2011 based on the indicated instantaneous and permanent changes in interest
rates.
Net Interest | Net Economic | |||||||
Income | Value of | |||||||
Changes in Interest Rates | (next 12 months) | Equity at Risk | ||||||
200 basis point rise |
15.86 | % | (3.08 | )% | ||||
100 basis point rise |
9.25 | % | (2.01 | )% | ||||
Base Rate Scenario |
| | ||||||
25 basis point decline |
(1.59 | )% | .10 | % |
The above table indicates that, at March 31, 2011, 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 an increase in our interest-bearing demand deposit balances, specifically
our Ultimate and Performance Checking accounts. The increase in interest-bearing demand deposit
balances provides the Company
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
with greater control over the cost of its funding base and enables the Company to expand its net
interest margin in an increasing rate environment. 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. Another consideration in a rising interest rate scenario is the
impact of mortgage financing, which would likely decline, leading to lower loans held for sale
fee income, though the impact is difficult to quantify or project. 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 above table also indicates that, at March 31, 2011, in the event of a sudden increase in
prevailing market rates, the economic value of our equity would decrease. Given our current
asset/liability position, a 100 and 200 basis point increase in interest rates will result in a
lower economic value of our equity as the change in estimated gain on liabilities exceeds the
change in estimated loss on assets in this interest rate scenario. Currently, under an
increasing rate environment, the Companys estimated market value of loans could decrease
slightly due to fixed rate loans and investments with rates lower than market rates. These
assets have a likelihood to remain until maturity in this rate environment. However, the
estimated market value decrease in fixed rate loans and investment securities would be offset by
time deposits unable to reprice to higher rates immediately and fixed-rate callable advances
from FHLBank. The likelihood of advances being called in a rising rate environment increases
resulting in advances being repriced prior to maturity. Given our current asset/liability
position, a 25 basis point decline in interest rates will result in a slight increase in the
economic value of our equity as the change in estimated gain on assets exceeds the change in
estimated loss on liabilities in this interest rate scenario. Currently, under a falling rate
environment, the Companys estimated market value of loans could increase as a result of fixed
rate loans, net of possible prepayments. However, the estimated market value increase in fixed
rate loans is offset by time deposits unable to reprice to lower rates immediately and
fixed-rate callable advances from FHLBank. The likelihood of advances being called in a
decreasing rate environment is diminished resulting in the advances existing until final
maturity, which has the effect of lowering the economic value of equity.
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Item 4. Controls and Procedures
In accordance with Item 307 of Regulation S-K promulgated under the Securities Act of
1933, as amended, the Chief Executive Officer and Chief Financial Officer of the Company (the
Certifying Officers) have conducted evaluations of the Companys disclosure controls and
procedures. As defined under Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act
of 1934, as amended (the Exchange Act), the term disclosure controls and procedures means
controls and other procedures of an issuer that are designed to ensure that information
required to be disclosed by the issuer in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the Commissions rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to
be disclosed by an issuer in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the issuers management, including its principal executive
officer or officers and principal financial officer or officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure.
The Certifying Officers have reviewed the Companys disclosure controls and procedures and
have concluded that those disclosure controls and procedures are effective as of the date of
this Quarterly Report on Form 10-Q. In compliance with Section 302 of the Sarbanes-Oxley Act
of 2002, (18 U.S.C. 1350), each of the Certifying Officers executed an Officers
Certification included in this Quarterly Report on 10-Q.
There have not been any changes in the Companys internal controls over financial reporting
during the quarter ended March 31, 2011, which have materially affected, or are reasonably
likely to materially affect, the Companys internal controls over financial reporting.
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Table of Contents
Item 1. Legal Proceedings
We are periodically involved in routine litigation incidental to our business. We are not a
party to any pending litigation that we believe is likely to have a material adverse effect
on our consolidated financial condition, results of operations or cash flows.
Item 1A. Risk Factors
No changes
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. (Removed and Reserved) |
Item 5. Other Information
None
Item 6. Exhibits
EXHIBITS
11. | Computation of Earnings Per Share. Please see p. 12. | ||
15. | Letter regarding Unaudited Interim Financial Information | ||
31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) | ||
31.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) | ||
32.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Blue Valley Ban Corp. |
||||
Date: May 10, 2011 | By: | /s/ Robert D. Regnier | ||
Robert D. Regnier, President and | ||||
Chief Executive Officer and Director (Principal Executive Officer) |
||||
Date: May 10, 2011 | By: | /s/ Mark A. Fortino | ||
Mark A. Fortino, Chief Financial Officer | ||||
(Principal Financial and Accounting Officer) |
50