10-Q 1 c62367e10-q.txt QUARTERLY REPORT DATED 3/31/01 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________________ TO __________________ COMMISSION FILE NUMBER: 001-15933 BLUE VALLEY BAN CORP (Exact name of registrant as specified in its charter) KANSAS 48-1070996 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11935 RILEY OVERLAND PARK, KANSAS 66225-6128 (Address of principal (Zip Code) executive offices) Registrant's 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 [X] No [ ] Number of shares of Common Stock ($1.00 par value) outstanding at the close of business on March 31, 2001 was 2,162,276 shares. 2 BLUE VALLEY BAN CORP INDEX
Page No. PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS Independent Accountants' Review Report 3 Consolidated Balance Sheets - March 31, 2001 (unaudited) and December 31, 2000 4 Consolidated Statements of Income (unaudited) - three months ended March 31, 2001 and 2000 6 Consolidated Statements of Changes in Stockholders' Equity (unaudited) - three months ended March 31, 2001 and 2000 7 Consolidated Statements of Cash Flows (unaudited) - three months ended March 31, 2001 and 2000 8 Notes to Consolidated Financial Statements (unaudited) - three months ended March 31, 2001 and 2000 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INDEPENDENT ACCOUNTANTS' REVIEW REPORT Board of Directors Blue Valley Ban Corp Overland Park, Kansas 66225 We have reviewed the consolidated balance sheet of BLUE VALLEY BAN CORP as of March 31, 2001, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the three-month periods ended March 31, 2001 and 2000. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 2000 and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended (not presented herein), and in our report dated February 9, 2001 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2000 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ BAIRD, KURTZ & DOBSON Kansas City, Missouri April 26, 2001 3 4 BLUE VALLEY BAN CORP CONSOLIDATED BALANCE SHEETS MARCH 31, 2001 AND DECEMBER 31, 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
MARCH 31, 2001 DECEMBER 31, 2000 -------------------- ------------------ (UNAUDITED) Cash and due from banks $17,877 $13,720 Federal funds sold 39,600 22,200 -------------------- ------------------ Cash and cash equivalents 57,477 35,920 Available-for-sale securities 64,329 76,503 Held-to-maturity securities 2,000 2,000 Mortgage loans held for sale 7,850 1,207 Loans 298,854 287,669 Less allowance for loan losses (4,548) (4,440) -------------------- ------------------ Net loans 294,306 283,229 Premises and equipment 6,790 6,591 Foreclosed assets held for sale, net 115 334 Interest receivable 2,779 3,058 Deferred income taxes 822 939 Prepaid expenses and other assets 1,504 2,041 Federal Home Loan Bank stock and other securities 1,550 1,550 Excess of cost over fair value of net assets acquired, at amortized cost 1,257 1,295 -------------------- ------------------ Total Assets $440,779 $414,667 ==================== ==================
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Review Report. 4 5 BLUE VALLEY BAN CORP CONSOLIDATED BALANCE SHEETS MARCH 31, 2001 AND DECEMBER 31, 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, 2001 DECEMBER 31, 2000 -------------------- ------------------ (UNAUDITED) LIABILITIES Demand deposits $42,709 $44,354 Savings, NOW and money market deposits 166,835 154,464 Time deposits 154,700 139,403 -------------------- ------------------ Total Deposits 364,244 338,221 Securities sold under agreements to repurchase 14,946 15,299 Short-term debt 5,000 5,000 Long-term debt 16,732 16,768 Guaranteed preferred beneficial interest in Company's subordinated debt 11,500 11,500 Advances from borrowers for taxes and insurance 315 1,350 Accrued interest and other liabilities 3,168 2,714 -------------------- ------------------ Total Liabilities 415,905 390,852 -------------------- ------------------ STOCKHOLDERS' EQUITY Capital stock Common stock, par value $1 per share; Authorized 15,000,000 shares; issued and outstanding 2001 - 2,162,276 shares; 2000 - 2,141,720 2,162 2,142 Additional paid-in capital 5,490 5,277 Retained earnings 16,447 15,935 Accumulated other comprehensive income Unrealized appreciation on available-for-sale securities, net of income taxes of $516 in 2001 and $307 in 2000 775 461 -------------------- ------------------ Total Stockholders' Equity 24,874 23,815 -------------------- ------------------ Total Liabilities and Stockholders' Equity $440,779 $414,667 ==================== ==================
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Review Report. 5 6 BLUE VALLEY BAN CORP CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED MARCH 31, ---------------------------------------- 2001 2000 ------------------- ----------------- (UNAUDITED) (UNAUDITED) INTEREST INCOME Interest and fees on loans $6,904 $6,273 Federal funds sold 341 38 Available-for-sale securities 1,200 753 Held-to-maturity securities 40 - ------------------- ----------------- Total Interest Income 8,485 7,064 ------------------- ----------------- INTEREST EXPENSE Interest-bearing demand deposits 245 185 Savings and money market deposit accounts 1,507 1,242 Other time deposits 2,419 1,524 Securities sold under repurchase agreements 112 91 Long-term debt and advances 613 413 ------------------- ----------------- Total Interest Expense 4,896 3,455 ------------------- ----------------- NET INTEREST INCOME 3,589 3,609 PROVISION FOR LOAN LOSSES 540 465 ------------------- ----------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,049 3,144 NONINTEREST INCOME Service fees 623 600 Other income 275 75 ------------------- ----------------- Total Noninterest Income 898 675 ------------------- ----------------- NONINTEREST EXPENSE Salaries and employee benefits 1,913 1,409 Net occupancy expense 306 257 Other operating expense 961 932 ------------------- ----------------- Total Noninterest Expense 3,180 2,598 ------------------- ----------------- INCOME BEFORE INCOME TAXES 767 1,221 PROVISION FOR INCOME TAXES 255 388 ------------------- ----------------- NET INCOME $512 $833 =================== ================= BASIC EARNINGS PER SHARE $0.24 $0.39 =================== ================= DILUTED EARNINGS PER SHARE $0.23 $0.38 =================== =================
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Review Report. 6 7 BLUE VALLEY BAN CORP CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Accumulated Other Comprehensive Income --------------- Unrealized Appreciation Additional (Depreciation) on Comprehensive Common Paid-In Retained Available-for-Sale Income Stock Capital Earnings Securities, Net Total ------ ----- ------- -------- --------------- ----- BALANCE, DECEMBER 31, 1999 $2,138 $5,230 $12,457 $(957) $18,868 Issuance of 4,000 shares of common stock 4 47 51 Net income $833 833 833 Change in unrealized depreciation on available-for-sale securities, net of income taxes of $(83) (125) (125) (125) ---------- ------ ------ -------- ------------- -------- BALANCE, MARCH 31, 2000 $708 $2,142 $5,277 $13,290 $(1,082) $19,627 ---------- ------ ------ -------- ------------- -------- Net income $2,645 2,645 2,645 Change in unrealized appreciation on available-for-sale securities, net of income taxes of $1,029 1,543 1,543 1,543 ---------- ------ ------ -------- ------------- -------- BALANCE, DECEMBER 31, 2000 $4,896 $2,142 $5,277 $15,935 $461 $23,815 ---------- ------ ------ -------- ------------- -------- Issuance of 20,556 shares of common stock 20 213 233 Net income $512 512 512 Change in unrealized appreciation on available-for-sale securities, net of income taxes of $209 314 314 314 ---------- ------ ------ -------- ------------- -------- BALANCE, MARCH 31, 2001 $826 $2,162 $5,490 $16,447 $775 $24,874 ========== ====== ====== ======== ============= ========
March 31, December 31, March 31, 2001 2000 2000 --------- ------------ --------- RECLASSIFICATION DISCLOSURE: Unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes of $296, $1,029, and $(83) for the periods ended March 31, 2001, December 31, 2000, and March 31, 2000, respectively $444 $1,543 $(125) Less: reclassification adjustments for appreciation included in net income, net of income taxes of $(87) for the period ended March 31, 2001 (130) - - ---- ------ ----- Change in unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes of $209, $1,029, and $(83) for the periods ended March 31, 2001, December 31, 2000, and March 31, 2000, respectively $314 $1,543 $(125) ==== ====== =====
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Review Report. 7 8 BLUE VALLEY BAN CORP CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, 2001 MARCH 31, 2000 ----------------- ----------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income $512 $833 Items not requiring (providing) cash: Depreciation and amortization 166 146 Amortization of premiums and discounts on securities 13 21 Provision for loan losses 540 465 Deferred income taxes (92) - Gain on sales of available-for-sale securities (217) - Loss on sale of foreclosed assets 94 - Changes in: Accrued interest receivable 279 (136) Mortgage loans held for sale (6,643) (1,576) Prepaid expenses and other assets 536 (69) Accrued interest payable and other liabilities 454 562 ----------------- ----------------- Net cash provided by (used in) operating activities (4,358) 246 ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES Net originations of loans (11,875) (4,476) Proceeds from sales of loan participations 107 110 Purchase of premises and equipment (326) (120) Proceeds from the sale of foreclosed assets 276 39 Proceeds from sales of available-for-sale securities 5,192 - Proceeds from maturities of available-for-sale securities 13,000 205 Purchases of available-for-sale securities (5,291) (3,541) ----------------- ----------------- Net cash provided by (used in) investing activities 1,083 (7,783) ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand deposits, money market, NOW and savings accounts 10,726 9,378 Net increase in certificates of deposit 15,297 1,338 Repayments of long-term debt (36) (34) Net payments on short-term debt - (10,187) Proceeds from sale of common stock 233 51 Net increase (decrease) in other borrowings (353) 614 Net decrease in advances from borrowers for taxes and insurance (1,035) (1,380) ----------------- ----------------- Net cash provided by (used in) financing activities 24,832 (220) ----------------- ----------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 21,557 (7,757) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 35,920 23,460 ----------------- ----------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $57,477 $15,703 ================= =================
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Review Report. 8 9 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) NOTE 1: BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company's consolidated financial position as of March 31, 2001, and the consolidated results of its operations, changes in stockholders' equity and cash flows for the periods ended March 31, 2001 and 2000, and are of a normal recurring nature. Certain information and note disclosures normally included in the company's annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's December 31, 2000 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 Baird, Kurtz & Dobson commenting upon their review accompanies the consolidated financial statements included in Item 1 of Part I. NOTE 2: EARNINGS PER SHARE Basic earnings per share is computed based on the weighted average number of shares outstanding during each year. Diluted earnings per share is computed using the weighted average common shares and all potential dilutive common shares outstanding during the period. The computation of per share earnings for the three-months ended March 31, 2001 and 2000 is as follows:
MARCH 31, 2001 MARCH 31, 2000 ---------------- ---------------- (UNAUDITED) (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net income $ 512 $ 833 ---------------- ---------------- Average common shares outstanding 2,151,460 2,140,929 Average common share stock options outstanding 43,363 34,372 ---------------- ---------------- Average diluted common shares 2,194,823 2,175,301 ---------------- ---------------- Basic earnings per share $ 0.24 $ 0.39 ================ ================ Diluted earnings per share $ 0.23 $ 0.38 ================ ================
9 10 NOTE 3: LONG-TERM DEBT Long-term debt at March 31, 2001 and December 31, 2000, consisted of the following components:
MARCH 31, 2001 DECEMBER 31, 2000 ----------------- ------------------ (UNAUDITED) (IN THOUSANDS) Note Payable - other (A) $ 1,732 $ 1,768 Federal Home Loan Bank advances (B) 15,000 15,000 ----------------- ------------------ Total long-term debt $ 16,732 $ 16,768 ================= ==================
(A) Due in August 2009, payable in monthly installments of $23,175, plus interest at 7.5%; collateralized by land, building and assignment of future rents. (B) Due in 2008 and 2010; collateralized by various assets including mortgage-backed loans and securities, and U.S. Treasury and Agency securities. The interest rates on the advances range from 4.63% to 5.68%. Federal Home Loan Bank advance availability is determined quarterly and at March 31, 2001, approximately $26,888,000 was available. Aggregate annual maturities of long-term debt at March 31, 2001 are as follows:
(IN THOUSANDS) ------------------ April 1 to December 31, 2001 $ 115 2002 162 2003 175 2004 188 2005 203 Thereafter 15,889 ------------------ $ 16,732 ==================
NOTE 4: TRUST PREFERRED SECURITIES On July 21, 2000, BVBC Capital Trust I (the "Trust"), a Delaware business trust formed by the Company, completed the sale of $11,500,000 of 10.375% trust preferred securities. The Trust also issued $355,672 of common securities to the Company and used the total proceeds of $11,855,672 from the offering to purchase $11,855,672 in principal amount of 10.375% junior subordinated debentures of the Company due September 30, 2030. The Company paid all underwriting discounts and other operating expenses related to the offering and received net proceeds of $10,578,000. The junior subordinated debentures are the sole assets of the Trust and are eliminated, along with the related income statement effects, in the Company's consolidated financial statements. The trust preferred securities are mandatorily redeemable upon the maturity of the junior subordinated debentures or upon earlier redemption as provided in the indenture. The Company has the right to redeem the junior subordinated debentures, in whole or in part, on or after September 30, 2005, at a redemption price specified in the indenture plus any accrued but unpaid interest to the redemption date. The trust preferred securities meet the criteria to be considered regulatory capital. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of those safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, can generally be identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company is unable to predict the actual results of its future plans or strategies with certainty. Factors which could have a material adverse effect on the operations and future prospects of the Company include, but are not limited to, fluctuations in market rates of interest and loan and deposit pricing; a deterioration of general economic conditions or the demand for housing in the Company's market areas; legislative or regulatory changes; adverse developments in the Company's loan or investment portfolio; any inability to obtain funding on favorable terms; the loss of key personnel; significant increases in competition; and the possible dilutive effect of potential acquisitions or expansions. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. GENERAL RESULTS OF OPERATIONS Three months ended March 31, 2001 and 2000. Net income for the quarter ended March 31, 2001, was $512,000, as compared to net income of $833,000 for the quarter ended March 31, 2000, representing a decrease of $321,000, or 38.54%. Diluted earnings per share decreased 39.47% to $0.23 during the first quarter of 2001 from $0.38 in the same period of 2000. The Company's annualized return on average assets and average stockholders' equity for the three-month period ended March 31, 2001 were 0.49% and 8.57%, compared to 1.03% and 17.54%, respectively, for the same period in 2000, decreases of approximately 50%. The changes in the annualized returns was due to the decrease of our net income from the prior year first quarter to the current year and a significant increase in interest-earning assets for the same period. The decrease in our net income was primarily a result of an increase in our salaries and employee benefits expense due to recent personnel expansion to facilitate our growth. Net interest income of $3.6 million remained virtually unchanged during the three-month period ended March 31, 2001 as compared to the three-month period ended March 31, 2000. A $1.4 million increase in interest income due primarily to a $93.8 million increase in average interest-earning assets was offset by a $1.4 million increase in interest expense due to an $85.7 million increase in average interest-bearing liabilities and an increase of 43 basis points paid on average interest-bearing liabilities. Interest income for the current year first quarter was $8.5 million, an increase of $1.4 million, or 20.12%, from $7.1 million in the prior year first quarter. This increase was primarily as a result of $93.8 million, or 30.77%, growth in interest-earning assets, which was partially offset by a decrease in yield on interest-earning assets of 70 basis points, to 8.69% in the first quarter of 2001, as compared to 9.39% in the prior year first quarter. The 70 basis point decrease in yield has resulted in part from decreases in market interest rates during the current period. One of the major contributors to the 9.39% yield earned during the first quarter of 2000 was interest income of $555,000 earned on a purchased lease portfolio on average outstanding leases of $5.4 million, for a yield of 40.98%. Interest income of $97,000 was earned on the purchased lease portfolio average outstanding balance of $2.2 million, for a yield of 17.93%, during the first quarter of 2001. Excluding the interest income generated from the purchased lease portfolio during the first quarter of 2001 and 2000, the yield on average interest-earning assets decreased to 8.64% in 2001 from 8.82% in 2000, a decrease of 18 basis points compared to 70 basis points discussed above. Interest expense for the current year first quarter was $4.9 million, an increase of $1.4 million, or 41.71%, from $3.5 million in the prior year first quarter. The increase is attributable to a $75.2 million, or 32.48%, increase in our average interest-bearing deposits as well as a $10.5 million, or 27.69%, increase in other interest-bearing liabilities, including FHLB borrowings and our junior subordinated debentures. Rates paid on average interest-bearing liabilities increased to 5.59% in the current year period from 5.16% in the prior year period, an increase of 43 basis points. The majority of this increase was attributable to a 77 basis point increase in the average rate paid on time deposits during the first quarter of 2001 as compared to the first quarter of 2000. 11 12 Average Balance Sheets. The following table sets forth for the periods and as of the dates indicated, information regarding our average balances of assets and liabilities as well as the dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities and the resultant yields or costs. Ratio, yield and rate information are based on average daily balances where available; otherwise, average monthly balances have been used. Nonaccrual loans are included in the calculation of average balances for loans for the periods indicated. AVERAGE BALANCES, YIELDS AND RATES
THREE MONTHS ENDED MARCH 31, ------------------------------------------------------------ 2001 2000 ------------------------------------------------------------ AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE -------- ------- ------- -------- ------- ------- ASSETS Federal funds sold................... $ 25,152 $ 341 5.50 % $ 2,798 $ 38 5.46 % Investment securities - taxable...... 62,509 1,058 6.86 34,757 579 6.70 Investment securities - non-taxable (1)............................... 15,613 243 6.31 14,539 233 6.45 Mortgage loans held for sale......... 3,215 59 7.44 935 20 8.60 Loans, net of unearned discount and fees.............................. 292,277 6,845 9.50 251,913 6,253 9.98 -------- ------- -------- ------- Total earning assets............. 398,766 8,546 8.69 304,942 7,123 9.39 -------- ------- -------- ------- Cash and due from banks - non-interest bearing............... 13,718 12,143 Allowance for possible loan losses... (4,463) (3,637) Premises and equipment, net.......... 6,671 5,560 Other assets......................... 8,707 7,548 -------- -------- Total assets..................... $423,399 $326,556 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits-interest bearing: Interest-bearing demand accounts.. $ 29,373 $ 245 3.38% $ 22,883 $ 185 3.25 % Savings and money market deposits. 127,774 1,507 4.78 102,703 1,242 4.86 Time deposits..................... 149,592 2,419 6.56 105,946 1,524 5.79 -------- ------- -------- ------- Total interest-bearing deposits.. 306,739 4,171 5.51 231,532 2,951 5.13 -------- ------- -------- ------- Short-term borrowings................ 19,996 218 4.42 25,892 339 5.27 Long-term debt ...................... 16,744 209 5.06 11,886 165 5.58 Guaranteed preferred beneficial interest in Company's subordinated debt................ 11,500 298 10.51 - - - -------- ------- -------- ------- Total interest-bearing liabilities................... 354,979 4,896 5.59 269,310 3,455 5.16 -------- ------- -------- ------- Non-interest bearing deposits........ 41,354 35,719 Other liabilities ........... 2,832 2,430 Stockholders' equity................. 24,234 19,097 -------- -------- Total liabilities and stockholders' equity......... $423,399 $326,556 ======== ======== Net interest income/spread .......... $ 3,650 3.10% $ 3,668 4.23 % ======= ====== ======= ======= Net interest margin.................. 3.71% 4.84 % ====== =======
--------------- (1) Presented on a fully tax-equivalent basis assuming a tax rat= e of 34%. = 12 13 Analysis of Changes in Net Interest Income Due to Changes in Interest Rates and Volumes. The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the increase or decrease related to changes in balances and changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: - changes in volume, reflecting changes in volume multiplied by the prior period rate; and - changes in rate, reflecting changes in rate multiplied by the prior period volume. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate. CHANGES IN INTEREST INCOME AND EXPENSE VOLUME AND RATE VARIANCES
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO 2000 ---------------------------------- CHANGE CHANGE DUE TO DUE TO TOTAL RATE VOLUME CHANGE ----------- ---------- ---------- (DOLLARS IN THOUSANDS) Federal funds sold.................................... $ - $ 303 $ 303 Investment securities - taxable....................... 7 472 479 Investment securities - non-taxable (1)............... (6) 16 10 Mortgage loans held for sale.......................... (2) 41 39 Loans, net of unearned discount ...................... (321) 912 591 -------- -------- -------- Total interest income...................... (322) 1,744 1,422 -------- -------- -------- Interest-bearing demand accounts...................... 5 55 60 Savings and money market deposits..................... (30) 295 265 Time deposits......................................... 208 687 895 Short-term borrowings................................. (51) (70) (121) Long-term debt........................................ (15) 58 43 Guaranteed preferred beneficial interest in Company's subordinated debt................................... - 298 298 -------- -------- -------- Total interest expense..................... 117 1,323 1,440 -------- -------- -------- Net interest income................................... $ (439) $ 421 $ (18) ======== ======== ========
--------------- (1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%. 13 14 PROVISION FOR LOAN LOSSES The provision for loan losses for the first quarter of 2001 was $540,000, compared to $465,000 for the same period of 2000, resulting in a $75,000, or 16.13%, increase. The increase in the provision resulted from growth in the loan portfolio to $298.9 million at March 31, 2001, an increase of $44.5 million, or 17.51%, from $254.3 million at March 31, 2000. We make provisions for loan losses in amounts management deems necessary to maintain the allowance for loan losses at an appropriate level. NON-INTEREST INCOME Non-interest income increased to $898,000, or 33.04%, during the three-month period ended March 31, 2001, from $675,000 during the three-month period ended March 31, 2000. This increase is primarily attributable to a $217,000 realized gain on sales of investment securities. Due to the current declining interest rate environment, many of our investment securities have shown significant appreciation during the first quarter of 2001. The total net book value of the four investment securities sold was $5.0 million, representing approximately 7.6% of the total investment portfolio at March 31, 2001. Origination fees also increased by $65,000 due to an increase in residential mortgage loans originated and sold in the secondary market, as a result of the recent declines in market interest rates. This increase in origination fees for the three-month period ended March 31, 2001; however, was offset by a decrease in other service charge income of $71,000. Other service charge income includes investment brokerage services which decreased by $45,000, or 54.60%, over the prior year quarter due to recent market downturns and commercial mortgage services which decreased by $43,000, or 100.00%, over the prior year quarter due to a significant increase in competition as a result of recent declines in market interest rates. Currently, there are several loans under proposal as we continue to pursue these transactions. Total fee income received from the sale of five commercial real estate mortgage loans during fiscal year 2000 was $115,000, of which $43,000, or 37.39% was earned during the first quarter of 2000. NON-INTEREST EXPENSE Non-interest expense increased to $3.2 million, or 22.40%, during the three-month period ended March 31, 2001, from $2.6 million in the prior year period. This increase is primarily attributable to an increase in salaries and employee benefits expense. Our salaries and employee benefits expense increased to $1.9 million during the first quarter of 2001 from $1.4 million during the prior year first quarter, an increase of 35.77%, as we hired additional staff to expand our Internet Mortgage Division and to open a new branch location. We had 158 full-time employees at March 31, 2001 as compared to 122 at March 31, 2000. Twenty-six of the new full-time employees were a result of the recent expansion of our Internet Mortgage Division. We expect our Internet mortgage loan originations to increase over the next year at a more rapid rate than our overall mortgage loan originations. FINANCIAL CONDITION Total assets for the Company at March 31, 2001, were $440.8 million, an increase of $26.1 million, or 6.30%, compared to $414.7 million at December 31, 2000. Deposits and stockholders' equity at March 31, 2001, were $364.2 million and $24.9 million, respectively, compared with $338.2 million and $23.8 million, respectively, at December 31, 2000, increases of $26.0 million, or 7.69%, and $1.1 million, or 4.45%, respectively. Loans at March 31, 2001 totaled $298.9 million, an increase of $11.2 million, or 3.89%, compared to December 31, 2000. The loan to deposit ratio at March 31, 2001 was 83.07% compared to 85.05% at December 31, 2000. The deposit growth of 7.69% and recent calls of investment securities have provided the funding necessary to facilitate our loan growth. Mortgage loans held for sale at March 31, 2001 totaled $7.8 million, an increase of $6.6 million, or 550.37%, compared to December 31, 2000. This increase is a result of the recent expansion of our Internet Mortgage Division. Non-performing assets consist primarily of loans past due 90 days or more and nonaccrual loans and foreclosed real estate. The following table sets forth our non-performing assets as of the dates indicated: 14 15 NON-PERFORMING ASSETS
AS OF AND FOR THE ------------------------------------------ THREE MONTHS THREE MONTHS ENDED ENDED YEAR ENDED MARCH 31, MARCH 31, DECEMBER 31, 2001 2000 2000 ---- ---- ---- (DOLLARS IN THOUSANDS) REAL ESTATE LOANS: Past due 90 days or more $ 205 $ 150 $ 206 Nonaccrual 486 - 499 INSTALLMENT LOANS: Past due 90 days or more 23 - - Nonaccrual 16 19 37 CREDIT CARDS AND RELATED PLANS: Past due 90 days or more - - - Nonaccrual - - - COMMERCIAL (TIME AND DEMAND) AND ALL OTHER LOANS: Past due 90 days or more 22 979 24 Nonaccrual 960 533 1,326 LEASE FINANCING RECEIVABLES: Past due 90 days or more - 56 - Nonaccrual 574 156 382 DEBT SECURITIES AND OTHER ASSETS (EXCLUDE OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS): Past due 90 days or more - - - Nonaccrual - - - ------------ ----------- ----------- Total non-performing loans 2,286 1,893 2,474 ------------ ----------- ----------- FORECLOSED ASSETS HELD FOR SALE 115 311 334 ------------ ----------- ----------- Total non-performing assets $2,401 $2,204 $2,808 ============ =========== =========== Total nonperforming loans to total loans 0.76% 0.74% 0.86% Total nonperforming loans to total assets 0.52% 0.57% 0.60% Allowance for loan losses to nonperforming loans 198.95% 211.04% 179.47% Nonperforming assets to loans and foreclosed assets held for sale 0.80% 0.87% 0.97%
As of March 31, 2001, non-performing loans equaled 0.76% of total loans. We closely monitor non-performing credit relationships and our philosophy has been to value non-performing loans at their estimated collectible value and to aggressively manage these situations. Generally, the Bank maintains its allowance for loan losses in excess of its non-performing loans. As of March 31, 2001, our ratio of allowance for loan losses to non-performing loans was 198.95%. The following table sets forth information regarding changes in our allowance for loan and valuation losses for the periods indicated. 15 16 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, 2001 2000 2000 ------------- ------------- -------------- (DOLLARS IN THOUSANDS) Balance at beginning of period $ 4,440 $ 3,817 $ 3,817 Loans charged-off: Commercial real estate - - - Residential real estate - - - Commercial 362 81 343 Personal 9 72 153 Home Equity - - - Construction - - - Leases 111 156 1,034 ------------- ------------- -------------- Total loans charged-off 482 309 1,530 Recoveries: Commercial real estate - - - Residential real estate - - - Commercial 2 5 104 Personal 16 7 46 Home Equity - - - Construction - - - Leases 32 10 53 ------------- ------------- -------------- Total recoveries 50 22 203 ------------- ------------- -------------- Net loans charged-off 432 287 1,327 Provision for loan losses 540 465 1,950 ------------- ------------- -------------- Balance at end of period $ 4,548 $ 3,995 $ 4,440 ============= ============= ============== Loans outstanding: Average 292,277 251,913 268,227 End of period 298,854 254,325 287,669 Ratio of allowance for loan losses to loans outstanding: Average 1.56% 1.59% 1.66% End of period 1.52% 1.57% 1.54% Ratio of net charge-offs to: Average loans 0.60% 0.46% 0.49% End of period loans 0.59% 0.45% 0.46%
The allowance for loan losses as a percent of total loans has remained fairly constant at 1.52% as of March 31, 2001, compared to 1.54% at December 31, 2000. As of March 31, 2001, net charge-offs equaled 0.60% of average total loans on an annualized basis. This ratio is slightly above historical averages due in part to the charge-off of two non-accruing commercial credits during the first quarter of 2001. Liquidity is measured by a financial institution's ability to raise funds through deposits, borrowed funds, capital, or the sale of marketable assets, such as residential mortgage loans, a portfolio of SBA loans, or available-for-sale securities. Other sources of liquidity, including cash flow from the repayment of loans, are also considered in determining whether liquidity is satisfactory. Liquidity is also achieved through growth of core deposits and liquid assets, and accessibility to the money and capital markets. The funds are used to meet deposit withdrawals, maintain reserve requirements, fund loans and operate the organization. Core deposits, defined as demand deposits, interest-bearing transaction accounts, savings deposits and certificates of deposit less that $100,000, were 68.87% of our total assets at March 31, 2001, and 69.36% of total assets at December 31, 2000. Internal guidelines have been established to measure liquid assets as well as relevant ratios concerning asset levels and purchased funds. These indicators are reported to the board of directors monthly, and at March 31, 2001, the Bank was within the established guidelines. At March 31, 2001, our total stockholders' equity was $24.9 million and our equity to asset ratio was 5.64%. At March 31, 2001, our Tier 1 capital ratio was 9.34% compared to 9.51% at December 31, 2000, while our total risk-based capital ratio was 11.64% compared to 11.95% at December 31, 2000. Both exceed the capital minimums established in the risk-based capital requirements. 16 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a continued part of our financial strategy, we attempt to manage the impact of fluctuations in market interest rates on our net interest income. This effort entails providing a reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of yield. Our funds management policy is established by our Board of Directors and monitored by our Risk Management Committee. Our funds management policy sets standards within which we are expected to operate. These standards include guidelines for exposure to interest rate fluctuations, liquidity, loan limits as a percentage of funding sources, exposure to correspondent banks and brokers, and reliance on non-core deposits. Our funds management policy also establishes the reporting requirements to the Board of Directors. Our investment policy complements our funds management policy by establishing criteria by which we may purchase securities. These criteria include approved types of securities, brokerage sources, terms of investment, quality standards, and diversification. We use an asset/liability modeling service to analyze the Bank of Blue Valley's current sensitivity to instantaneous and permanent changes in interest rates. The system simulates the Bank's asset and liability base and projects future net interest income results under several interest rate assumptions. This allows management to view how changes in interest rates will affect the spread between the yield received on assets and the cost of deposits and borrowed funds. The asset/liability modeling service is also used to analyze the net economic value of equity at risk under instantaneous shifts in interest rates. The "net economic value of equity at risk" is defined as the market value of assets less the market value of liabilities plus/minus the market value of any off-balance sheet positions. By effectively looking at the present value of all future cash flows on or off the balance sheet, the net economic value of equity modeling takes a longer-term view of interest rate risk. We strive to maintain a position such that changes in interest rates will not affect net interest income or the economic value of equity by more than 10%, per 100 basis points. The following table sets forth the estimated percentage change in our net interest income over the next twelve month period and our net economic value of equity at risk at March 31, 2001 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 ------------------------- --------------- -------------- 300 basis point rise 14.49% (5.91%) 200 basis point rise 10.11% (3.00%) 100 basis point rise 5.21% (0.62%) Base Rate Scenario - - 100 basis point decline (6.85%) (0.39%) 200 basis point decline (10.00%) (2.30%) 300 basis point decline (14.85%) (3.97%)
The above table indicates that, at March 31, 2001, in the event of a sudden and sustained increase in prevailing market rates, our net interest income would be expected to increase as our assets would be expected to reprice quicker than our liabilities, while a decrease in rates would indicate just the opposite. The table also indicates that, at March 31, 2001, in the event of a sudden increase or decrease in prevailing market rates, the current net economic value of our equity would decrease. Net economic value of equity at risk is based on the current market values of assets, liabilities, and current off-balance sheet positions, and was significantly in excess of our book value at March 31, 2001. Under any of the above interest rate scenarios the net economic value of equity would still be in excess of book value at March 31, 2001. During the three-month period ended March 31, 2001, our prime lending rate declined by 150 basis points, which is reflected in the above table. As discussed above, this decrease in the prime lending rate could result in a decrease in our net interest margin as our interest-rate sensitive assets exceed our interest-rate sensitive liabilities. 17 18 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On July 18, 2000, the Registration Statement on Form S-1 (File Nos. 333-34328 and 333-34328-01) filed by the Company and the Trust was declared effective by the Securities and Exchange Commission. The offering of the 1,437,500 10.375% trust preferred securities that was the subject of the Registration Statement commenced on July 21, 2000. The offering was made through an underwriting syndicate managed by Stifel, Nicolaus & Company, Incorporated. The public offering price was $8.00 per trust preferred security, and the Company received aggregate net proceeds of approximately $10.6 million, after deducting underwriting commissions and estimated offering expenses of approximately $900,000. Of these net proceeds, $7.1 million were used to retire outstanding indebtedness under our bank stock loan and $2.0 million were contributed to the Bank in the form of additional capital. The remainder of the proceeds have been retained by the Company for general corporate purposes, including additional investments from time to time in the Bank in the form of additional capital and possible future acquisitions. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS 11. Computation of Earnings Per Share. Please see p. 9. 15. Letter regarding Unaudited Interim Financial Information (B) REPORTS ON FORM 8-K Blue Valley filed no reports on Form 8-K during the quarter ended March 31, 2001. 18 19 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, 2001 By: /s/ Robert D. Regnier ---------------------- Robert D. Regnier, President and Chief Executive Officer Date: May 10, 2001 By: /s/ Mark A. Fortino -------------------- Mark A. Fortino, Treasurer 19