10-Q 1 c64401e10-q.txt QUARTERLY REPORT DATED JUNE 30, 2001 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 JUNE 30, 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 executive offices) (Zip Code) 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 June 30, 2001 was 2,171,676 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 - June 30, 2001 (unaudited) and December 31, 2000 4 Consolidated Statements of Income (unaudited) - three-months and six-months ended June 30, 2001 and 2000 6 Consolidated Statements of Changes in Stockholders' Equity (unaudited) - six-months ended June 30, 2001 and 2000 7 Consolidated Statements of Cash Flows (unaudited) - six-months ended June 30, 2001 and 2000 8 Notes to Consolidated Financial Statements (unaudited) - six-months ended June 30, 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 19 --------------------------------------------------------------------- PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 20 ---------------------------------------------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20 ------------------------------------------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20 -------------------------------------------
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 June 30, 2001, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 2001 and 2000, and the consolidated statements of changes in stockholders' equity and cash flows for the six-month periods ended June 30, 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 auditing standards generally accepted in the United States of America, 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/ BKD, LLP Kansas City, Missouri July 26, 2001 3 4 BLUE VALLEY BAN CORP CONSOLIDATED BALANCE SHEETS JUNE 30, 2001 AND DECEMBER 31, 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
JUNE 30, 2001 DECEMBER 31, 2000 ------------------------ ----------------------- (UNAUDITED) Cash and due from banks $ 16,239 $ 13,720 Federal funds sold 10,200 22,200 ------------------------ ----------------------- Cash and cash equivalents 26,439 35,920 Available-for-sale securities 68,809 76,503 Held-to-maturity securities 2,000 2,000 Mortgage loans held for sale 26,716 1,207 Loans 314,857 287,669 Less allowance for loan losses (4,951) (4,440) ------------------------ ----------------------- Net loans 309,906 283,229 Premises and equipment 7,256 6,591 Foreclosed assets held for sale, net 67 334 Interest receivable 2,727 3,058 Deferred income taxes 785 939 Prepaid expenses and other assets 1,664 2,041 Federal Home Loan Bank stock, Federal Reserve Bank stock and other securities 3,477 1,550 Excess of cost over fair value of net assets acquired, at amortized cost 1,219 1,295 ------------------------ ----------------------- Total Assets $451,065 $414,667 ======================== =======================
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Review Report. 4 5 BLUE VALLEY BAN CORP CONSOLIDATED BALANCE SHEETS JUNE 30, 2001 AND DECEMBER 31, 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, 2001 DECEMBER 31, 2000 ------------------------ ----------------------- (UNAUDITED) LIABILITIES Demand deposits $ 47,755 $ 44,354 Savings, NOW and money market deposits 163,707 154,464 Time deposits 161,537 139,403 ------------------------ ----------------------- Total Deposits 372,999 338,221 Securities sold under agreements to repurchase 17,740 15,299 Short-term debt - 5,000 Long-term debt 16,694 16,768 Guaranteed preferred beneficial interest in Company's subordinated debt 11,500 11,500 Advances from borrowers for taxes and insurance 2,963 1,350 Accrued interest and other liabilities 3,378 2,714 ------------------------ ----------------------- Total Liabilities 425,274 390,852 ------------------------ ----------------------- STOCKHOLDERS' EQUITY Capital stock Common stock, par value $1 per share; Authorized 15,000,000 shares; issued and outstanding 2001 - 2,171,676 shares; 2000 - 2,141,720 2,172 2,142 Additional paid-in capital 5,580 5,277 Retained earnings 17,210 15,935 Accumulated other comprehensive income Unrealized appreciation on available-for-sale securities, net of income taxes of $553 in 2001 and $307 in 2000 829 461 ------------------------ ----------------------- Total Stockholders' Equity 25,791 23,815 ------------------------ ----------------------- Total Liabilities and Stockholders' Equity $451,065 $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 AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 2001 2000 2001 2000 ------------- ------------- ------------- ------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) INTEREST INCOME Interest and fees on loans $7,099 $6,451 $14,003 $12,724 Federal funds sold 239 15 580 53 Available-for-sale securities 1,058 814 2,258 1,567 Held-to-maturity securities 40 - 80 - ------------- ------------- ------------- ------------- Total Interest Income 8,436 7,280 16,921 14,344 ------------- ------------- ------------- ------------- INTEREST EXPENSE Interest-bearing demand deposits 226 207 471 392 Savings and money market deposit accounts 1,334 1,382 2,841 2,624 Other time deposits 2,536 1,612 4,955 3,136 Securities sold under repurchase agreements 114 86 226 177 Long-term debt and advances 620 443 1,233 856 ------------- ------------- ------------- ------------- Total Interest Expense 4,830 3,730 9,726 7,185 ------------- ------------- ------------- ------------- NET INTEREST INCOME 3,606 3,550 7,195 7,159 PROVISION FOR LOAN LOSSES 555 480 1,095 945 ------------- ------------- ------------- ------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,051 3,070 6,100 6,214 NONINTEREST INCOME Service fees 1,531 694 2,154 1,294 Realized gain on sales of investment securities - - 217 - Other income 54 85 112 160 ------------- ------------- ------------- ------------- Total Noninterest Income 1,585 779 2,483 1,454 ------------- ------------- ------------- ------------- NONINTEREST EXPENSE Salaries and employee benefits 2,251 1,424 4,164 2,833 Net occupancy expense 344 276 650 533 Other operating expense 922 695 1,883 1,627 ------------- ------------- ------------- ------------- Total Noninterest Expense 3,517 2,395 6,697 4,993 ------------- ------------- ------------- ------------- INCOME BEFORE INCOME TAXES 1,119 1,454 1,886 2,675 PROVISION FOR INCOME TAXES 356 508 611 896 ------------- ------------- ------------- ------------- NET INCOME $ 763 $ 946 $1,275 $1,779 ============= ============= ============= ============= BASIC EARNINGS PER SHARE $0.35 $0.44 $0.59 $0.83 ============= ============= ============= ============= DILUTED EARNINGS PER SHARE $0.35 $0.43 $0.58 $0.82 ============= ============= ============= =============
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 SIX MONTHS ENDED JUNE 30, 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 $12,458 $(957) $18,869 Issuance of 4,000 shares of common stock 4 47 51 Net income $1,779 1,779 1,779 Change in unrealized depreciation on available-for-sale securities, net of income taxes of $(52) (79) (79) (79) ---------------- ----------- ----------- ---------- ------------------ ----------- $1,700 ---------------- BALANCE, JUNE 30, 2000 $2,142 $5,277 $14,237 $(1,036) $20,620 ----------- ----------- ---------- ------------------ ----------- Net income $1,698 1,698 1,698 Change in unrealized appreciation on available-for-sale securities, net of income taxes of $997 1,497 1,497 1,497 ---------------- ----------- ----------- ---------- ------------------ ----------- $4,895 ================ BALANCE, DECEMBER 31, 2000 $2,142 $5,277 $15,935 $461 $23,815 ----------- ----------- ---------- ------------------ ----------- Issuance of 29,956 shares of common stock 30 303 333 Net income $1,275 1,275 1,275 Change in unrealized appreciation on available-for-sale securities, net of income taxes of $246 368 368 368 ---------------- ----------- ----------- ---------- ------------------ ----------- $1,643 ================ BALANCE, JUNE 30, 2001 $2,172 $5,580 $17,210 $829 $25,791 =========== =========== ========== ================== =========== June 30, 2001 December 31, 2000 June 30, 2000 ------------- ----------------- ------------- RECLASSIFICATION DISCLOSURE: Unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes of $333, $997, and $(52) for the periods ended June 30, 2001, December 31, 2000, and June 30, 2000, respectively $498 $1,497 $(79) Less: reclassification adjustments for appreciation included in net income, net of income taxes of $(87) for the period ended June 30, 2001 (130) - - ---------- ---------------- --------- Change in unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes of $246, $997, and $(52) for the periods ended June 30, 2001, December 31, 2000, and June 30, 2000, respectively $368 $1,497 $(79) ========== ================ =========
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Review Report. 7 8 BLUE VALLEY BAN CORP CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, 2001 JUNE 30, 2000 -------------------- --------------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,275 $ 1,779 Items not requiring (providing) cash: Depreciation and amortization 352 302 Amortization of premiums and discounts on securities 16 41 Provision for loan losses 1,095 945 Deferred income taxes (92) - Gain on sales of available-for-sale securities (217) - Loss on sale of foreclosed assets 122 - Gain on sale of premises and equipment (5) - Changes in: Accrued interest receivable 331 (215) Mortgage loans held for sale (25,509) (3,703) Prepaid expenses and other assets 375 (123) Accrued interest payable and other liabilities 664 (187) -------------------- --------------------- Net cash used in operating activities (21,593) (1,161) -------------------- --------------------- CASH FLOWS FROM INVESTING ACTIVITIES Net originations of loans (30,375) (18,785) Proceeds from sales of loan participations 2,424 734 Purchase of premises and equipment (945) (460) Proceeds from the sale of premises and equipment 11 - Proceeds from the sale of foreclosed assets 324 308 Proceeds from sales of available-for-sale securities 5,192 - Proceeds from maturities of available-for-sale securities 18,600 2,205 Purchases of available-for-sale securities (17,210) (7,134) -------------------- --------------------- Net cash used in investing activities (21,979) (23,132) -------------------- --------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand deposits, money market, NOW and savings accounts 12,644 11,755 Net increase in certificates of deposit 22,134 7,026 Repayments of long-term debt (74) (68) Net payments on short-term debt (5,000) (375) Proceeds from sale of common stock 333 51 Net increase in other borrowings 2,441 877 Net increase in advances from borrowers for taxes and insurance 1,613 488 -------------------- --------------------- Net cash provided by financing activities 34,091 19,754 -------------------- --------------------- DECREASE IN CASH AND CASH EQUIVALENTS (9,481) (4,539) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 35,920 23,460 -------------------- --------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 26,439 $ 18,921 ==================== =====================
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Review Report. 8 9 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 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 June 30, 2001, and the consolidated results of its operations, changes in stockholders' equity and cash flows for the periods ended June 30, 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 BKD, LLP 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 six-months ended June 30, 2001 and 2000 is as follows:
JUNE 30, 2001 JUNE 30, 2000 ------------------- ------------------- (UNAUDITED) (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net income $ 1,275 $ 1,779 ------------------- ------------------- Average common shares outstanding 2,157,802 2,141,324 Average common share stock options outstanding 45,519 34,372 ------------------- ------------------- Average diluted common shares 2,203,321 2,175,696 ------------------- ------------------- Basic earnings per share $ 0.59 $ 0.83 =================== =================== Diluted earnings per share $ 0.58 $ 0.82 =================== ===================
9 10 NOTE 3: LONG-TERM DEBT Long-term debt at June 30, 2001 and December 31, 2000, consisted of the following components:
JUNE 30, 2001 DECEMBER 31, 2000 --------------------- --------------------- (UNAUDITED) (IN THOUSANDS) Note Payable - other (A) $ 1,694 $ 1,768 Federal Home Loan Bank advances (B) 15,000 15,000 --------------------- --------------------- Total long-term debt $ 16,694 $ 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 June 30, 2001, approximately $53,212,000 was available. Aggregate annual maturities of long-term debt at June 30, 2001 are as follows:
(IN THOUSANDS) --------------------- July 1 to December 31, 2001 $ 77 2002 162 2003 175 2004 188 2005 203 Thereafter 15,889 --------------------- $ 16,694 =====================
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 is a 100% owned finance subsidiary of the Company. 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. Payments to the Company on the common securities are subordinated to the trust preferred securities in the event of a default on the junior subordinated debentures. 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 Company has fully and unconditionally guaranteed the Trust's obligations under the trust preferred securities on a subordinated basis to the extent that the funds are held by the Trust. 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 June 30, 2001 and 2000. Net income for the quarter ended June 30, 2001, was $763,000, as compared to net income of $946,000 for the quarter ended June 30, 2000, representing a decrease of $183,000, or 19.34%. Diluted earnings per share decreased 18.60% to $0.35 during the second quarter of 2001 from $0.43 in the same period of 2000. The Company's annualized return on average assets and average stockholders' equity for the three-month period ended June 30, 2001 were 0.69% and 12.23%, compared to 1.12% and 19.01%, respectively, for the same period in 2000, decreases of 38.39% and 35.67%, respectively. The changes in the annualized returns were due to the decrease of our net income from the prior year second 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 decreases in market interest rates during the second quarter ended June 30, 2001 and 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 June 30, 2001 as compared to the three-month period ended June 30, 2000. A $1.1 million increase in interest income due primarily to a $100.6 million increase in average interest-earning assets was offset by a $1.1 million increase in interest expense due to an $89.8 million increase in average interest-bearing liabilities. Interest income for the three-month period ended June 30, 2001 was $8.4 million, an increase of $1.1 million, or 15.88%, from $7.3 million for the three-month period ended June 30, 2000. This increase was primarily as a result of $100.6 million, or 31.51%, growth in interest-earning assets, which was partially offset by a decrease in yield on interest-earning assets of 113 basis points, to 8.12% in the second quarter of 2001, as compared to 9.25% in the prior year second quarter. The 113 basis point decrease in yield has resulted in part from market interest rate decreases of 275 basis points during the twelve- month period ended June 30, 2001. Interest expense for the current year second quarter was $4.8 million, an increase of $1.1 million, or 29.49%, from $3.7 million in the prior year second quarter. The increase is attributable to a $80.3 million, or 33.30%, increase in our average interest-bearing deposits as well as a $9.5 million, or 23.89%, increase in other interest-bearing liabilities, mainly resulting from the issue of our junior subordinated debentures in July 2000. Rates paid on average interest-bearing liabilities declined to 5.22% in the current year period from 5.34% in the prior year period, a decrease of 12 basis points. This change in rates is also primarily attributable to the changes in market interest rates. The three-month period ended June 30, 2001 was in a declining market rate environment while the three-month period ended June 30, 2000 was in a rising market rate environment. Six months ended June 30, 2001 and 2000. Net income for the six-month period ended June 30, 2001, was $1.3 million, a $500,000, or 28.33%, decrease as compared to $1.8 million for the six-month period ended June 30, 2000. Diluted earnings per share decreased 29.27% to $0.58 during the first half of 2001 from $0.82 in the same period of 2000. The Company's annualized return on average assets and average stockholders' equity for the six-month period ended June 30, 2001 were 0.59% and 10.43%, compared to 1.07% and 18.34%, respectively, for the same period in 2000, decreases of 44.86% and 43.13%, respectively. The changes in the annualized returns was due to the decrease of our net income from the prior year six-months ended to the current year and a significant increase in interest-earning assets for the same period. The decrease in our net income from the prior year period continues to be as a result of decreases in market interest rates and as a result of increases in our salaries and employee benefits expense due to personnel expansion to facilitate our growth. We continue to generate non-interest income through many 11 12 services, including our recently expanded Internet Mortgage Division; however, the increase in non-interest income generated during the six-month period ended June 30, 2001 has not yet offset our costs of expansion. Net interest income again remains unchanged at $7.2 million for the six-month periods ended June 30, 2001 and 2000. Although steady declines in market interest rates during the first six-months of 2001 have continued to push the net interest margin down, 3.61% at June 30, 2001 as compared to 4.69% at June 30, 2000; loan volume generated and growth in the investment portfolio during the current period have offset this decline in net interest margin to date. Interest income for the six-month period ended June 30, 2001 was $16.9 million, an increase of $2.6 million, or 17.97%, from $14.3 million for the six-month period ended June 30, 2000. This increase was primarily as a result of $97.3 million, or 31.17%, growth in interest-earning assets, which was partially offset by a decrease in yield on interest-earning assets of 92 basis points, to 8.40% during the first half of 2001, as compared to 9.32% during the first half of 2000. The 92 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 9.32% yield earned during the six-month period ended June 30, 2000 was interest income of $757,000 earned on an average outstanding purchased lease portfolio balance of $5.0 million, for a yield of 30.56%. Interest income of $175,000 was earned on the purchased lease portfolio average outstanding balance of $2.0 million, for a yield of 17.49%, during the six-month period ended June 30, 2001. Excluding the interest income generated from the purchased lease portfolio during the first six-month periods of 2001 and 2000, the yield on average interest-earning assets decreased to 8.35% in 2001 from 8.98% in 2000, a decrease of 63 basis points. Interest expense for the current year six-month period ended June 30th was $9.7 million, an increase of $2.5 million, or 35.37%, from $7.2 million in the prior year same period. The increase is attributable to a $77.8 million, or 32.93%, increase in our average interest-bearing deposits as well as a $10.0 million, or 25.64%, increase in other interest-bearing liabilities, mainly resulting from the issue of our junior subordinated debentures in July 2000. Rates paid on average interest-bearing liabilities increased to 5.40% in the current year period from 5.25% in the prior year period, an increase of 15 basis points. Rates paid on interest-bearing demand accounts and savings and money management accounts continued to decrease during 2001 as market interest rates also declined. These interest rate decreases however, have been offset by certificates of deposit bearing higher interest rates offered through promotions during May, June, and July 2000. The recent declines in time deposit interest rates will not appear to lower the aggregate time deposit portfolio interest rate until the higher rate certificates of deposits discussed above have matured. 12 13 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
SIX MONTHS ENDED JUNE 30, ------------------------------------------------------------------------ 2001 2000 ----------------------------------- ----------------------------------- AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE --------- --------- --------- ---------- --------- --------- ASSETS Federal funds sold................................. $ 23,835 $ 580 4.91 % $ 1,928 $ 53 5.53 % Investment securities - taxable.................... 58,120 1,974 6.85 36,244 1,217 6.75 Investment securities - non-taxable (1)............ 15,712 489 6.28 14,621 469 6.45 Mortgage loans held for sale....................... 12,939 422 6.58 1,706 71 8.37 Loans, net of unearned discount and fees........... 298,738 13,581 9.17 257,581 12,653 9.88 --------- --------- ---------- --------- Total earning assets........................... 409,344 17,046 8.40 312,080 14,463 9.32 --------- --------- ---------- --------- Cash and due from banks - non-interest bearing..... 14,259 12,133 Allowance for possible loan losses................. (4,569) (3,902) Premises and equipment, net........................ 6,863 5,618 Other assets....................................... 8,744 7,714 --------- ---------- Total assets................................... $ 434,641 $ 333,643 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits-interest bearing: Interest-bearing demand accounts................ $ 30,275 $ 471 3.14 % $ 23,532 $ 392 3.35 % Savings and money market deposits............... 129,044 2,841 4.44 106,235 2,624 4.97 Time deposits................................... 154,859 4,955 6.45 106,590 3,136 5.92 --------- --------- ---------- --------- Total interest-bearing deposits................ 314,178 8,267 5.31 236,357 6,152 5.23 --------- --------- ---------- --------- Short-term borrowings.............................. 20,525 432 4.24 26,933 702 5.24 Long-term debt .................................... 16,732 430 5.18 11,874 331 5.61 Guaranteed preferred beneficial interest in Company's subordinated debt.................... 11,500 597 10.47 - - - --------- --------- ---------- --------- Total interest-bearing liabilities ............ 362,935 9,726 5.40 275,164 7,185 5.25 --------- --------- ---------- --------- Non-interest bearing deposits...................... 44,176 36,359 Other liabilities.................................. 2,884 2,612 Stockholders' equity............................... 24,646 19,508 --------- ---------- Total liabilities and stockholders' equity $ 434,641 $ 333,643 ========= ========== Net interest income/spread ........................ $ 7,320 3.00 % $ 7,278 4.07 % ========= ========= ========= ========= Net interest margin................................ 3.61 % 4.69 % ========= =========
--------------- (1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%. 13 14 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
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO 2000 ---------------------------------------- CHANGE CHANGE DUE TO DUE TO TOTAL RATE VOLUME CHANGE ------------- ------------ ------------ (DOLLARS IN THOUSANDS) Federal funds sold................................................ $ (5) $ 532 $ 527 Investment securities - taxable................................... 15 742 757 Investment securities - non-taxable (1)........................... (14) 34 20 Mortgage loans held for sale...................................... (12) 363 351 Loans, net of unearned discount .................................. (787) 1,715 928 ---------- ---------- ---------- Total interest income.................................. (803) 3,386 2,583 ---------- ---------- ---------- Interest-bearing demand accounts.................................. (24) 103 79 Savings and money market deposits................................. (225) 442 217 Time deposits..................................................... 297 1,522 1,819 Short-term borrowings............................................. (122) (148) (270) Long-term debt.................................................... (24) 123 99 Guaranteed preferred beneficial interest in Company's subordinated debt................................................. - 597 597 ---------- ---------- ---------- Total interest expense................................. (98) 2,639 2,541 ---------- ---------- ---------- Net interest income............................................... $ (705) $ 747 $ 42 ========== ========== ==========
--------------- (1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%. 14 15 PROVISION FOR LOAN LOSSES The provision for loan losses for the second quarter of 2001 was $555,000, compared to $480,000 for the same period of 2000, resulting in a $75,000, or 15.63%, increase. For the six-months ended June 30, 2001 and 2000, the provision was $1.1 million and $945,000, respectively, resulting in a 15.87% increase. The increases in the provision have resulted from growth in the loan portfolio to $314.9 million at June 30, 2001, an increase of $47.2 million, or 17.61%, from $267.7 million at June 30, 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
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ----------------------------- -------------------------- 2001 2000 2001 2000 ------------- ------------ ----------- ----------- (IN THOUSANDS) Loans held for sale fee income.................. $ 1,156 307 1,453 539 NSF charges and service fees.................... 179 162 339 293 Other service charges........................... 196 225 362 462 Realized gain on sales of investment securities. - - 217 - Other income ................................... 54 85 112 160 ------------- ------------ ----------- ----------- Total non-interest income................. $ 1,585 779 2,483 1,454 ============= ============ =========== ============
Non-interest income increased to $1.6 million, or 103.47%, during the three-month period ended June 30, 2001, from $779,000 during the three-month period ended June 30, 2000. Non-interest income for the six-months ended June 30, 2001 was $2.5 million, an increase of $1.0 million, or 70.77%, from $1.5 million for the six-months ended June 30, 2000. These increases are primarily attributable to an increase in loans held for sale fee income. Loans held for sale fee income increased $849,000, or 276.55%, and $914,000, or 169.57%, for the three-month and six-month periods ended June 30, 2001, respectively. The recent expansion of our Internet Mortgage Division coupled with the recent declines in market interest rates have led to a significant increase in residential mortgage loan originations and sales. Also contributing to the increase in non-interest income during the first half of 2001 was 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 current year period. During the first quarter of 2001, four investment securities with a total net book value of $5.0 million were sold, representing approximately 7.6% of the total investment portfolio at March 31, 2001. NON-INTEREST EXPENSE
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ----------------------------- -------------------------- 2001 2000 2001 2000 ------------- ------------ ----------- ----------- (IN THOUSANDS) Salaries and employee benefits................. $ 2,251 1,424 4,164 2,833 Occupancy....................................... 344 276 650 533 FDIC and other insurance expense................ 40 32 80 61 General and administrative ..................... 882 663 1,803 1,566 ------------- ------------ ----------- ----------- Total non-interest expense................ $ 3,517 2,395 6,697 4,993 ============= ============ =========== ===========
Non-interest expense increased to $3.5 million, or 46.85%, during the three-month period ended June 30, 2001 and to $6.7 million, or 34.13%, during the six-month period ended June 30, 2001, from $2.4 million and $5.0 million in the prior year periods, respectively. These increases are primarily attributable to an increase in salaries and employee benefits expense, which increased $827,000, or 58.08%, during the second quarter of 2001 and $1.3 million, or 46.98%, during the six-month period ended June 30, 2001, as compared to the prior year periods. Salaries and employee benefits expense increased as we hired additional staff to expand our Internet Mortgage Division and to open a new branch location. We had 169 full-time employees at June 30, 2001 as compared to 123 at June 30, 2000. Thirty-three of the new full-time employees were a result of the recent expansion of our Internet Mortgage Division and four of the new full-time employees were as a result of our new Shawnee, Kansas branch location. Also, as our Internet and Retail mortgage loan originations have grown, commissions paid have also grown, contributing to the increase in salaries and employee benefits expense during the second quarter of 2001. 15 16 FINANCIAL CONDITION Total assets for the Company at June 30, 2001, were $451.1 million, an increase of $36.4 million, or 8.78%, compared to $414.7 million at December 31, 2000. Deposits and stockholders' equity at June 30, 2001, were $373.0 million and $25.8 million, respectively, compared with $338.2 million and $23.8 million, respectively, at December 31, 2000, increases of $34.8 million, or 10.28%, and $2.0 million, or 8.30%, respectively. Loans at June 30, 2001 totaled $314.9 million, an increase of $27.2 million, or 9.45%, compared to December 31, 2000. The loan to deposit ratio at June 30, 2001 was 84.41% compared to 85.05% at December 31, 2000. The deposit growth of 10.28% and calls/sales of investment securities have provided the funding necessary to facilitate our loan growth. Mortgage loans held for sale at June 30, 2001 totaled $26.7 million, an increase of $25.5 million, from $1.2 million at December 31, 2000. The recent expansion of our Internet Mortgage Division coupled with the recent declines in market interest rates have led to significant increases in residential mortgage loan originations and sales. Excess cash held in federal funds sold, calls and sales of investment securities, and deposit growth have provided the funding necessary to facilitate the mortgage loan origination growth. Also available to fund growth is a line-of-credit with the Federal Home Loan Bank. Advance availability with the Federal Home Loan Bank is determined quarterly and at June 30, 2001, approximately $53 million was available. 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: NON-PERFORMING ASSETS
AS OF AND FOR THE --------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ----------------------------------- 2001 2000 2000 ---- ---- ---- (DOLLARS IN THOUSANDS) REAL ESTATE LOANS: Past due 90 days or more $ 205 $ - $ 206 Nonaccrual 838 - 499 INSTALLMENT LOANS: Past due 90 days or more 21 - - Nonaccrual 15 6 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 152 520 24 Nonaccrual 887 337 1,326 LEASE FINANCING RECEIVABLES: Past due 90 days or more - - - Nonaccrual 790 293 382 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 2,908 1,156 2,474 --------------- -------------- ------------- FORECLOSED ASSETS HELD FOR SALE 67 86 334 --------------- -------------- ------------- Total non-performing assets $ 2,975 $ 1,242 $ 2,808 =============== ============== ============= Total nonperforming loans to total loans 0.92% 0.43% 0.86% Total nonperforming loans to total assets 0.64% 0.33% 0.60% Allowance for loan losses to nonperforming loans 170.25% 365.83% 179.47% Nonperforming assets to loans and foreclosed assets held for sale 0.94% 0.46% 0.97%
16 17 As of June 30, 2001, non-performing loans equaled 0.92% 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. The percentage of non-performing loans to total loans at June 30, 2001 is slightly above historical percentages as a decline in general economic conditions has been observed during the first half of 2001 and the loan portfolio has been cautiously monitored for possible non-performing loans. Generally, the Bank maintains its allowance for loan losses in excess of its non-performing loans. As of June 30, 2001, our ratio of allowance for loan losses to non-performing loans was 170.25%. 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 ------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 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 569 257 343 Personal 26 121 153 Home Equity - - - Construction - - - Leases 169 200 1,034 ---------------- ---------------- ----------------- Total loans charged-off 764 578 1,530 Recoveries: Commercial real estate - - - Residential real estate - - - Commercial 69 11 104 Personal 29 18 46 Home Equity - - - Construction - - - Leases 82 16 53 ---------------- ---------------- ----------------- Total recoveries 180 45 203 ---------------- ---------------- ----------------- Net loans charged-off 584 533 1,327 Provision for loan losses 1,095 945 1,950 ---------------- ---------------- ----------------- Balance at end of period $ 4,951 $ 4,229 $ 4,440 ================ ================ ================= Loans outstanding: Average 298,738 257,581 268,227 End of period 314,857 267,720 287,669 Ratio of allowance for loan losses to loans outstanding: Average 1.66% 1.64% 1.66% End of period 1.57% 1.58% 1.54% Ratio of net charge-offs to: Average loans 0.39% 0.42% 0.49% End of period loans 0.37% 0.40% 0.46%
The allowance for loan losses as a percent of total loans has remained fairly constant at 1.57% as of June 30, 2001, compared to 1.54% at December 31, 2000. As of June 30, 2001, net charge-offs equaled 0.39% of average total loans on an annualized basis. This ratio is slightly below historical averages due in part to charge-off recoveries of $130,000 during the second 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 17 18 satisfactory. Liquidity is also achieved through growth of core deposits and liquid assets, and accessibility to the money and capital markets. The funds are used to meet deposit withdrawals, maintain reserve requirements, fund loans and operate the organization. Core deposits, defined as demand deposits, interest-bearing transaction accounts, savings deposits and certificates of deposit less than $100,000, were 67.97% of our total assets at June 30, 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 June 30, 2001, the Bank was within the established guidelines. At June 30, 2001, our total stockholders' equity was $25.8 million and our equity to asset ratio was 5.72%. At June 30, 2001, our Tier 1 capital ratio was 8.92% compared to 9.51% at December 31, 2000, while our total risk-based capital ratio was 11.06% compared to 11.95% at December 31, 2000. Both exceed the capital minimums established in the risk-based capital requirements. 18 19 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 the Bank of Blue Valley's net interest income over the next twelve month period and net economic value of equity at risk at June 30, 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 8.50 % (12.59%) 200 basis point rise 6.16 % (8.50 %) 100 basis point rise 2.95 % (3.38 %) Base Rate Scenario - - 100 basis point decline (2.69%) 2.06 % 200 basis point decline (4.84%) 3.14 % 300 basis point decline (6.91%) 3.95 %
The above table indicates that, at June 30, 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 June 30, 2001, in the event of a sudden increase in prevailing market rates, the loss in the estimated market value of fixed rate loans and investment securities would be in excess of the estimated market value gain on certificates of deposits and fixed-rate callable FHLB advances, which would have the effect of lowering the economic value of equity. A sudden decrease in prevailing market rates would indicate just the opposite. During the three-month period ended June 30, 2001, our prime lending rate declined by 125 basis points, year-to-date our prime lending rate has decreased by 275 basis points. As discussed above, this decrease in the prime lending rate has resulted in a decrease in our net interest margin as our interest-rate sensitive assets exceed our interest-rate sensitive liabilities. 19 20 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 On May 17, 2001, the Company held its Annual Meeting of Stockholders. There were 2,162,276 shares outstanding and entitled to vote at the Annual Meeting, of which 1,659,116 shares were represented in person or by proxy. The following items were submitted at the Annual Meeting for consideration by the stockholders. 1. Election of Director Wayne A. Henry, Jr. was elected at the Annual Meeting to serve a three year term, or until his successor is duly elected and qualified. The voting results were as follows: Shares Voted For: 1,659,116 Shares Voted Against 0 Shares Abstained 0 The directors of the Company whose terms of office extended beyond the date of the Annual Meeting include: Robert D. Regnier Don H. Alexander C. Ted McCarter Thomas A. McDonnell 2. The acts of the Directors and Officers as shown by the books and records regularly kept and maintained by the corporation since the last Annual Meeting of the Stockholders of the Company were approved and ratified. The voting results were as follows: Shares Voted For: 1,659,116 Shares Voted Against 0 Shares Abstained 0 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 June 30, 2001. 20 21 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: August 14, 2001 By: /s/ Robert D. Regnier ------------------------------------- Robert D. Regnier, President and Chief Executive Officer Date: August 14, 2001 By: /s/ Mark A. Fortino ------------------------------------- Mark A. Fortino, Treasurer 21