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BLUE VALLEY BAN CORP.
DECEMBER 31, 2015, 2014 AND 2013
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page
INDEPENDENT AUDITOR’S REPORT AND REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM ............................................................................................................................
F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets ...................................................................................................................................
Statements of Operations ...................................................................................................................
Statements of Comprehensive Income (Loss) ...................................................................................
Statements of Stockholders’ Equity...................................................................................................
Statements of Cash Flows .................................................................................................................
Notes to Financial Statements ...........................................................................................................
F-4
F-6
F-7
F-8
F-9
F-11
1
F-
Independent Auditor’s Report
Audit Committee,
Board of Directors and Stockholders
Blue Valley Ban Corp.
Overland Park, Kansas
We have audited the accompanying consolidated financial statements of Blue Valley Ban Corp. and its subsidiaries,
which comprise the consolidated balance sheet as of December 31, 2015 and 2014, and the related consolidated
statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the years then ended, and
the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the design,
implementation and maintenance of internal control relevant to the preparation and fair presentation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with auditing standards generally accepted in the United States of America. Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no
such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of significant accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Blue Valley Ban Corp. and its subsidiaries as of December 31, 2015 and 2014, and the results of their
operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in
the United States of America.
/s/ BKD, LLP
Kansas City, Missouri
March 17, 2016
F-2
Report of Independent Registered Public Accounting Firm
Audit Committee,
Board of Directors and Stockholders
Blue Valley Ban Corp.
Overland Park, Kansas
We have audited the accompanying consolidated balance sheet (not presented) of Blue Valley Ban Corp. as of December
31, 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and
cash flows for the year ended December 31, 2013. The Company’s management is responsible for these consolidated
financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. Our audit also included examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used
and significant estimates made by management and evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position (not presented) of Blue Valley Ban Corp. as of December 31, 2013, and the results of its operations and its cash
flows for the year ended December 31, 2013, in conformity with accounting principles generally accepted in the United
States of America.
/s/ BKD, LLP
Kansas City, Missouri
March 28, 2014
F-3
BLUE VALLEY BAN CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2015 AND 2014
(In thousands, except share data)
ASSETS
Cash and due from banks
Interest bearing deposits in other financial institutions
Cash and cash equivalents
Available-for-sale securities
Mortgage loans held for sale, fair value
$
2015
22,178
23,655
45,833
91,560
2,258
$
2014
26,575
42,442
69,017
91,372
588
Loans, net of allowance for loan losses of $4,731 and $6,386 in 2015 and 2014,
respectively
443,962
416,407
Premises and equipment, net
Bank-owned real estate held for sale, net
Foreclosed assets held for sale, net
Interest receivable
Deferred income taxes
Prepaid expenses and other assets
FHLBank stock, Federal Reserve Bank stock, and other securities
11,739
5,892
9,644
1,727
12,902
7,923
4,805
16,226
–
16,758
1,603
13,445
7,539
5,490
Total assets
$
638,245
$
638,445
See Notes to Consolidated Financial Statements
F-4
BLUE VALLEY BAN CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2015 AND 2014
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits
Demand
Savings, NOW and money market
Time
Total deposits
Short term debt
Long term debt
Interest payable and other liabilities
Total liabilities
STOCKHOLDERS’ EQUITY
Capital stock
2015
2014
$
129,180
251,765
102,297
483,242
35,746
72,786
1,745
593,519
$
120,974
248,166
99,619
468,759
30,780
71,528
8,918
579,985
Series A Preferred stock, $1 par value, $1,000 liquidation preference;
Authorized 15,000,000 shares; issued and outstanding
2015 – 0 shares; 2014 – 21,750 shares
Series B Preferred stock, $1 par value, convertible to common stock; pari
passu with common stock upon liquidation;
Authorized 1,000,000 shares; issued and outstanding
2015 – 471,979 shares; 2014 – 0 shares
Common stock, par value $1 per share;
Authorized 15,000,000 shares; issued and outstanding
2015 – 5,371,353 shares; 2014 – 4,649,001 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss), net of income tax (credit) of
$(33) in 2015 and $(380) in 2014
Total stockholders’ equity
–
472
5,371
30,657
8,276
(50)
44,726
22
–
4,649
45,328
9,030
(569)
58,460
Total liabilities and stockholders’ equity
$
638,245
$
638,445
See Notes to Consolidated Financial Statements
F-5
BLUE VALLEY BAN CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013
(In thousands, except per share data)
INTEREST AND DIVIDEND INCOME
Interest and fees on loans
Federal funds sold and other short-term investments
Available-for-sale securities
Dividends on FHLBank and Federal Reserve Bank stock
Total interest and dividend income
$
INTEREST EXPENSE
Interest-bearing demand deposits
Savings and money market deposit accounts
Time deposits
Federal funds purchased and short term debt
Long term debt, net
Total interest expense
NET INTEREST INCOME
PROVISION FOR LOAN LOSSES
2015
2014
2013
$
20,418
89
1,880
231
22,618
246
341
868
25
2,470
3,950
18,668
1,450
$
20,283
97
2,062
242
22,684
269
305
1,247
25
2,668
4,514
18,170
400
20,800
135
1,683
239
22,857
313
275
1,661
26
3,196
5,471
17,386
950
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES
17,218
17,770
16,436
NON-INTEREST INCOME
Loans held for sale fee income
NSF charges and service fees
Trust services
Investment brokerage services
Other service charges
Realized gains (losses) on available-for-sale securities
Other income
Total non-interest income
NON-INTEREST EXPENSE
Salaries and employee benefits
Net occupancy expense
Foreclosed assets expense
Other operating expense
Total non-interest expense
INCOME BEFORE INCOME TAXES
PROVISION (BENEFIT) FOR INCOME TAXES
Provision for income taxes
Valuation allowance for deferred tax asset
Total provision (benefit) for income taxes
NET INCOME
879
1,033
640
518
1,447
(78)
2,052
6,491
11,205
2,699
2,522
6,342
22,768
941
276
–
276
665
DIVIDENDS AND ACCRETION ON PREFERRED STOCK
1,333
628
892
602
509
1,375
36
1,599
5,641
10,826
2,716
2,426
6,238
22,206
1,205
377
(11,934)
(11,557)
12,762
1,740
1,456
968
560
500
1,418
127
3,443
8,472
11,079
2,620
3,612
6,855
24,166
742
200
(500)
(300)
1,042
1,104
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS
BASIC EARNINGS (LOSS) PER COMMON SHARE
DILUTED EARNINGS (LOSS) PER COMMON SHARE
See Notes to Consolidated Financial Statements
$
$
$
F-6
(668)
$
11,022
$
(62)
(0.14)
(0.14)
$
$
2.40
2.40
$
$
(0.02)
(0.02)
BLUE VALLEY BAN CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013
(In thousands)
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
Change in unrealized appreciation (depreciation) on available-for-sale
securities, net of income taxes (credit) of $312 in 2015, $2,370 in 2014
and $(2,710) in 2013
Less: reclassification adjustment for realized (gains) losses included in
net income (loss), net of income taxes of $(31) in 2015, $15 in 2014,
and $51 in 2013
Comprehensive income (loss)
2015
2014
2013
$
665
$
12,762
$
1,042
472
3,591
(4,106)
$
47
1,184
$
(21)
16,332
$
(76)
(3,140)
See Notes to Consolidated Financial Statements
F-7
BLUE VALLEY BAN CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013
(In thousands, except share data)
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
(Accumulated Comprehensive
Income (Loss)
Deficit)
Total
BALANCE, DECEMBER 31, 2012
$
22
$ 2,934
$38,746
$ (1,930)
$
43
$ 39,815
Issuance of 44,210 shares of restricted stock,
net of forfeitures of 567
Issuance of 4,748 shares of common stock for
the employee stock purchase plan
Issuance of 1,344,000 shares of common stock
Net income
Accretion of discount on preferred shares
Dividend on preferred shares
Other comprehensive loss
44
5
1,344
244
14
4,989
17
1,042
(17)
(1,087)
(4,182)
288
19
6,333
1,042
–
(1,087)
(4,182)
BALANCE, DECEMBER 31, 2013
$ 22
$ 4,327
$44,010
$ (1,992)
$ (4,139)
$ 42,228
Issuance of 40,674 shares of restricted stock,
net of forfeitures of 2,363
Issuance of 6,877 shares of common stock for
the employee stock purchase plan
Issuance of 277,109 shares of common stock
Net income
Dividend on preferred shares
Other comprehensive income
38
7
277
236
24
1,058
12,762
(1,740)
3,570
274
31
1,335
12,762
(1,740)
3,570
BALANCE, DECEMBER 31, 2014
$ 22
$ 4,649
$45,328
$ 9,030
$ (569)
$ 58,460
Redemption of 21,750 shares of Series A
preferred stock
Issuance of 471,979 shares of Series B
preferred stock
Issuance of 48,153 shares of restricted stock,
net of forfeitures of 1,405
Issuance of 4,726 shares of common stock for
the employee stock purchase plan
Issuance of 670,878 shares of common stock
Net income
Repurchase of warrants
Dividend on preferred shares
Other comprehensive income
(22)
472
(21,728)
2,832
308
25
3,896
(4)
47
4
671
(21,750)
3,304
355
29
4,567
665
(4)
(1,419)
519
665
(1,419)
519
BALANCE, DECEMBER 31, 2015
$ 472
$ 5,371
$30,657
$ 8,276
$ (50)
$ 44,726
See Notes to Consolidated Financial Statements
F-8
BLUE VALLEY BAN CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013
(In thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization
Amortization, net of (accretion) of premiums and discounts on available-for-
sale securities
Provision for loan losses
Provision for losses on foreclosed assets held for sale
Deferred income taxes
Stock dividends on FHLBank stock
Increase in value of bank owned life insurance
Net realized gains on available-for-sale securities
Net loss on disposal of premises and equipment
Net gain on sale of foreclosed assets
Restricted stock earned and forfeited
Compensation expense related to the Employee Stock Purchase Plan
Originations of loans held for sale
Proceeds from the sale of loans held for sale
Realized (gain) loss on loans held for sale fair value adjustment
Changes in:
Interest receivable
Net fair value of loan related commitments
Prepaid expenses and other assets
Interest payable and other liabilities
Net cash provided by (used in) operating activities
INVESTING ACTIVITIES
Net change in loans
Proceeds from sale of loan participations
Purchase of premises and equipment
Proceeds from the sale of foreclosed assets, net of expenses
Capitalized expenditures on foreclosed assets held for sale
Purchase of priority lien on foreclosed assets held for sale
Purchases of available-for-sale securities
Proceeds from maturities of available-for-sale securities
Proceeds from sale of available-for-sale securities
Purchases of FHLBank and Federal Reserve Bank stock and other securities
Proceeds from the redemption of FHLBank stock, Federal Reserve Bank stock,
and other securities
Net cash provided by (used in) investing activities
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, money market, NOW and savings
accounts
Net decrease in time deposits
Net increase (decrease) in federal funds purchased and other interest-bearing
liabilities
Proceeds from acquisition of bank deposits
Repayments of long-term debt
Proceeds from long-term debt
Prepayment penalty on modification of FHLBank advances
Proceeds from sale of additional stock
Proceeds from sale of additional stock through rights offering
Net proceeds from the sale of stock through Employee Stock Purchase Plan
Dividends paid on Series A Preferred Stock
Repurchase of warrants
Redemption of Series A Preferred Stock
Net cash provided by (used in) financing activities
2015
2014
2013
$
665
$
12,762
$
1,042
1,911
320
1,450
1,854
196
(113)
(172)
78
19
(39)
355
4
(46,750)
45,060
20
(124)
(54)
(53)
(1,252)
3,377
2,149
286
400
1,006
(11,557)
(127)
(169)
(36)
─
(153)
274
4
(29,046)
29,915
(18)
133
37
(1,213)
(178)
4,469
1,671
269
950
2,147
(300)
(121)
(167)
(127)
─
(1,069)
288
4
(53,278)
59,423
38
(207)
168
(95)
(2,769)
7,867
(50,217)
21,162
(2,327)
5,399
─
(160)
(122,006)
81,770
40,516
─
(19,907)
10,606
(1,731)
6,892
(406)
─
(13,593)
15,000
13,578
(73)
(11,170)
9,698
(905)
7,022
(254)
(378)
(66,006)
29,923
6,159
(3)
798
(25,065)
4,400
(19,088)
4,966
29,172
(15,246)
15,500
─
7,871
─
29
(7,346)
(4)
(21,750)
(1,496)
(23,184)
69,017
45,833
1,960
12,326
34,840
(14,449)
(1,555)
─
(7,500)
─
─
85
1,250
31
(979)
─
─
11,723
28,518
40,499
69,017
$
414
(25,500)
(15,030)
(21,068)
10,667
─
(20,000)
─
(3,866)
─
6,333
19
─
─
─
(42,945)
(60,578)
101,077
40,499
$
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
CASH AND CASH EQUIVALENTS, END OF YEAR
See Notes to Consolidated Financial Statements
$
F-9
BLUE VALLEY BAN CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013
(In thousands)
SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid during the year for:
Interest
Income taxes, net of refunds
Noncash investing and financing activities:
Reclassification of premises and equipment to bank-owned real estate held
for sale, net
Transfer of loans to foreclosed property, net of specific allowance
Restricted stock issued
Preferred dividends accrued but not paid
Sale and financing of foreclosed assets
2015
2014
2013
$
$
$
$
$
$
$
4,857
80
5,892
159
─
─
─
$
$
$
$
$
$
$
4,261
53
─
1,903
─
1,740
3,607
$
$
$
$
$
$
$
8,648
─
─
4,371
50
1,087
3,038
See Notes to Consolidated Financial Statements
F-10
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company is a holding company for Bank of Blue Valley (the “Bank”), BVBC Capital Trust II and BVBC
Capital Trust III, through 100% ownership of each.
The Bank is primarily engaged in providing a full range of banking services to consumer and commercial customers
in Johnson County, Kansas. The Bank has also originated residential mortgages locally and nationwide through its
InternetMortgage.com website, though the strategic decision was made to discontinue originating and selling
residential mortgage loans to the secondary mortgage market by the Bank beginning in 2016. The Bank is subject to
competition from other financial institutions. The Bank is also subject to regulation by certain federal and state
agencies and undergoes periodic examination by those regulatory authorities.
BVBC Capital Trust II and III are Delaware business trusts created in 2003 and 2005, respectively, to offer trust
preferred securities and to purchase the Company’s junior subordinated debentures. The Trusts have terms of 30
years, but may dissolve earlier as provided in their trust agreements.
Operating Segment
The Company provides community banking services through its subsidiary bank, including such products and
services as loans; time deposits, checking and savings accounts, mortgage originations, trust services, and
investment services. These activities are reported as a single operating segment.
Principles of Consolidation
The consolidated financial statements include the accounts of Blue Valley Ban Corp. and its 100% owned
subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant change include the determination of the allowance
for loan losses, valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, valuation
of deferred tax assets and fair values of financial instruments. In connection with the determination of the allowance
for loan losses and the valuation of foreclosed assets held for sale, management obtains independent appraisals for
significant properties.
Management believes that the allowance for loan losses, valuation of foreclosed assets held for sale, and valuation of
deferred tax assets are adequate. While management uses available information to recognize losses on loans,
foreclosed assets held for sale and deferred tax assets, changes in economic conditions may necessitate revision of
these estimates in future years. In addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Company’s allowance for loan losses, valuation of foreclosed assets held for sale
and deferred tax assets. Such agencies may require the Company to recognize additional losses based on their
judgments of information available to them at the time of their examination.
F-11
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Evaluation of Subsequent Events
Subsequent events have been evaluated through the date of the Independent Auditor’s Report, which is the date the
financial statements were available to be issued.
Effect of New Financial Accounting Standards
In January, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-04, Receivables –
Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate
Collateralized Consumer Mortgage Loans Upon Foreclosure. The amendment is intended to reduce diversity in
practice by clarifying when an insubstance foreclosure, repossession or foreclosure occurs, and a creditor is
considered to have received physical possession of residential real estate property collateralizing a consumer
mortgage loan, upon either the creditor obtaining legal title to the residential real estate property upon foreclosure or
the borrower conveying all interest in the residential real estate property to the creditor to satisfy the borrower’s
obligation for the loan through completion of a deed in lieu of foreclosure or through a similar agreement.
Additional disclosures are required of both (1) the amount of foreclosed residential real property held by the creditor
and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are
in the process of foreclosure. ASU 2014-4 was effective for annual periods and interim periods within those annual
periods beginning after December 15, 2014. The Company’s adoption of ASU 2014-04 did not have a material
impact on its financial condition or results of operations.
In June, 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity
Transactions, Repurchase Financings, and Disclosures. The guidance in this update changes the accounting for
repurchase-to-maturity transactions and repurchase financing arrangements. It also requires enhanced disclosures
about repurchase agreements and similar transactions. The accounting changes in this update are effective for the
first annual period beginning after December 15, 2014. In addition, the disclosure for transactions accounted for as
secured borrowings is required to be presented for annual periods beginning after December 15, 2014. The adoption
of this update did not have a material effect on the Company’s consolidated financial statements.
In February, 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the
Consolidation Analysis. The update changes the evaluation of whether limited partnerships and similar entities are
variable interest entities (VIE) or voting interest entities (VOE), and consolidation conclusions could change for
entities that are already considered VIEs. The update also eliminates both the consolidation model specific to
limited partnerships and the current presumption that a general partner controls a limited partnership. The
amendments in the update are effective for fiscal years beginning after December 15, 2015. The Company is
currently assessing the impact that this guidance may have, if any, on its consolidated financial statements.
In May, 2015, the FASB issued ASU No. 2015-07, Fair Value Measurements (Topic 820): Disclosures for
Investments in Certain Entities that Calculate Net Asset Value Per Share. The guidance in this update removes the
requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the
net asset value per share practical expedient. The amendments also remove the requirement to make certain
disclosures for all investments that are eligible to be measured at fair value using the net asset value per share
practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure
the fair value using that practical expedient. The new authoritative guidance is effective for interim and annual
periods beginning after December 15, 2015 and is not expected to have a material impact on the Company’s
consolidated financial statements.
F-12
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Effect of New Financial Accounting Standards (Continued)
In August, 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606):
Deferral of the Effective Date, which deferred the effective date of ASU 2014-09, Revenue from Contracts with
Customers (Topic 606). ASU 2014-09 provided guidance applicable to contracts with customers so that a company
should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. For financial
institutions, significant changes are not expected because most financial instruments are not in the scope of the
update. ASU 2015-14 defers the implementation for ASU 2014-09 to be effective for annual periods beginning after
December 15, 2017. Early adoption is not permitted and the standard permits the use of either the retrospective or
cumulative effect transition method. The Company is currently evaluating the impact of the adoption of this
standard.
Cash and Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash
equivalents.
The Company’s interest-bearing cash accounts exceeded the $250,000 FDIC insurance limits by approximately
$296,000 and the Company’s noninterest-bearing cash accounts exceeded the $250,000 FDIC insurance limits by
approximately $5.5 million at December 31, 2015.
The Bank had no required reserve with the Federal Reserve Bank at December 31, 2015. The Bank’s deposit
balance held at the Federal Reserve Bank on December 31, 2015 was $23,109,000.
Investment in Securities
Available-for-sale securities, which include any security for which the Company has no immediate plan to sell, but
which may be sold in the future, are carried at fair value. Unrealized gains and losses are excluded from earnings
and are reported, net of related income tax effects, in accumulated other comprehensive income. Purchase
premiums and discounts are amortized and accreted, respectively, to interest income using a method which
approximates the level-yield method over the terms of the securities. Realized gains and losses, based on amortized
cost of the specific security, are recorded on the trade date and included in non-interest income. Interest on
investments in debt securities is included in income when earned.
For debt securities with fair value below amortized cost, for which the Company does not intend to sell the debt
security, and for which it is more likely than not the Company will not have to sell the security before recovery of its
cost basis, the Company recognizes the credit component of an other-than-temporary impairment of the debt
security in earnings and the remaining portion in other comprehensive income. The credit loss component
recognized in earnings is identified as the amount of principal cash flows not expected to be received over the
remaining term of the security as projected based on cash flow projections. The Company did not have any
securities with other-than-temporary impairment at December 31, 2015.
For equity securities, when the Company has decided to sell an impaired available-for-sale security and the entity
does not expect the fair value of the security to fully recover before the expected time of sale, the security is deemed
other-than-temporarily impaired in the period in which the decision to sell is made. The Company recognizes an
impairment loss when the impairment is deemed other-than-temporary even if a decision to sell has not been made.
F-13
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Mortgage Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at fair value in the aggregate.
Net unrealized gains and losses, if any, are recognized through a valuation allowance by charges to non-interest
income. Gains and losses, net of discounts collected or paid, commitment fees paid and, considering a normal
servicing rate, are recognized in non-interest income upon sale of the loan.
Loans
Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are
reported at their outstanding principal balance adjusted for unearned income, charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased
loans. For loans recorded at amortized cost, interest income is accrued based on the unpaid principal balance. Loan
origination fees, as well as premiums and discounts, are deferred and amortized over the respective term of the loan.
Generally, the accrual of interest on loans is discontinued, and interest is considered a loss, at the time the loan is 90
days past due, unless the loan is well-secured and in the process of collection. Past due status is based on
contractual term of the loans. Loans are placed on non-accrual or charged off at an earlier date if collection of
principal or interest is considered doubtful. All interest accrued but not collected for loans placed on non-accrual or
charged off is reversed when loans are placed on non-accrual or charged off, which reduces interest income. The
interest on these loans is generally accounted for on a cash-basis or a cost recovery method, until conditions qualify
the loan’s return to accrual status. Loans may be returned to accrual status when all the principal and interest
amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses is management's estimate of probable losses which have occurred as of the balance
sheet date based on management's evaluation of risk in the loan portfolio. Loan losses are charged against the
allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries of
amounts previously charged off, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a monthly basis by management and is based on management’s
periodic review of the collectability of the loans in consideration of historical experience, the nature and volume of
the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of underlying
collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that
are susceptible to significant revision as more information becomes available.
The Company computes its allowance by assigning specific reserves to impaired loans, and then applies general
reserve factors to the rest of the loan portfolio. The general reserve covers non-impaired loans and is based on
historical charge off experience, expected loss given default derived from the Company’s internal risk rating process
and current and projected economic conditions and factors. Other adjustments may be made to the allowance for
pools of loans after an assessment of internal and external influences on credit quality that are not fully reflected in
the historical loss or risk rating data.
F-14
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Allowance for Loan Losses (Continued)
A loan is considered impaired when, based on current information and events, it is probable that the Company will
be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of
the loan agreement. Factors considered by management in determining impairment include payment status,
collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking
into consideration all of the circumstances surrounding the loan and the borrower, including the length of delay, the
reason for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal
and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future
cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of
collateral securing the loan if the loan is collateral dependent.
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the
straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and
depreciated using the straight-line method over the terms of the respective lease or the estimated useful lives of the
improvements, whichever is shorter.
The estimated useful lives for each major depreciable classification of premises and equipment are as follows:
Buildings and improvements
Furniture and equipment
35-40 years
3-10 years
Bank-Owned Real Estate Held for Sale
Bank-owned real estate held for sale includes real estate owned by the Bank which is held for and actively marketed
for sale. No depreciation expense is recorded on bank-owned real estate held for sale during the period it is held for
sale; rather, it is recorded at fair value less estimated costs to sell. During 2015, the Bank consolidated the location
of employees from an office building, which had been marketed for sale, to the Bank’s main office in Overland
Park, Kansas. The cost and accumulated depreciation of the office building was previously recorded in premises
and equipment and, pursuant to the consolidation of Bank employees to the Bank’s main office, was reclassified to
bank-owned real estate held for sale.
Foreclosed Assets Held for Sale
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less
costs to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower of carrying amount or fair value less
costs to sell. Revenue and expenses from operations and changes in the valuation allowance are reported as other
income and foreclosed assets expense.
F-15
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
FHLBank Stock, Federal Reserve Bank Stock and Other Securities
FHLBank and Federal Reserve Bank stock are required investments for institutions that are members of the Federal
Home Loan Bank and Federal Reserve systems. The required investment in the stock is based on a predetermined
formula, carried at cost and evaluated for impairment.
Derivatives
Derivatives are recognized as assets and liabilities in the consolidated balance sheets and measured at fair value.
Derivative Loan Commitments
Mortgage loan commitments that relate to the origination of a mortgage that will be held for sale upon funding are
considered derivative instruments under the derivatives and hedging accounting guidance (ASC 815, Derivatives and
Hedging). Loan commitments that are derivatives are recognized at fair value on the consolidated balance sheet in
other assets and other liabilities with changes in their fair values recorded in other income. The Company estimates
the fair value using a valuation model which considers differences between quoted prices for loans with similar
characteristics in the secondary market and the committed rates.
Forward Loan Sale Commitments
The Company carefully evaluates all loan sales agreements to determine whether they meet the definition of a
derivative under the derivatives and hedging accounting guidance (ASC 815), as facts and circumstances may differ
significantly. If agreements qualify, to protect against the price risk inherent in derivative loan commitments, the
Company uses best efforts forward loan sale commitments to mitigate the risk of potential decreases in the values of
loans that would result from the exercise of the derivative loan commitments. Accordingly, forward loan
commitments are recognized at fair value on the consolidated balance sheet in other assets and other liabilities with
changes in their fair values recorded in other income. The Company estimates the fair value of its forward loan
commitments using a methodology similar to that used for derivative loan commitments.
Fee Income
Loan origination fees, net of direct origination costs, are recognized as income using the level-yield method over the
term of the loans.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control
over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company—put
presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the
transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return
specific assets.
F-16
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Transfers between Fair Value Hierarchy Levels
Transfers in and out of Level 1 (quoted market prices), Level 2 (other significant observable inputs) and Level 3
(significant unobservable inputs) are recognized on the period end date.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income
Taxes). The income tax accounting guidance results in two components of income tax expense: current and
deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the
provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company
determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred
tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and
liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred
income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets
(“DTAs”) are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than
not that some portion or all of a DTA will not be realized. As of September 30, 2014 and in consideration of the
Company’s sustained profitability principally resulting from improved net interest income, reduced non-interest
expense, and assessment of the Company’s future ability to realize its DTA, the Company recorded a recovery of its
remaining $11.8 million DTA valuation allowance. The DTA valuation allowance had been recorded due to the
Company’s losses recorded over previous years, which had resulted in uncertainty of the Company’s ability to
recognize the DTA in future near term periods.
Tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be
realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent;
the terms examined and upon examination also include resolution of the related appeals or litigation processes, if
any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured
as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement
with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a
tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and
information available at the reporting date and is subject to management’s judgment.
The Company recognizes interest and penalties on income taxes as a component of income tax expense. The
Company files consolidated income tax returns with its subsidiaries. The Company is generally not subject to
federal, state and local examination by tax authorities for years prior to 2012.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and accumulated other comprehensive income (loss), net
of applicable income taxes. Accumulated other comprehensive income (loss) includes unrealized appreciation
(depreciation) on available-for-sale securities. Net unrealized gain or (loss) on available-for-sale securities, net of
income taxes, included in accumulated other comprehensive income (loss) was $(50,000) and $(569,000),
respectively, at December 31, 2015 and 2014.
Reclassification
Certain reclassifications have been made to the 2014 and 2013 financial statements to conform to the 2015 financial
statement presentation. These reclassifications had no effect on net income.
F-17
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Earnings (Loss) Per Share
Basic earnings (loss) per share represents income available to common stockholders divided by the weighted
average number of shares outstanding during each period. Diluted earnings (loss) per share reflects additional
potential common shares that would have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance. The computation of per share
earnings is as follows:
2015
2014
2013
(In thousands, except share and per share data)
Net Income
Dividends and accretion on preferred stock
Net income (loss) available to common stockholders
$
$
665 $
(1,333)
(668) $
12,762 $
(1,740)
11,022 $
1,042
(1,104)
(62)
Average common shares outstanding
Average common share stock options outstanding and
restricted stock (B)
4,932,847
4,586,741
2,930,115
705
9,100
21,262
Average diluted common shares (B)
4,933,552
4,595,841
2,951,377
Basic income (loss) per share
Diluted income (loss) per share (A)
$(0.14)
$(0.14)
$2.40
$2.40
$(0.02)
$(0.02)
(A)
(B)
No shares of stock options, restricted stock or warrants were included in the computation of diluted earnings per
share for any period there was a loss.
Warrants to purchase 111,083 shares of common stock at an exercise price of $29.37 per share were outstanding
at December 31, 2014 and 2013 but were not included in the computation of diluted earnings per share because
the warrant’s exercise price was greater than the average market price of the common shares, thus making the
warrants anti-dilutive. In January, 2015, the Company repurchased the warrants for $4,000 and cancelled them.
There were no stock options to purchase shares of common stock outstanding at December 31, 2015, 2014 and
2013 respectively.
Income available for common stockholders is reduced by dividends declared on preferred stock (whether or not they
the warrants.
are paid)
they are declared, as well as
the accretion on
the period
in which
in
F-18
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 2: AVAILABLE-FOR-SALE SECURITIES
The amortized cost and estimated fair value, together with gross unrealized gains and losses, of available-for-sale
securities are as follows:
(In thousands)
U.S. Government sponsored agencies
State and political subdivision securities
U.S. Small Business Administration loan pool certificates
Equity and other securities
(In thousands)
U.S. Government sponsored agencies
State and political subdivision securities
U.S. Small Business Administration loan pool certificates
Equity and other securities
December 31, 2015
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Fair Value
$
28
344
–
–
$
(321)
(80)
(53)
(2)
$ 66,332
20,339
4,291
598
Amortized
Cost
$ 66,625
20,075
4,344
600
$ 91,644
$
372
$
(456)
$ 91,560
December 31, 2014
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Fair Value
$
3
141
–
2
$
(811)
(172)
(112)
–
$ 66,215
19,882
4,673
602
Amortized
Cost
$ 67,023
19,913
4,785
600
$ 92,321
$
146
$ (1,095)
$ 91,372
The amortized cost and estimated fair value of available-for-sale securities at December 31, 2015, by contractual
maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment penalties.
(In thousands)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
U.S. Small Business Administration loan pool certificates
Equity and other securities
Amortized
Cost
$
$
–
25,840
35,631
25,229
86,700
4,344
600
91,644
Fair Value
$
$
–
25,806
35,408
25,457
86,671
4,291
598
91,560
The amortized cost and estimated fair value of securities pledged as collateral to secure public deposits were
$6,122,000 and $6,086,000, respectively, at December 31, 2015 and $5,875,000 and $5,780,000, respectively, at
December 31, 2014.
Gross gains of $80,000 and gross losses of $158,000 were realized in 2015 from sales of available-for-sale
securities. Gross gains of $207,000 and gross losses of $171,000 were realized in 2014 from sales of available-for-
sale securities. Gross gains of $134,000 and gross losses of $7,000 were realized in 2013 from sales of available-for-
sale securities.
F-19
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 2: AVAILABLE-FOR-SALE SECURITIES (Continued)
Certain investments in debt and marketable equity securities are reported in the consolidated financial statements at
an amount less than their historical cost. Total fair value of these investments at December 31, 2015 and 2014, was
$58,812,000 and $70,893,000, respectively, which is approximately 64.2% and 77.6%, respectively, of the
Company’s available-for-sale investment portfolio. These declines in fair value resulted primarily from increases in
market interest rates from the date of the acquisition of the securities. Based on evaluation of available information
and evidence, particularly recent volatility in market yields on debt securities, management believes the declines in
fair value for these securities are temporary.
Unrealized losses and fair value, aggregated by investment type and length of time that individual securities have
been in a continuous unrealized loss position are as follows:
Description of
Securities
(In thousands)
U.S. Government sponsored agencies
State and political subdivision
securities
U.S. Small Business Administration
loan pool certificates
Equity and other securities
Total temporarily impaired
securities
Description of
Securities
(In thousands)
U.S. Government sponsored agencies
State and political subdivision
securities
U.S. Small Business Administration
loan pool certificates
Equity and other securities
Total temporarily impaired
securities
Less than 12 Months
Fair Value
Unrealized
Losses
December 31, 2015
12 Months or More
Fair Value
Unrealized
Losses
Total
Fair Value
Total
Unrealized
Losses
$
49,589 $
321 $
– $
–
$
49,589 $
321
389
2,685
598
1
14
2
3,945
1,606
–
79
39
–
4,334
4,291
598
80
53
2
$
53,261 $
338 $
5,551 $
118
$
58,812 $
456
Less than 12 Months
Fair Value
Unrealized
Losses
December 31, 2014
12 Months or More
Fair Value
Unrealized
Losses
Total
Fair Value
Total
Unrealized
Losses
$
18,772 $
126 $
37,440 $
685
$
56,212 $
1,275
22
8,733
–
–
–
–
4,673
–
150
112
–
10,008
4,673
–
811
172
112
–
$
20,047 $
148 $
50,846 $
947
$
70,893 $
1,095
The unrealized losses on the Company’s investments in obligations of U.S. Government sponsored agencies, state
and political subdivision securities and U.S. Small Business Administration loan pool certificates were caused by
changes in market interest rates from various dates of purchase. The contractual terms of those investments do not
permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the
Company does not intend to sell the investments and it is not more likely than not the Company will be required to
sell the investments before recovery of their amortized cost bases, which may be at maturity, the Company did not
consider those investments to be other-than-temporarily impaired at December 31, 2015 or 2014.
F-20
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 2: AVAILABLE-FOR-SALE SECURITIES (Continued)
Amounts Reclassified out of Accumulated Other Comprehensive Income (Loss)
Amounts reclassified from accumulated other comprehensive income (loss) and the affected line items in the
consolidated statements of operations during the years ended December 31, 2015 and 2014 were as follows:
Amounts Reclassified From
Accumulated Other
Comprehensive Income (Loss)
Year Ended
(In thousands)
Realized gains (losses) on available-for-
sale securities
Income taxes
Total reclassifications out of accumulated
December 31,
2015
December 31,
2014
Affected line item in the Consolidated
Statements of Operations
$
(78)
$
36 Realized gains on available-for-sale securities
(Total reclassified amount before tax)
31
(15) Benefit for income taxes
other comprehensive income
$
(47)
$
21
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Classes of loans at December 31, 2015 and 2014 include the following:
(In thousands)
Commercial loans
Commercial real estate loans
Construction loans
Home equity loans
Residential real estate loans
Consumer loans
Lease financing
Total loans
Less: Allowance for loan losses
2015
2014
$
154,189
143,741
54,916
33,634
46,942
10,830
4,441
448,693
4,731
$
142,617
138,047
46,798
36,893
46,985
8,715
2,738
422,793
6,386
Net loans
$
443,962
$
416,407
F-21
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The following tables present the activity in the allowance for loan losses for the years ended December 31, 2015,
2014 and 2013:
(In thousands)
Allowance for loan losses:
Balance, beginning of year
Provision charged to
expense
Losses charged off
Recoveries
Balance, end of year
Commercial
Commercial
Real Estate Construction
Home
Equity
Residential
Real Estate
Lease
Financing
Consumer
Total
For the Year Ended December 31, 2015
$
2,537
$
1,577
$
1,032
$
465 $
698
$
15
$
62
$
6,386
3,750
(4,354)
71
2,004
$
(421)
–
123
1,279
$
(1,448)
–
979
563
$
$
(137)
–
11
339 $
(321)
–
65
442
$
9
–
–
24
$
18
–
–
80
1,450
(4,354)
1,249
4,731
$
(In thousands)
Allowance for loan losses:
Balance, beginning of year
Provision charged to
expense
Losses charged off
Recoveries
Balance, end of year
Commercial
Commercial
Real Estate Construction
Home
Equity
Residential
Real Estate
Lease
Financing
Consumer
Total
For the Year Ended December 31, 2014
$
4,556
$
1,870
$
1,426
$
484 $
618
$
20
$
18
$
8,992
1,132
(3,205)
54
2,537
$
(334)
–
41
1,577
$
(597)
–
203
1,032
$
103
(134)
12
465 $
$
60
–
20
698
$
(6)
–
1
15
$
42
–
2
62
400
(3,339)
333
6,386
$
(In thousands)
Allowance for loan losses:
Balance, beginning of year
Provision charged to
expense
Losses charged off
Recoveries
Balance, end of year
Commercial
Commercial
Real Estate Construction
Home
Equity
Residential
Real Estate
Lease
Financing
Consumer
Total
For the Year Ended December 31, 2013
$
2,097
$
3,582
$
1,543
$
634 $
1,138
$
46
$
17
$
9,057
2,281
(141)
319
4,556
$
(1,067)
(672)
27
1,870
$
(38)
(250)
171
1,426
$
$
(180)
–
30
484 $
(37)
(523)
40
618
$
(26)
–
–
20
$
17
(18)
2
18
950
(1,604)
589
8,992
$
F-22
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The following tables present the balance in the allowance for loan losses and the recorded investment in loans based
on portfolio segment and impairment methods as of December 31, 2015 and 2014:
Commercial
Commercial
Real Estate Construction
December 31, 2015
Home
Equity
Residential
Real Estate
Lease
Financing
Consumer
Total
(In thousands)
Allowance
losses:
Individually evaluated
for
loan
for impairment
Collectively evaluated
for impairment
Total
$
$
371
$
31
$
120
$
6
$
8
$
–
$
–
$
536
1,633
2,004
1,248
1,279
$
$
443
563
$
333
339 $
434
442
$
24
24 $
80
80
4,195
4,731
$
Loans:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Total
$
13,312
$
4,373
$
7,467
$
779
$
1,166
$
–
$
8
$
27,105
140,877
$ 154,189
139,368
$ 143,741
47,449
54,916
$
32,855
33,634 $
45,776
46,942
$
4,441
4,441 $
10,822
10,830
$
421,587
$ 448,693
Commercial
Commercial
Real Estate Construction
December 31, 2014
Home
Equity
Residential
Real Estate
Lease
Financing
Consumer
Total
(In thousands)
Allowance
losses:
Individually evaluated
for
loan
for impairment
$
1,590
$
171
$
347
$
16
$
15
$
–
$
–
$
2,139
Collectively evaluated
for impairment
Total
Loans:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Total
947
2,537
$
1,406
1,577
$
685
1,032
$
$
449
465 $
683
698
$
15
15 $
62
62
4,247
6,386
$
$
20,299
$
5,438
$
8,973
$
1,193
$
1,449
$
–
$
–
$
37,352
122,318
$ 142,617
132,609
$ 138,047
37,825
46,798
$
35,700
36,893 $
45,536
46,985
$
2,738
2,738 $
8,715
8,715
$
385,441
$ 422,793
F-23
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The following table presents the credit risk profile of the Company’s loan portfolio based on the rating category and
payment activity as of December 31, 2015 and 2014. These categories are defined as follows:
Pass – loans that exhibit acceptable financial performance, cash flow, leverage and the probability of default
is considered low.
Classified – loans are inadequately protected by the current payment capacity of the obligor or by the
collateral pledged. These loans are characterized by the distinct probability that the Company will sustain
some loss or incur additional expenses if the deficiencies are not corrected.
(In thousands)
Commercial
Commercial real estate
Construction
Home equity
Residential real estate
Lease financing
Consumer
Total
Pass
$ 148,671
142,295
53,121
33,258
45,776
4,441
10,822
$ 438,384
2015
Classified
5,518
1,446
1,795
376
1,166
–
8
10,309
$
$
Total
$ 154,189
143,741
54,916
33,634
46,942
4,441
10,830
$ 448,693
Pass
$ 134,786
135,662
44,054
36,085
46,002
2,738
8,715
$ 408,042
2014
Classified
7,831
$
2,385
2,744
808
983
–
–
14,751
$
Total
$ 142,617
138,047
46,798
36,893
46,985
2,738
8,715
$ 422,793
The following tables present the Company’s loan portfolio aging analysis, including loans on non-accrual, as of
December 31, 2015 and 2014:
December 31, 2015
(In thousands)
Commercial
Commercial real estate
Construction
Home equity
Residential real estate
Lease financing
Consumer
Total
(In thousands)
Commercial
Commercial real estate
Construction
Home equity
Residential real estate
Lease financing
Consumer
Total
$
30-59 Days
Past Due
–
–
–
–
218
–
–
218
$
$
30-59 Days
Past Due
764
–
–
–
476
–
–
1,240
$
Total
Loans
Receivable
$ 154,189
143,741
54,916
33,634
46,942
4,441
10,830
$ 448,693
Total
Loans > 90
Days &
Accruing
–
$
–
–
–
–
–
–
–
$
Total
Loans
Receivable
$ 142,617
138,047
46,798
36,893
46,985
2,738
8,715
$ 422,793
Total
Loans > 90
Days &
Accruing
–
$
–
–
–
–
–
–
–
$
$
60-89 Days
Past Due
–
–
–
–
237
–
–
237
$
$
Greater than
90 Days
Past Due
3,285
–
–
–
–
–
–
3,285
$
Total
Past Due
$
Current
3,285 $ 150,904
143,741
54,916
33,634
46,487
4,441
10,830
3,740 $ 444,953
–
–
–
455
–
–
$
December 31, 2014
Total
Past Due
$
Current
5,609 $ 137,008
137,144
46,138
36,467
46,259
2,738
8,715
8,324 $ 414,469
903
660
426
726
–
–
$
$
60-89 Days
Past Due
4,579
–
–
376
191
–
–
5,146
$
$
Greater than
90 Days
Past Due
266
903
660
50
59
–
–
1,938
$
F-24
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when
based on current information and events, it is probable the Company will be unable to collect the scheduled
payments of principal and interest due from the borrower in accordance with the contractual terms of the loan
agreement. Impaired loans include non-performing loans, but also include loans modified in troubled debt
restructurings where concessions have been granted to borrowers experiencing financial difficulties. These
concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal,
forbearance or other actions intended to maximize collection.
The following tables present impaired loans for the years ended December 31, 2015, 2014 and 2013:
December 31, 2015
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
Average
Investment
in
Impaired
Loans
Interest
Income
Recognized
(In thousands)
Loans without a specific
valuation allowance:
Commercial
$
1,065
$
1,065
$
Commercial real estate
Construction
Home equity
Residential real estate
Lease financing
Consumer
Loans with a specific
valuation allowance:
52
728
76
472
–
–
52
728
84
647
–
–
–
–
–
–
–
–
–
$
$
492
531
1,121
241
424
57
–
Commercial
$
2,372
$
2,372
$
259
$
5,033
$
Commercial real estate
–
–
Construction
Home equity
Residential real estate
Lease financing
Consumer
Total impaired loans:
1,795
1,801
63
–
–
–
–
63
–
–
–
70
–
–
–
–
371
1,868
4
15
–
–
Commercial
$
3,437
$
3,437
$
259
$
5,525
$
Commercial real estate
52
52
Construction
Home equity
Residential real estate
Lease financing
Consumer
2,523
2,529
76
535
–
–
84
710
–
–
–
70
–
–
–
–
902
2,989
245
439
57
–
3
20
39
2
159
–
–
5
–
92
–
–
–
–
8
20
131
2
159
–
–
Total
$
6,623
$
6,812
$
329
$
10,157
$
320
F-25
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
December 31, 2014
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
Average
Investment
in
Impaired
Loans
Interest
Income
Recognized
(In thousands)
Loans without a specific
valuation allowance:
Commercial
$
110
$
110
$
Commercial real estate
Construction
Home equity
Residential real estate
Lease financing
Consumer
Loans with a specific
valuation allowance:
1,308
1,405
1,322
1,405
–
97
–
95
–
155
–
95
–
–
–
–
–
–
–
$
$
166
640
1,433
132
623
123
–
Commercial
$
2,896
$
2,914
$
909
$
1,584
$
Commercial real estate
–
–
Construction
Home equity
Residential real estate
Lease financing
Consumer
Total impaired loans:
2,084
2,085
368
380
–
–
–
–
–
–
–
134
7
–
–
–
75
2,117
198
114
–
–
Commercial
$
3,006
$
3,024
$
909
$
1,750
$
Commercial real estate
Construction
Home equity
Residential real estate
Lease financing
Consumer
1,308
3,489
1,322
3,490
368
97
–
95
380
155
–
95
–
134
7
–
–
–
715
3,550
330
737
123
–
6
23
43
6
28
7
–
5
–
109
–
–
–
–
11
23
152
6
28
7
–
Total
$
8,363
$
8,466
$
1,050
$
7,205
$
227
F-26
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
December 31, 2013
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
Average
Investment
in
Impaired
Loans
Interest
Income
Recognized
(In thousands)
Loans without a specific
valuation allowance:
Commercial
$
Commercial real estate
$
52
423
$
54
423
Construction
Home equity
Residential real estate
Lease financing
Consumer
Loans with a specific
valuation allowance:
1,419
1,419
–
800
–
154
–
1,017
–
154
–
–
–
–
–
–
–
$
$
666
470
1,504
–
2,458
205
–
Commercial
$
5,332
$
5,355
$
3,533
$
938
$
Commercial real estate
–
–
Construction
Home equity
Residential real estate
Lease financing
Consumer
Total impaired loans:
2,250
2,250
232
220
–
–
238
275
–
–
–
168
56
31
–
–
1,022
5,556
202
1,059
–
–
Commercial
$
5,385
$
5,408
$
3,533
$
1,604
$
Commercial real estate
423
423
Construction
Home equity
3,669
3,669
232
238
Residential real estate
1,020
1,292
Lease financing
Consumer
–
154
–
154
–
168
56
31
–
–
1,492
7,060
202
3,517
205
–
18
69
45
–
94
12
–
13
–
284
–
–
–
–
31
69
328
–
94
12
–
Total
$
10,883
$
11,184
$
3,788
$
14,081
$
534
The following table presents the Company’s non-accrual loans, also included in impaired loans, at December 31,
2015 and 2014:
(In thousands)
Commercial
Commercial real estate
Construction
Home equity
Residential real estate
Lease financing
Consumer
2015
2014
$ 3,285
–
–
76
595
–
–
$ 3,956
$ 2,876
903
727
368
97
–
–
$ 4,971
F-27
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Included in certain loan categories in the impaired loans are loans designated as troubled debt restructurings and
classified as impaired. At December 31, 2015, the Company had $153,000 of commercial loans, $52,000 of
commercial real estate loans, and $2,461,000 of construction loans that were modified in troubled debt
restructurings and classified as impaired.
The Company evaluates and classifies loans in accordance with ASU 2011-02, A Creditor’s Determination of
Whether a Restructuring Is a Troubled Debt Restructuring, as amended. During the year ended December 31, 2015,
the Company modified no loans in troubled debt restructuring transactions. During the year ending December 31,
2014, the Company modified one loan in a troubled debt restructuring transaction and classified the loan as
impaired. During the year ended December 31, 2013, the Company modified no loans in troubled debt restructuring
transactions. The modification of terms for the troubled debt restructuring transaction presented in the table below
included renewal of an existing loan to a borrower experiencing financial difficulties with an extension of the
amortization period. The loan that was restructured in 2014 did not subsequently default within twelve months of
the date of the restructure.
The following table presents loans restructured and classified as troubled debt restructurings by class during the
years ended December 31, 2015, 2014 and 2013:
December 31, 2015
Pre-
Modification
Outstanding
Recorded
Balance
–
$
Post-
Modification
Outstanding
Recorded
Balance
–
$
Number
of
Loans
–
December 31, 2014
Pre-
Modification
Outstanding
Recorded
Balance
–
$
Post-
Modification
Outstanding
Recorded
Balance
–
$
December 31, 2013
Pre-
Modification
Outstanding
Recorded
Balance
–
$
Post-
Modification
Outstanding
Recorded
Balance
–
$
Number
of
Loans
–
Number
of
Loans
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
1
–
–
–
–
1
$
–
69
–
–
–
–
69
$
–
69
–
–
–
–
69
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
(In
thousands)
Commercial
Commercial
real estate
Construction
Home
equity
Residential
real estate
Lease
financing
Consumer
Total
As of December 31, 2015, the Company had no commitments outstanding to borrowers with loans identified as
troubled debt restructurings.
F-28
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 4: PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at cost, are as follows:
(In thousands)
Land
Buildings and improvements
Furniture and equipment
Less accumulated depreciation
Total premises and equipment
NOTE 5: FORECLOSED ASSETS HELD FOR SALE
Major classifications of foreclosed assets held for sale, net are as follows:
(In thousands)
Construction
Commercial real estate
Residential real estate
Foreclosed assets held for sale, net
2015
2014
$
3,954
12,698
6,015
22,667
10,928
$
5,154
17,984
9,015
32,153
15,927
$ 11,739
$ 16,226
2015
2014
$
$
8,173
–
1,471
9,644
$ 11,061
3,922
1,775
$ 16,758
As of December 31, 2015 and 2014, the Company had residential real estate loans in the process of foreclosure of
$63,000 and $50,000.
Activity in the allowance for losses on foreclosed assets was as follows:
(In thousands)
Balance, beginning of year
Provision charged to expense
Charge offs, net of recoveries
Balance, end of year
2015
2014
2013
$ 4,233 $ 4,050 $ 3,184
2,147
1,006
1,854
(3,073)
(1,281)
(823)
$ 3,014 $ 4,233 $ 4,050
Income and expenses applicable to foreclosed assets at December 31 include the following:
(In thousands)
Net gains on sale of foreclosed assets
Provision for losses
Operating expenses, net of rental income
2015
2014
2013
$ (39)
1,854
658
$ 2,473
$ (153) $ (1,069)
2,147
1,006
901
1,192
$ 1,979
$ 2,045
F-29
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 6: DERIVATIVE INSTRUMENTS
The Company may have commitments outstanding to extend credit on residential mortgages that have not closed
prior to the end of the period. As the Company enters into commitments to originate these loans, it also enters into
commitments to sell the loans in the secondary market on a best-efforts basis. The Company acquires such
commitments to reduce interest rate risk on mortgage loans in the process of origination and mortgage loans held for
sale. These commitments to originate or sell loans on a best efforts basis are considered derivative instruments
under ASC 815. These statements require the Company to recognize all derivative instruments in the balance sheet
and to measure those instruments at fair value. The Company recorded no change in other assets or other liabilities
for the year ended December 31, 2015 and 2014.
Additionally, the Company has commitments to sell loans that have closed prior to the end of the period on a best
efforts basis. Due to the mark to market adjustment on commitments to sell loans held for sale the Company
recorded an increase in other assets of $54,000 and an increase in other income of $54,000 for the year ended
December 31, 2015. For the year ended December 31, 2014, the Company recorded a decrease in other assets of
$37,000 and a decrease in other income of $37,000.
At December 31, 2015 and 2014, total mortgage loans in the process of origination amounted to $655,000 and $0,
respectively. At December 31, 2015 and 2014, related forward commitments to sell mortgage loans amounted to
approximately $2,258,000 and $588,000, respectively.
The balance of derivative instruments related to commitments to originate and sell loans at December 31, 2015 and
2014, is disclosed in Note 20, Disclosures about Fair Value of Assets and Liabilities.
NOTE 7: INTEREST-BEARING DEPOSITS
Interest-bearing time deposits in denominations in excess of $250,000 were $11,882,000 on December 31, 2015 and
$19,811,000 on December 31, 2014. The Company acquires brokered deposits in the normal course of business. At
December 31, 2015 and 2014, brokered deposits of $27,809,000 and $27,670,000, respectively, were included in the
Company’s time deposit balance. Of the $27,809,000 in brokered deposits at December 31, 2015, $21,660,000
represented customer funds placed into the Certificate of Deposit Account Registry Service (“CDARS”). The Bank
is a member of the CDARS service which effectively allows depositors to receive FDIC insurance on amounts
greater than the FDIC insurance limit, which is currently $250,000. CDARS allows the Bank to break large deposits
into smaller amounts and place them in a network of other CDARS institutions to ensure that full FDIC insurance
coverage is gained on the entire deposit. Although classified as brokered deposits for regulatory purposes, funds
placed through the CDARS program are Bank customer relationships that management views as core funding.
At December 31, 2015, the scheduled maturities of time deposits are as follows:
(In thousands)
2016
2017
2018
2019
2020
Thereafter
$
69,052
15,556
11,534
2,391
3,221
543
$
102,297
F-30
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 8: OPERATING LEASES
Blue Valley Building Corp. leases office space to others under noncancellable operating leases expiring in various
years through 2022. Minimum future rent receivable under noncancellable operating leases at December 31, 2015
was as follows:
(In thousands)
2016
2017
2018
2019
2020
Thereafter
$
772
726
696
718
736
481
$
4,129
The Company incurred no consolidated rental and operating lease expenses for space it leases from others in 2015,
2014, and 2013.
NOTE 9: SHORT TERM DEBT
The Company has a line of credit with the FHLBank of Topeka (FHLB) which is collateralized by various assets.
At December 31, 2015 and 2014, there was no outstanding balance on the line of credit. The variable interest rate
was 0.48% on December 31, 2015 and 0.25% on December 31, 2014. At December 31, 2015 approximately
$47,986,000 was available. Advances are made subject to the discretion of the FHLBank of Topeka.
The Company also has a line of credit with the Federal Reserve Bank of Kansas City which is collateralized by
various assets, including commercial and commercial real estate loans. At December 31, 2015 and 2014, there was
no outstanding balance on the line of credit. The line of credit has a variable interest rate of federal funds rate plus
75 basis points and at December 31, 2015 approximately $38,448,000 was available. Advances are made subject to
the discretion of the Federal Reserve Bank of Kansas City.
The Company has unsecured Federal Funds Purchased (“FFP”) lines of credit with commercial banks. At December
31, 2015, the Company had FFP lines of credit of $15,000,000, $17,000,000 and $5,000,000 with no outstanding
balances. The variable interest rate for the $15,000,000 FFP line was 0.30%, 0.64% for the $17,000,000 FFP line of
credit, and 1.40% for the $5,000,000 FFP line of credit on December 31, 2015. At December 31, 2014, the
Company had FFP lines of credit of $17,000,000 and $5,000,000 with no outstanding balances. The variable
interest rate for the $17,000,000 FFP line of credit was 0.39% and 0.22% for the $5,000,000 FFP line of credit on
December 30, 2014.
The Company enters into sales of securities under agreements to repurchase. The amounts deposited under these
agreements represent short-term debt and are reflected as a liability in the consolidated balance sheets. As of
December 31, 2015 and 2014, all of the Company’s sales of securities under agreements to repurchase had overnight
contractual maturities. The securities underlying the agreements are book-entry securities issued by U.S.
Government sponsored agencies, held in safekeeping with a third party custodian and pledged to the depositors
under a written custodial agreement that explicitly recognizes the depositors’ interest in the securities. At December
31, 2015, or at any month end during the period, no material amount of agreements to repurchase securities sold was
outstanding with any individual entity.
F-31
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 9: SHORT TERM DEBT (Continued)
Information on sales of securities under agreements to repurchase is as follows:
(In thousands)
Balance as of December 31
Carrying value of securities pledged to secure agreements to repurchase
at December 31
Average balance during the year of securities sold under agreements to repurchase
Maximum amount outstanding at any month-end during the year
2015
2014
$35,746
$30,780
$51,446
$29,195
$37,066
$43,409
$29,852
$36,281
NOTE 10: LONG TERM DEBT
Long-term debt at December 31, 2015 and 2014 consisted of the following components:
(In thousands)
FHLBank advances (A)
Less: Deferred prepayment penalty on modification of
FHLBank advances
Net FHLBank advances
Bank stock loan (B)
Subordinated Debentures – BVBC Capital Trust II (C)
Subordinated Debentures – BVBC Capital Trust III (D)
2015
2014
$
40,000
$
55,000
(2,055)
37,945
15,253
7,732
11,856
(3,060)
51,940
–
7,732
11,856
Total long-term debt
$
72,786
$
71,528
(A)
Due in 2017 and 2018; collateralized by various assets including mortgage-backed loans and available-for-sale
securities totaling $125,891,000 at December 31, 2015. Advances, at interest rates from 0.32% to 1.84% are
subject to restrictions or penalties in the event of prepayment. FHLBank advance availability is determined
quarterly and at December 31, 2015, approximately $47,986,000 was available. Advances are made at the
discretion of the FHLBank Topeka.
In the fourth quarter of 2013, the Company repaid FHLBank advances totaling $40.0 million by rolling the net
present value of the repaid advances into the funding cost of $40.0 million of new advances. A modification
fee of $3.9 million was associated with the pay-off of the original FHLBank advances which is amortized as an
adjustment of interest expense over the remaining term of the new FHLBank advances using the straight line
method. The unamortized modification fee at December 31, 2015 was approximately $2.1 million. These
transactions reduced the effective interest rate, as well as modified the maturity date on these borrowings.
Payable in quarterly installments of principal plus interest, floating at the lender's prime rate plus 1.00%, based
on a 12-year amortization, with a balloon payment of unpaid principal due in August, 2020, collateralized by
the stock of the Company's subsidiary bank.
Due in 2033; interest-only at three-month LIBOR + 3.25% (3.58% at December 31, 2015 and 3.48% at
December 31, 2014) due quarterly; fully and unconditionally guaranteed by the Company on a subordinated
basis to the extent that the funds are held by the Trust. BVBC Capital Trust II issued and sold $7,500,000 in
Capital Securities to third parties and $232,000 of Common Securities to the Company. As of 2008, the
Company may prepay the subordinated debentures, in whole or in part, at their face value plus accrued interest.
Due in 2035; interest-only at three-month LIBOR + 1.60% (2.21% at December 31, 2015 and 1.86% at
December 31, 2014) due quarterly; fully and unconditionally guaranteed by the Company on a subordinated
basis to the extent that the funds are held by the Trust. BVBC Capital Trust III issued and sold $11,500,000 in
Preferred Securities to third parties and $356,000 in Common Securities to the Company. Subordinated to the
trust preferred securities (B) due in 2033. As of 2010, the Company may prepay the subordinated debentures, in
whole or in part, at their face value plus accrued interest.
(B)
(C)
(D)
F-32
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 10: LONG TERM DEBT (Continued)
Quarterly payments had been deferred on the Company’s outstanding trust preferred securities. Under the
governing documents of our Subordinated Debentures issued by BVBC Capital Trust II and III, the quarterly
payments since April 24, 2009 for BVBC Capital Trust II and since March 31, 2009 for BVBC Capital Trust III had
been deferred through December 30, 2013. The Company has the right to declare such a deferral for up to 20
consecutive quarterly periods and deferral may only be declared as long as the Company is not then in default under
the provisions of the Amended and Restated Trust Agreement. During the deferral period, interest on the
indebtedness continues to accrue and the unpaid interest is compounded. The Company received regulatory
approval and utilized the proceeds from the December 23, 2013 initial close of our Common Stock Rights Offering
to bring current all previously accrued and unpaid dividends and interest on our Subordinated Debentures issued by
BVBC Capital Trust II and III prior to December 31, 2013.
For both BVBC Capital Trust II and BVBC Capital Trust III, during a deferral period, the Company is prohibited
from: (i) declaring or paying any dividend on any of its capital stock, which would include both its common stock
and the outstanding Fixed Rate Cumulative Preferred Stock, which was redeemed in 2015 (see Note 12: Preferred
Stock), or (ii) making any payment on any debt security that is ranked pari passu with the debt securities issued by
the respective trusts. See Note 13, Regulatory Matters for additional information.
Aggregate annual maturities of long-term debt at December 31, 2015 are as follows:
(In thousands)
2016
2017
2018
2019
2020
Thereafter
Less: Deferred prepayment penalty on modification of
FHLB advances
NOTE 11: INCOME TAXES
The provision for income taxes consists of the following:
$
1,008
16,052
26,101
1,152
10,940
19,588
74,841
(2,055)
72,786
$
(In thousands)
Taxes currently (refundable) payable
Deferred income taxes
2015
2014
2013
$
16
260
$
–
(11,557)
$
–
(300)
$
276
$ (11,557)
$
(300)
F-33
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 11: INCOME TAXES (Continued)
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown
below:
(In thousands)
Computed at the statutory rate (34%)
Increase (decrease) resulting from:
Tax-exempt interest
State income taxes
Changes in the deferred tax asset valuation allowance
Other
2015
2014
2013
$
320
$
410
$
252
(209)
(627)
–
227
(198)
(37)
(11,934)
202
(163)
(27)
(502)
140
Actual tax provision
$
276
$(11,557)
$
(300)
The tax effects of temporary differences related to deferred taxes shown on the December 31, 2015 and 2014
consolidated balance sheets are as follows:
(In thousands)
Deferred tax assets:
Allowance for loan losses
Net operating loss from Blue Valley Ban Corp. and
subsidiary
Accumulated depreciation on available-for-sale
securities
Deferred compensation
Offering costs
Non-accrual loan interest
Other real estate owned reserve
Other
Deferred tax liabilities:
Accumulated depreciation
FHLB stock basis
Prepaid intangibles
Other
Net deferred tax asset before valuation allowance
Valuation allowance:
Beginning balance
(Increase) decrease during the period
Ending balance
Net deferred tax asset
2015
2014
$
1,750
$
2,363
9,423
33
12
149
31
1,487
612
13,497
(44)
(299)
(238)
(14)
(595)
12,902
–
–
–
12,902
$
8,977
380
10
159
118
1,645
534
14,186
(114)
(346)
(275)
(6)
(741)
13,445
(11,934)
11,934
–
13,445
$
The Company has unused Federal net operating loss carryforwards of $24,801,000, which expire starting in 2029.
The Company has unused Kansas Privilege Tax net operating loss carryforwards of $33,030,000 which expire
between 2019 and 2022.
F-34
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 12: PREFERRED STOCK
In August, 2015, the Company redeemed its $21.75 million of Series A Fixed Rate Cumulative Preferred Stock (the
“Series A”). As part of the transaction, the Company also repaid associated accumulated dividends and interest on
the Series A. The transaction included issuance of approximately $4.7 million of Common Stock and approximately
$3.3 million of Series B Convertible Preferred Stock (“Series B”) as well as term loan funding provided by a third
party lender and existing liquidity. Each share of Series B is convertible into one share of Common Stock (i) at the
option of the holder or upon the written request of the Company, subject to a limitation that the holder and their
affiliates will not own or control more than 9.9% of the outstanding Common Stock of the Company, or any other
class of voting shares of the Company upon such conversion, or (ii) automatically upon the transfer of any shares of
Series B to a non-affiliate of the holder in a permissible transfer (as defined in the Certificate of Designations
governing the Series B).
In an October, 2013 auction to private investors and as part of its outlined strategy to wind down its remaining
Troubled Asset Relief Program investments, the U.S. Treasury (“the Treasury”) sold its Series A investment in the
Company, which had been previously issued and sold by the Company pursuant to the Treasury’s Capital Purchase
Plan (the “CPP”). The Series A had a liquidation preference of $1,000 per share, and carried a 5% per year
cumulative preferred dividend rate, payable quarterly, which increased to 9% beginning with the May 15, 2014
quarterly payment. Dividends compounded if they accrued and were not paid. During the time that the Series A
were outstanding, a number of restrictions applied to the Company, including, among others:
• The Series A had a senior rank. The Company was not free to issue other preferred stock senior to the Series A.
•
If the Company were to pay a cash dividend in the future, any such dividend would have to be discontinued if a
Series A dividend were missed. Thereafter, dividends on common stock could be resumed only if all Series A
dividends in arrears were paid. Similar restrictions applied to the Company’s ability to repurchase common
stock if Series A dividends were missed.
•
Failure to pay the Series A dividend was not an event of default.
• The Company’s Series A qualified as Tier 1 capital in accordance with regulatory capital requirements.
The Company had deferred the payment of quarterly dividends on the Series A since May 15, 2009. The Series A
carried a 5% per year cumulative preferred dividend rate, payable quarterly. The dividend rate increased to 9%
beginning with the May 15, 2014 quarterly payment, which caused the Company’s quarterly dividend to increase
from $271,875 to $489,375. Series A dividends compounded if they accrued and were not paid; however, failure by
the Company to pay the preferred share dividend was not an event of default. The Company paid the quarterly
dividend and accrued interest expense for the quarters ending August 15, 2014 and November 15, 2014, and the
Company had accrued for all other deferred dividends declared and compounded interest through December 31,
2014. As of December 31, 2014 and December 31, 2013, the Company had accrued $6.8 million and $5.8 million,
respectively, for dividends and interest on the Series A. All remaining accrued dividends and accrued interest on the
Series A were paid upon the August, 2015 redemption of the Series A.
The Series A included ten year warrants to purchase 111,083 shares of the Company’s common stock for $29.37 per
share which were retained by the Treasury subsequent to the October, 2013 auction. In January, 2015, the Company
repurchased the warrants for $4,000 and cancelled them.
F-35
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 13: REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Furthermore, the Bank’s regulators could require adjustments to regulatory capital not reflected in these
consolidated financial statements.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum
amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined) common equity Tier 1 capital (as defined in the regulations) to total risk-weighted
assets and of Tier I capital to average assets (as defined). As of December 31, 2015 and 2014, the Bank met all
capital adequacy requirements to which it was subject. Prior to 2015, the Company was subject to quantitative
measures established by regulation to ensure capital adequacy that required the Company to maintain minimum
amounts and ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and
of Tier I capital to average assets (as defined). As of December 31, 2014, the Company met all capital adequacy
reporting requirements to which it was subject.
As of December 31, 2015, the Bank had capital in excess of regulatory requirements for a well-capitalized
institution. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-
based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since December 31, 2015
that management believes have changed the Bank’s position.
F-36
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 13: REGULATORY MATTERS (Continued)
The Company and the Bank’s actual capital amounts and ratios are also presented in the table.
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
(In thousands)
December 31, 2015:
Common Equity Tier 1 Capital
(to Risk Weighted Assets)
Bank Only
$ 66,201
11.79%
$ 25,271
4.50%
$ 36,502
6.50%
Total Capital
(to Risk Weighted Assets)
Bank Only
Tier 1 Capital
(to Risk Weighted Assets)
Bank Only
Tier 1 Capital
(to Average Assets)
Bank Only
(In thousands)
December 31, 2014:
Total Capital
(to Risk Weighted Assets)
Consolidated
Bank Only
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated
Bank Only
Tier 1 Capital
(to Average Assets)
Consolidated
Bank Only
$ 70,933
12.63%
$ 44,926
8.00%
$ 56,157
10.00%
$ 66,201
11.79%
$ 33,694
6.00%
$ 44,926
8.00%
$ 66,201
10.52%
$ 22,463
4.00%
$ 28,079
5.00%
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
$ 72,757
$ 75,438
14.45%
14.98%
$ 40,277
$ 40,274
8.00%
8.00%
N/A
$ 50,343
10.00%
$ 63,129
$ 69,143
12.54%
13.73%
$ 20,138
$ 20,137
4.00%
4.00%
N/A
$ 30,206
6.00%
$ 63,129
$ 69,143
10.19%
11.14%
$ 24,773
$ 24,836
4.00%
4.00%
N/A
$ 31,045
5.00%
Financial institutions are highly regulated and are occasionally subject to various financial and operational
restrictions. Currently, the Company is limited in its ability to declare or pay dividends, pay interest on its trust
preferred securities and outstanding debt or receive dividends from the Bank.
F-37
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 14: TRANSACTIONS WITH RELATED PARTIES
At December 31, 2015 and 2014, the Company had loans outstanding to executive officers, directors and to
companies in which the Company’s and Bank’s executive officers or directors were principal owners in the amount
of $31,045,000 and $19,011,000, respectively. Annual activity consisted of the following:
(In thousands)
Balance, beginning of year
New loans and advances
Repayments and reclassifications
Balance, end of year
2015
2014
$ 19,011
35,178
(23,144)
$ 17,066
15,033
(13,088)
$ 31,045
$ 19,011
These loans and other extensions of credit were made in the ordinary course of business and were made on
substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable
transactions with other persons. Further, when originated, these loans did not involve more than the normal risk of
collectability or present other unfavorable features.
Deposits from executive officers and directors held by the Company at December 31, 2015, and 2014 totaled
$5,625,000 and $4,824,000, respectively.
NOTE 15: PROFIT SHARING AND 401(K) PLANS
The Company’s profit sharing and 401(k) plans cover substantially all employees. Contributions to the profit
sharing plan are determined annually by the Board of Directors, and participant interests are vested over a five-year
period. The Company did not make a contribution to the profit sharing plan during 2015, 2014 and 2013. The
Company’s 401(k) plan permits participants to make contributions by salary reduction, based on which the
Company matches 100% of the first 3% of the employee’s contribution plus 50% of the next 2% of compensation
contributed by the employee. The Company’s matching contributions to the 401(k) plan are vested immediately.
The Company’s matching contributions charged to expense for 2015, 2014 and 2013 were $284,000, $268,000 and
$281,000, respectively.
F-38
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 16: EQUITY INCENTIVE COMPENSATION
The Company has an Equity Incentive Plan (the “Plan”) which allows the Company to issue equity incentive
compensation awards to its employees and directors in the forms of stock options, restricted shares or deferred share
units.
At December 31, 2015, the Company had 273,482 shares available to be granted (options granted prior to 1998 were
subject to an earlier plan with similar terms). The exercise price of each option is intended to equal the fair value of
the Company’s stock on the date of grant, and maximum terms are 10 years.
During 2015, 2014 and 2013, the Company granted no stock options, but did grant 48,153, 40,674 and 44,210 shares
of restricted common stock, respectively. All restricted stock granted in 2015, 2014 and 2013 vested immediately.
Restricted stock granted to the President in 2012 fully vested in 2014. Restricted stock granted in 2011 to
employees other than the President fully vested in the stock in 2014. The non-vested shares were 0, 0, and 11,930 as
of December 31, 2015, 2014 and 2013, respectively. The cost basis of the restricted shares granted which is equal to
the fair value of the Company’s stock on the date of grant, was amortized to compensation expense ratably over the
applicable vesting period. Expenses associated with restricted stock grants were $365,000, $282,000, and $257,000
for 2015, 2014 and 2013, respectively. The amount of unrecognized compensation costs was $0, $0, and $23,000 as
of December 31, 2015, 2014, and 2013, respectively. No shares were forfeited during 2015, 2014 and 2013.
There were no options outstanding and exercisable as of December 31, 2015, 2014 or 2013.
NOTE 17: EMPLOYEE STOCK PURCHASE PLAN
The 2004 Blue Valley Ban Corp. employee stock purchase plan (“ESPP”) provides the right to subscribe to 100,000
shares of common stock to substantially all employees of the Company and subsidiaries, except those who are 5% or
greater shareholders of the Company. The purchase price for shares under the plan is determined by the Company’s
Board of Directors (or a designated Committee thereof) and was set to 85% of the market price on either the grant
date or the offering date, whichever is lower, for the plan year beginning in February 2004. Expense associated with
the plan recognized in 2015, 2014 and 2013 was approximately $4,000, $4,000 and $3,000, respectively.
Information about employee stock purchase plan activity as of December 31, 2015, 2014 and 2013 is set forth in the
following table.
Plan year ending January 31,
2015
2014
2013
Employee Stock Purchase Plan Activity
Shares purchased
4,726
6,877
4,748
Purchase Price
$ 5.31
$ 3.83
$ 3.49
F-39
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 18: OTHER INCOME/EXPENSE
Other income consists of the following:
(In thousands)
Rental income
Realized gain on foreclosed assets
Other income
2015
2014
2013
$
792
44
1,216
$
909
236
454
$
719
1,292
1,432
Total
$
2,052
$
1,599
$
3,443
2015 other income includes the realization of approximately $658,000 of income from the settlement of collection
litigation. 2013 other income includes the realization of approximately $1.0 million of income upon payment of the
deferred interest due for BVBC Capital Trust III due to a change in assumptions in the calculation for interest due on
the securities.
Other operating expenses consist of the following:
(In thousands)
Data processing
FDIC assessments
ATM and network fees
Professional fees
Loan processing fees
Other expense
2015
2014
2013
$
1,078
545
589
975
154
3,001
$
1,085
798
768
740
154
2,693
$
1,082
824
741
784
175
3,249
Total
$
6,342
$
6,238
$
6,855
F-40
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 19: FAIR VALUE OPTION
The Company elected to adopt The Fair Value Option for Financial Assets and Financial Liabilities – including an
Amendment of FASB Statement No. 115, which was subsequently incorporated into FASB Accounting Standards
Codification in Topic 825, for mortgage loans held for sale originated after April 1, 2009. This standard permits an
entity to choose to measure many financial instruments and certain other items at fair value. An entity will report
unrealized gains and losses on items for which the fair value option has been elected in earnings at each reporting
date.
In accordance with Topic 825, the Company has elected to measure loans held for sale at fair value. Loans held for
sale is composed entirely of mortgage loans held for immediate sale in the secondary market with servicing released.
These loans are sold prior to origination at a contracted price to an outside investor on a best efforts basis and remain
on the Company’s balance sheet for a short period of time (typically 30 to 60 days). It is management’s opinion
given the short-term nature of these loans, that fair value provides a reasonable measure of the economic value of
these assets. In addition, carrying such loans at fair value eliminates some measure of volatility created by the
timing of sales proceeds from outside investors, which typically occur in the month following origination.
The differences between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale
were losses of $8,000 at December 31, 2015, gains of $13,000 at December 31, 2014 and losses of $6,000 at
December 31, 2013. Lossses from fair value changes included in loans held for sale fee income were $21,000 for
the year ended December 31, 2015, gains from fair value changes included in loans held for sale fee income were
$18,000 for the year ended December 31, 2014 and losses from fair value changes included in loans held for sale fee
income were $2,000 for the year ended December 31, 2013. Interest income on loans held for sale is included in
interest and fees on loans in the Company’s consolidated statement of operations. See Note 20 for additional
disclosures regarding fair value of mortgage loans held for sale.
NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair value measurements must maximize the use of
observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that
may be used to measure fair value:
Level 1
Quoted prices in active markets for identical assets or liabilities
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities.
F-41
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Recurring Measurements
The following table presents the fair value measurements of assets and liabilities recognized in the Company’s
consolidated balance sheet and the level within the fair value hierarchy in which the fair value measurements fall at
December 31, 2015 and 2014:
Fair Value Measurements Using
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
Fair Value
(In thousands)
December 31, 2015:
Assets:
Available-for-sale securities:
U.S. Government sponsored agencies
State and political subdivision securities
U.S. Small Business Administration loan
pool certificates
Equity and other securities
Mortgage loans held for sale
Commitments to originate loans
Forward sales commitments
Total assets
Liabilities:
Commitments to originate loans
Forward sales commitments
Total liabilities
December 31, 2014:
Assets:
Available-for-sale securities:
U.S. Government sponsored agencies
State and political subdivision securities
U.S. Small Business Administration loan
pool certificates
Equity and other securities
Mortgage loans held for sale
Commitments to originate loans
Forward sales commitments
Total assets
Liabilities:
Commitments to originate loans
Forward sales commitments
Total liabilities
$
$
$
$
$
$
$
$
66,332
20,339
4,291
598
2,258
–
57
93,875
–
–
–
66,215
19,882
4,673
602
588
–
3
91,963
–
–
–
$
$
$
$
$
$
$
$
–
–
–
598
–
–
–
598
–
–
–
–
–
–
602
–
–
–
602
–
–
–
$
$
$
$
$
$
$
$
66,332
20,339
4,291
–
2,258
–
–
93,220
–
–
–
66,215
19,882
4,673
–
588
–
–
91,358
–
–
–
$
$
$
$
$
$
$
$
–
–
–
–
–
–
57
57
–
–
–
–
–
–
–
–
–
3
3
–
–
–
F-42
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair
value on a recurring basis and recognized in the Company’s consolidated balance sheets, as well as the general
classification of such assets and liabilities pursuant to the valuation hierarchy.
Available-for-Sale Securities
Where quoted market prices are available in an active market, securities are classified within Level 1 of the
valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices
of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of
which are market-based or independently sourced market parameters, including, but not limited to, yield curves,
interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are
classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available,
securities are classified within Level 3 of the hierarchy.
Mortgage Loans Held for Sale
Mortgage loans held for sale are valued using market prices for loans with similar characteristics. This
measurement is classified as Level 2 within the hierarchy.
Commitments to Originate Loans and Forward Sales Commitments
The fair value of commitments to originate loans and the fair value of forward sales commitments are estimated
using a valuation model which considers differences between quoted prices for loans with similar characteristics in
the secondary market and the committed rates. The valuation model includes assumptions which adjust the price for
the likelihood that the commitment will ultimately result in a closed loan. These measurements are significant
unobservable inputs and are classified as Level 3 within the hierarchy.
Level 3 Reconciliation
The following table is a reconciliation of the beginning and ending balances of recurring fair value measurements
recognized in the Company’s consolidated balance sheets using significant unobservable (Level 3) inputs:
(In thousands)
Balance as of December 31, 2014
Total realized and unrealized gains (losses):
Included in net income (loss)
Balance as of December 31, 2015
Balance as of December 31, 2013
Total realized and unrealized gains (losses):
Included in net income (loss)
Balance as of December 31, 2014
Commitments to
Originate Loans
Forward Sales
Commitments
$
$
$
$
–
–
–
–
–
–
$
$
$
3
54
57
40
(37)
$
3
F-43
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Realized and unrealized gains and losses for items reflected in the table above are included in other income in the
consolidated statement of operations.
Nonrecurring Measurements
The following table presents the fair value measurements at December 31, 2015 and 2014 of assets and liabilities
measured at fair value on a non-recurring basis during the respective year:
(In thousands)
December 31, 2015:
Impaired loans, net of reserves
Foreclosed assets held for sale, net
December 31, 2014:
Impaired loans, net of reserves
Foreclosed assets held for sale, net
Fair Value Measurements Using
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
Fair Value
$
$
$
$
5,282
6,157
11,439
3,439
7,618
11,057
$
$
$
$
–
–
–
–
–
–
$
$
$
$
–
–
–
–
–
–
$
$
$
$
5,282
6,157
11,439
3,439
7,618
11,057
The following is a description of the valuation methodologies and inputs used for assets measured at fair value on a
nonrecurring basis and recognized in the accompanying balance sheet, as well as the general classification of such
assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the
process used to develop the reported fair value is described below.
Impaired Loans (Collateral Dependent)
Loans for which it is probable that the Company will not collect all principal and interest due according to the
contractual terms are measured for impairment. Allowable methods for determining the amount of impairment
include estimating fair value using the fair value of the collateral for collateral dependent loans.
If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of
impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying
a discount factor to the value. Impaired loans that are collateral dependent are classified within Level 3 of the fair
value hierarchy when impairment is determined using the fair value method.
Foreclosed Assets Held for Sale
Foreclosed assets held for sale are carried at the fair value less costs to sell at the date of foreclosure, establishing a
new cost basis. Subsequent to foreclosure, valuations are periodically performed and the assets are recorded at the
lower of carrying amount or fair value less cost to sell.
F-44
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Unobservable (Level 3) Inputs
The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring
Level 3 fair value measurements.
Fair Value at
12/31/15
Valuation Technique
Unobservable Inputs
Forward Sales
Commitments
Collateral-dependent
impaired loans
Foreclosed assets held for
sale, net
$
$
$
57 Market comparable
Quoted prices for similar loans
prices
5,282 Market comparable
properties
6,157 Market comparable
properties
Comparability adjustments (%)
Comparability adjustments (%)
Fair Value at
12/31/14
Valuation Technique
Unobservable Inputs
Forward Sales
Commitments
Collateral-dependent
impaired loans
Foreclosed assets held for
sale, net
$
$
$
3 Market comparable
Quoted prices for similar loans
prices
3,439 Market comparable
properties
7,618 Market comparable
properties
Comparability adjustments (%)
Comparability adjustments (%)
Range
(Weighted Average)
3.125%-3.875%
(3.50%)
15.00%-100.00%
(12.00%)
Not available
Range
(Weighted Average)
2.75%-3.625%
(3.38%)
9.00%-100.00%
(28.00%)
Not available
Sensitivity of Significant Unobservable Inputs
The following is a discussion of the sensitivity of significant unobservable inputs, the interrelationships between
those inputs and other unobservable inputs used in recurring fair value measurement and how those inputs might
magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement.
Commitments to Originate Loans
The significant unobservable inputs used in the fair value measurement of the Company’s commitments to originate
loans are the discount rate and estimated customer fallout rate. Significant increases (decreases) in either of those
inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, changes in
either of those inputs will not affect the other input.
Forward Sales Commitments
The significant unobservable input used in the fair value measurement of the Company’s forward sales commitment
is the discount rate. Significant increases (decreases) in this input would result in a significantly lower (higher) fair
value measurement.
F-45
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Fair Value of Financial Instruments
The following table presents estimated fair values of the Company’s financial instruments not previously disclosed
at December 31, 2015 and 2014.
(In thousands)
Financial assets:
Cash and cash equivalents (Level 1)
Loans, net of allowance for loan losses (Level 3)
FHLBank stock, Federal Reserve Bank stock,
and other securities (Level 3)
Interest receivable (Level 3)
2015
2014
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
45,833
443,962
$
45,833
441,526
$
69,017
416,407
$
69,017
416,882
4,805
1,727
4,805
1,727
5,490
1,603
5,490
1,603
Financial liabilities:
Deposits (Level 3)
Short term debt (Level 3)
Long term debt (Level 3)
Interest payable (Level 3)
Unrecognized financial instruments
(net of amortization):
Commitments to extend credit (Level 3)
Letters of credit (Level 3)
Lines of credit (Level 3)
483,242
483,875
468,759
469,596
35,746
72,786
235
35,746
70,545
235
30,780
71,528
1,242
30,780
71,676
1,242
–
–
–
–
–
–
–
–
–
–
–
–
The following methods and assumptions were used to estimate the fair value of all other financial instruments
recognized in the accompanying consolidated balance sheets at amounts other than fair value.
Cash and Cash Equivalents
For these short-term instruments, the carrying amount approximates fair value.
Loans
The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar
loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with
similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest
approximates its fair value.
FHLBank Stock, Federal Reserve Bank Stock and Other Securities
The carrying amounts for these securities approximate their fair value.
Deposits
Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The
carrying amount of these deposits approximates fair value. The fair value of fixed maturity time deposits is
estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar
remaining maturities. The carrying amount of accrued interest payable approximates its fair value.
F-46
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Short Term Debt
For these short-term instruments, the carrying amount is a reasonable estimate of fair value.
Long Term Debt
Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate
the fair value of existing debt. Fair value of long term debt is based on quoted market prices or dealer prices for the
identical liability when traded as an asset in an active market. If a quoted market price is not available, an expected
present value technique is used to estimate fair value.
Commitments to Extend Credit, Letters of Credit and Lines of Credit
The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of
interest rates and the committed rates. The fair value of letters of credit and lines of credit are based on fees
currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations
with the counterparties at the reporting date.
F-47
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 21: COMMITMENTS, CREDIT RISKS AND CURRENT ECONOMIC CONDITIONS
The Company extends credit for commercial real estate mortgages, residential mortgages, working capital financing
and consumer loans to businesses and residents principally in southern Johnson County. The Bank also purchases
indirect leases from various leasing companies throughout Kansas and Missouri.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and
may require a payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on
management’s credit evaluation of the counterparty. The collateral securing these agreements varies, but may
include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real
estate. At December 31, 2015 and 2014, the Company had outstanding commitments to originate loans aggregating
approximately $750,000 and $4,512,000, respectively. The commitments extend over varying periods of time with
the majority being disbursed within a one-year period.
Mortgage loans in the process of origination represent amounts that the Company plans to fund within a normal
period of 60 to 90 days and which are intended for sale to investors in the secondary market. Total mortgage loans
in the process of origination amounted to $655,000 and $0 at December 31, 2015 and 2014, respectively. Mortgage
loans in the process of origination represent commitments to originate loans at both fixed and variable rates.
Mortgage loans held for sale amounted to $2,258,000 and $588,000 at December 31, 2015 and 2014, respectively.
Forward commitments to sell mortgage loans are obligations to sell loans at a specified price on or before a specified
future date. These commitments are acquired to reduce market risk on mortgage loans in the process of origination
and mortgage loans held for sale since the Company is exposed to interest rate risk during the period between
issuing a loan commitment and the sale of the loan into the secondary market. Related forward commitments to sell
mortgage loans amounted to approximately $2,258,000 and $588,000 at December 31, 2015 and 2014, respectively.
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to
a third party. Financial standby letters of credit are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company had
total outstanding letters of credit amounting to $1,098,000 and $974,000 at December 31, 2015 and 2014,
respectively, with terms ranging from one year to three years, with the majority expiring in one year.
Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in
the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without
being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s
creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is
based on management’s credit evaluation of the counterparty. The collateral securing these agreements varies, but
may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential
real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance sheet
instruments. At December 31, 2015, the Company had unused lines of credit to borrowers aggregating
approximately $148,649,000 for commercial, commercial real estate and construction lines and $31,639,000 for
open-end consumer lines of credit. At December 31, 2014, the Company had unused lines of credit to borrowers
aggregating approximately $144,574,000 for commercial, commercial real estate and construction lines and
$33,153,000 for open-end consumer lines of credit.
F-48
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 21: COMMITMENTS, CREDIT RISKS AND CURRENT ECONOMIC CONDITIONS (Continued)
The Bank is subject to possible future repurchase and indemnification demands for future losses realized by
investors for alleged breaches of representations and warranties on mortgage loans previously sold to investors. The
financial services industry has been materially and adversely impacted by a prolonged period of negative economic
conditions, including but not limited to high levels of unemployment, declines in asset values, as well as
delinquencies and defaults on loans. These defaults on loans include possible “strategic defaults” which are
characterized by borrowers that appear to have the financial means to meet the debt service requirements of their
loans, however, elect not to do so because the value of the assets securing their debts may have declined below the
amount of the debt or in consideration of statutory restrictions which impede a lender’s ability to exercise prudent
collection efforts or foreclose in an efficient manner. For the three years ending December 31, 2015, the Company
has repurchased no loans from investors. Additionally, during the three years ending December 31, 2015, the
Company has recognized indemnification losses and claims totaling approximately $379,000 for loans previously
sold to investors. The financial statements have been prepared using values and information currently available to
the Company; however, there can be no assurance that the impact of these conditions will cease or reverse to
mitigate possible risk of future potential losses by the Bank.
The current economic environment continues to present financial institutions with circumstances and challenges,
which in some cases have resulted in large and unanticipated declines in the fair values of investments and other
assets, constraints on liquidity and significant credit quality problems, including severe volatility in the valuation of
real estate and other collateral supporting loans. The financial statements have been prepared using values and
information currently available to the Company.
Given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial
statements could change rapidly, resulting in material future adjustments in asset values, the allowance for loan
losses and capital that could negatively impact the Company’s and Bank’s ability to meet regulatory capital
requirements and maintain sufficient liquidity. Furthermore, the Company’s and Bank’s regulators could require
material adjustments to asset values or the allowance for loan losses for regulatory capital purposes that could affect
the Company’s and Bank’s measurement of regulatory capital and compliance with the capital adequacy guidelines
under the regulatory framework for prompt corrective action.
NOTE 22: LEGAL CONTINGENCIES
Various legal claims also arise from time to time in the normal course of business which, in the opinion of
management, will have no material effect on the Company’s consolidated financial statements.
F-49
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 23: SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following table presents the unaudited results of operations for the past two years by quarter. See discussion on
earnings per share in "Note 1: Nature of Operations and Summary of Significant Accounting Policies" in the
Company's Consolidated Financial Statements.
2015
2014
Fourth
Second
Third
Quarter Quarter Quarter
First
Quarter
Fourth
Quarter
Third
Second
Quarter Quarter
First
Quarter
(In thousands, except per share data)
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after
provision for loan losses
Non-interest income
Non-interest expense
Income (loss) before income
taxes
Provision (benefit) for income taxes
Net income (loss)
Dividends on preferred shares
Net income (loss) available to
common shareholders
Net Income (loss) per Share Data
$ 5,775 $ 5,790 $ 5,625 $ 5,428
1,025
4,403
-
991
4,634
1,250
986
4,804
-
948
4,827
200
$ 5,626
1,084
4,542
-
$ 5,606 $ 5,753 $ 5,699
1,131
4,568
300
1,165
4,588
100
1,134
4,472
-
4,627
1,329
5,834
4,804
2,034
6,736
3,384
1,529
5,131
4,403
1,599
5,067
4,542
1,458
5,339
4,472
1,366
5,469
4,488
1,607
5,986
4,268
1,210
5,412
122
30
92
-
102
18
84
196
(218)
(98)
(120)
648
935
326
609
489
661
229
432
490
369
(11,786)
12,155
489
109
-
109
489
66
-
66
272
$
92 $
(112) $
(768) $
120
$
(58) $ 11,666 $
(380) $
(206)
Basic
Diluted
$
$
0.02 $ (0.02) $ (0.17) $ 0.03
0.02 $ (0.02) $ (0.17) $ 0.03
$
$
(0.01) $
(0.01) $
2.54 $ (0.08) $ (0.05)
2.54 $ (0.08) $ (0.05)
Balance Sheet
Total assets
Total loans, net
Stockholders' equity
$638,245 $643,642 $619,850 $621,089
443,962 434,408 433,613 415,293
44,726 44,380 57,606 59,130
$638,445
416,407
58,460
$634,688 $620,500 $628,469
416,321 408,388 411,258
57,520 45,285 44,306
The above unaudited financial information reflects all adjustments that are, in the opinion of management, necessary
to present a fair statement of the results of operations for the interim periods presented.
F-50
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 24: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Condensed Balance Sheets
December 31, 2015 and 2014
(In thousands)
ASSETS
Cash and cash equivalents
Investments in subsidiaries:
Bank of Blue Valley
BVBC Capital Trust II
BVBC Capital Trust III
Other assets
Total Assets
LIABILITIES
Long-term debt
Subordinated debentures
Other liabilities
Total Liabilities
STOCKHOLDERS’ EQUITY
2015
2014
$
3,142
$
4,193
72,080
232
356
3,928
76,849
232
356
3,321
$
79,738
$
84,951
$
15,253
19,588
171
35,012
$
–
19,588
6,903
26,491
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss), net of income tax (credit) of
$(33) in 2015 and $(380) in 2014
Total Stockholders’ Equity
472
5,371
30,657
8,276
(50)
44,726
22
4,649
45,328
9,030
(569)
58,460
Total Liabilities and Stockholders’ Equity
$
79,738
$
84,951
F-51
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 24: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
(Continued)
Condensed Statements of Operations
Years Ended December 31, 2015, 2014 and 2013
(In thousands)
Income
Dividends from subsidiaries
Other income
Expenses
Income before income taxes and equity in undistributed net
income (loss) of subsidiaries
Income tax benefit
Valuation allowance on deferred tax asset
Income (loss) before equity in undistributed net loss of
subsidiaries
Equity in undistributed net income (loss) of subsidiaries
2015
2014
2013
$
6,944
16
6,960
1,517
5,443
(510)
–
5,953
(5,288)
$
412
16
428
1,300
(872)
(435)
(2,796)
2,359
10,403
$
–
1,045
1,045
1,138
(93)
–
–
(93)
1,135
Net income
$
665
$
12,762
$
1,042
Condensed Statements of Comprehensive Income (Loss)
Years Ended December 31, 2015, 2014 and 2013
(In thousands)
Net income
Other comprehensive income (loss)
Change
in unrealized appreciation on available-for-sale
securities, net of income taxes (credit) of $312 in 2015,
$2,370 in 2014, and $(2,710) in 2013
Less: reclassification adjustment for realized gains included in
net income (loss), net of income taxes of $(31) in 2015,
$14 in 2014, and $51 in 2013
Comprehensive income (loss)
2015
2014
2013
$
665
$
12,762
$
1,042
473
3,591
(4,106)
$
47
1,185
(21)
16,332
$
$
(76)
(3,140)
F-52
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
NOTE 24: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
(Continued)
Condensed Statements of Cash Flows
Years Ended December 31, 2015, 2014 and 2013
(In thousands)
OPERATING ACTIVITIES
Net Income (loss)
Items not requiring (providing) cash:
Deferred income taxes
Equity in undistributed net loss (income) of
subsidiaries
Restricted stock earned
Changes in:
Other assets
Other liabilities
Net cash used in operating activities
INVESTING ACTIVITIES
Capital contributed to subsidiary
Net cash used in investing activities
FINANCING ACTIVITIES
Proceeds from long-term debt
Repayments of long-term debt
Proceeds from sale of additional stock
Proceeds from sale of additional stock through rights
offering
Proceeds from sale of common stock through Employee
Stock Purchase Plan (ESPP)
Repurchase of TARP Warrant
Redemption of Series A Preferred Stock
Net cash provided by financing activities
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS,
END OF YEAR
2015
2014
2013
$
665
$
12,762
$
1,042
(569)
5,288
355
(37)
(8,152)
(2,450)
–
–
15,500
(247)
7,871
–
29
(4)
(21,750)
1,399
(1,051)
(3,294)
(10,403)
274
58
(703)
(1,306)
–
–
–
–
85
1,250
31
–
–
1,366
60
4,193
4,133
–
(1,135)
288
(68)
(2,992)
(2,865)
–
–
–
–
–
6,333
19
–
–
6,352
3,487
646
$
3,142
$
4,193
$
4,133
F-53
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