BUILDING
SOMETHING
STRONGER.
2 0 1 7 A N N U A L R E P O R T
LETTER TO STOCKHOLDERS
2017 marked the sixth consecutive year of increase in our stock price quoted on the OTCQX. The stock traded at a low of $4.10
in 2011 and ended 2017 at $11.75. Although our stock is thinly traded, and therefore the quoted price not always indicative of the
current market value, this increase is positively correlated with the improvement in earnings over the same time period. We continue
to work diligently to enhance stockholder value utilizing the foundation we laid 28 years ago. The keys to our financial success over
the past year were well executed strategies around the basic building blocks of being a good community bank; growth in loans and
deposits through building relationships. The result was a significant increase in net interest income and overall profitability. While
the enactment of the Tax Cuts and Jobs Act (Tax Reform) resulted in a one-time, non-cash charge reducing our reported net income
for 2017, Tax Reform will result in improved earnings going forward as a result of a lower U.S. Corporate tax rate. Excluding the
impact of the one-time non-cash Tax Reform Act charge, we increased earnings by 166% in 2017 as compared with the prior year.
Notable achievements during 2017 included:
STOCK PRICE QUOTED ON OTCQX
$11.75
$9.50
$8.00
$6.50
$6.00
2013
2013
2014
2014
2015
2016
2017
S
R
A
L
L
O
D
12
10
8
6
4
Stock price quoted on OTCQX
$11.75
9%
11%
15%
NET LOAN GROWTH
NET DEPOSIT GROWTH
NET INTEREST INCOME
(NEARLY $3 million)
Stellar loan quality
with a ratio of
.22%
of nonperforming
loans (as of 12/31)
Achieved a net
recovery ratio of
0.05%
of average loans
meaning we recovered
more from loans
previously charged off
than we charged
off in 2017
Achieved a strong net
interest margin of
3.59%
on earning assets
(as of 12/31)
Through a responsible growth strategy, we grew revenue, managed risks, reduced expenses and continued to reinvest in our associates
and our community. Operational excellence was a strategic focus in 2017 and we reduced total non-interest expense by $1.3 million
or nearly 6.2%. It’s important to note that we did this while growing the business.
While we are pleased with the growth we have achieved over the last five years, the operational efficiencies we have gained, and the
resulting increase in returns for our stockholders, we have more work to do and more opportunities in front of us. One of those
opportunities is within our Wealth Management Division.
In 2017 we received regulatory approval for the formation of Blue Valley Wealth Advisors Inc., a Registered Investment Advisory
firm that is now a part of our wealth management offerings which already included Trust and Brokerage services as well as Private
Banking services. As we grow assets under management non-interest income will be enhanced. We see this as a logical compliment
to the services our customers expect from a full service community bank. Blue Valley Wealth Advisors will enable us to offer goals-
based wealth management services that will serve our clients well going forward.
Through prudent strategic growth of our commercial lending, retail
and digital banking, and wealth management services, and further
improvement of our operational efficiencies, we believe we can continue
to build value for the benefit of our stockholders.
Thank you for your continued support.
BLUE VALLEY BAN CORP.
DECEMBER 31, 2017, 2016 AND 2015
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 Income ........................................................................................................................
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
F-1
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 sheets as of December 31, 2017 and 2016, and the
related consolidated statements of income, comprehensive income (loss), stockholders’ equity and cash
flows for each of the years in the three-year period ended December 31, 2017, 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.
Audit Committee,
Board of Directors and Stockholders
Blue Valley Ban Corp.
Page 2
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, 2017 and
2016, and the results of their operations and their cash flows for each of the years in the three-year period
ended December 31, 2017, in accordance with accounting principles generally accepted in the United
States of America.
Kansas City, Missouri
March 29, 2018
BLUE VALLEY BAN CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2017 AND 2016
(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
$
2017
9,394
4,150
13,544
103,130
$
2016
17,766
8,272
26,038
107,760
Loans, net of allowance for loan losses of $5,535 and $6,164 in 2017 and 2016,
respectively
529,265
487,518
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
12,322
5,915
2,252
1,888
7,755
7,531
3,888
12,046
5,915
5,883
1,785
14,304
7,939
5,244
Total assets
$
687,490
$
674,432
See Notes to Consolidated Financial Statements
F-4
BLUE VALLEY BAN CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2017 AND 2016
(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
2017
2016
$
152,052
315,553
101,240
568,845
37,202
32,802
2,392
641,241
$
150,274
280,628
81,575
512,477
63,142
53,333
2,045
630,997
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
2017 and 2016 – 471,979 shares
Common stock, par value $1 per share;
Authorized 15,000,000 shares; issued and outstanding
2017 – 5,677,865 shares; 2016 – 5,644,553 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of income tax (credit) of
$(1,091) in 2017 and $(2,254) in 2016
Total stockholders’ equity
472
472
5,678
32,108
10,941
(2,950)
46,249
5,644
30,858
9,842
(3,381)
43,435
Total liabilities and stockholders’ equity
$
687,490
$
674,432
See Notes to Consolidated Financial Statements
F-5
BLUE VALLEY BAN CORP.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(In thousands, except per share data)
INTEREST AND DIVIDEND INCOME
Interest and fees on loans
Available-for-sale securities
Dividends on FHLBank and Federal Reserve Bank stock
Federal funds sold and other short-term investments
Total interest and dividend income
2017
2016
2015
$
23,665
2,103
146
115
26,029
$
20,949
1,938
202
185
23,274
$
20,418
1,880
231
89
22,618
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
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES
NON-INTEREST 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 FOR INCOME TAXES
NET INCOME
DIVIDENDS AND ACCRETION ON PREFERRED STOCK
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
258
503
976
53
1,662
3,452
22,577
(900)
239
401
609
33
2,307
3,589
19,685
1,925
246
341
868
25
2,470
3,950
18,668
1,450
23,477
17,760
17,218
904
585
456
1,421
-
1,303
4,669
10,860
2,671
2,247
5,782
21,560
6,586
6,012
574
–
574
0.11
0.11
1,008
725
405
1,437
1,879
2,059
7,513
10,734
2,720
3,021
6,413
22,888
2,385
819
1,566
–
1,033
640
518
1,447
(78)
2,931
6,491
11,205
2,699
2,522
6,342
22,768
941
276
665
1,333
$ 1,566
$ 0.29
$ 0.29
$
$
$
(668)
(0.14)
(0.14)
BLUE VALLEY BAN CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(In thousands)
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
Change in unrealized appreciation (depreciation) on available-for-sale
securities, net of income taxes (credit) of $631 in 2017, $(1,455) in
2016 and $312 in 2015
Less: reclassification adjustment for realized (gains) losses included in
net income (loss), net of income taxes of $0 in 2017, $(752) in 2016,
and $31 in 2015
Comprehensive income (loss)
2017
2016
2015
$
574
$
1,566
$
665
956
(2,204)
472
$
–
1,530
$
(1,127)
(1,765)
$
47
1,184
See Notes to Consolidated Financial Statements
F-7
BLUE VALLEY BAN CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(In thousands, except share data)
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
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
Issuance of 270,431 shares of restricted stock,
net of forfeitures of 2,199
Issuance of 4,968 shares of common stock for
the employee stock purchase plan
Net income
Other comprehensive income
268
5
175
26
1,566
(3,331)
443
31
1,566
(3,331)
BALANCE, DECEMBER 31, 2016
$
472
$ 5,644
$ 30,858
$ 9,842
$
(3,381)
$ 43,435
Issuance of 50,815 shares of restricted
stock, net of forfeitures of 21,057
Issuance of 3,554 shares of common stock for
the employee stock purchase plan
Stock-based compensation expense
Net income
Other comprehensive income
Reclassify stranded tax effects due to 2017 tax
law changes
30
4
495
25
730
574
525
956
(525)
525
29
730
574
956
-
BALANCE, DECEMBER 31, 2017
$
472
$ 5,678
$ 32,108
$ 10,941
$
(2,950)
$ 46,249
See Notes to Consolidated Financial Statements
F-8
2017
2016
2015
$
574
$
1,566
$
665
1,378
1,607
1,911
689
1,925
1,419
730
(cid:2)
(84)
(172)
(1,879)
(cid:2)
165
443
4
(cid:2)
320
1,450
1,854
196
(cid:2)
(113)
(172)
78
19
(39)
355
4
(cid:2)
BLUE VALLEY BAN CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(In thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income 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
Income tax expense from revaluation of deferred tax assets and liabilities
Stock dividends on FHLBank stock
Increase in value of bank owned life insurance
Net realized (gains) losses on available-for-sale securities
Net loss on disposal of premises and equipment
Net (gain) loss on sale of foreclosed assets
Restricted stock earned net of forfeitures
Compensation expense related to the Employee Stock Purchase Plan
Stock-based compensation expense
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 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
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 used in investing activities
FINANCING ACTIVITIES
Net increase 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
Repayments of short-term debt
Proceeds from short-term debt
Proceeds from sale of additional stock
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
747
(900)
1,483
2,446
3,595
(28)
(173)
(cid:2)
(cid:2)
103
525
3
730
(cid:2)
(cid:2)
(cid:2)
(103)
(cid:2)
578
215
11,173
(71,723)
31,287
(1,152)
1,635
(cid:2)
(cid:2)
5,477
(cid:2)
(1,376)
2,760
(33,092)
36,703
19,665
(4,672)
(cid:2)
(21,032)
(cid:2)
(150,815)
129,547
(cid:2)
29
(cid:2)
(cid:2)
(cid:2)
9,425
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
CASH AND CASH EQUIVALENTS, END OF YEAR
(12,494)
26,038
13,544
$
$
See Notes to Consolidated Financial Statements
F-9
(2,367)
4,633
(8)
(58)
57
186
295
9,151
(46,750)
45,060
20
(124)
(54)
(53)
(1,250)
3,377
(116,971)
69,827
(1,132)
3,840
(cid:2)
(116,526)
(cid:2)
95,964
(1,974)
(50,217)
21,162
(2,327)
5,399
(160)
(122,006)
81,770
40,516
(cid:2)
1,618
(65,354)
49,956
(20,721)
(1,871)
(cid:2)
(20,254)
(cid:2)
(16,032)
45,299
(cid:2)
31
(cid:2)
(cid:2)
(cid:2)
36,408
(19,795)
45,833
26,038
798
(25,065)
4,400
(19,088)
4,966
29,172
(15,246)
15,500
(cid:2)
(cid:2)
7,871
29
(7,346)
(4)
(21,750)
(1,496)
(23,184)
69,017
45,833
$
BLUE VALLEY BAN CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(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
Unvested restricted stock issued
Sale and financing of foreclosed assets
Adoption of ASU 2018-02 – reclassification of stranded tax effects due to
2017 tax law change
2017
2016
2015
$
$
$
$
$
$
$
3,288
102
(cid:2)
(cid:2)
(cid:2)
411
525
$
$
$
$
$
$
$
3,686
(cid:2)
(cid:2)
1,682
222
20
(cid:2)
$
$
$
$
$
$
$
4,857
80
5,892
159
(cid:2)
(cid:2)
(cid:2)
See Notes to Consolidated Financial Statements
F-10
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
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 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, 2017, 2016 AND 2015
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Evaluation of Subsequent Events
Subsequent events have been evaluated through March 29, 2018, 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 December 2013, the FASB issued ASU No. 2013-12, Definition of a Public Business Entity. The standard
defined a public business entity for U.S. GAAP financial reporting purposes and amended the Master Glossary. The
Company has evaluated the standard and has determined it is a public business entity.
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. The Company adopted the provisions of ASU 2014-09 beginning January 1, 2018. The
adoption of ASU 2014-09 did not have a significant effect on the Company’s financial position, results of
operations, or its financial statement disclosures.
In January, 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Liabilities). The guidance is intended to improve the
recognition and measurement of financial instruments for equity investments, financial liabilities under the fair value
option and the presentation and disclosure requirements for financial instruments. ASU 2016-01 requires equity
investments (other than equity method or consolidation) to be measured at fair value with changes in fair value
recognized in net income, eliminated available-for-sale classification (changes in fair value reported in other
comprehensive income) for equity securities with readily determinable fair values, and eliminated the cost method
for equity securities without readily determinable fair values. Entities will be permitted to elect to record equity
securities without readily determinable fair values at cost, less impairment, with changes in the basis reported in
current earnings. ASU 2016-01 eliminates the requirement to disclose the fair value of financial instruments
measured at amortized cost for organizations that are not public business entities, eliminates the requirement for
non-public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that
is to be required to be disclosed for financial instruments measured at amortized cost on the balance sheet, and
requires a reporting organization to present separately in other comprehensive income the portion of the total change
in fair value of a liability resulting from the change in the instrument-specific credit risk (also referred to as “own
credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value
option for financial instruments. The new guidance is effective for public business entities for fiscal years beginning
after December 15, 2017. The Company adopted the provisions of ASU 2016-01 beginning January 1, 2018. The
adoption of ASU 2016-01 did not have a significant effect on the Company’s financial position, results of
operations, or its financial statement disclosures.
F-12
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Effect of New Financial Accounting Standards (Continued)
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires a lessee to
recognize a right-of-use asset and liability on the balance sheet for leases with lease terms greater than 12 months.
The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15,
2018, and early adoption is permitted. We are currently evaluating the impact that the standard will have on our
consolidated financial statements. Our preliminary finding is that the new pronouncement will not have a significant
impact on our consolidated financial statements as the projected minimum lease payments under existing leases
subject to the new pronouncement is immaterial to the financial condition of the Company.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments. The guidance removes the existing “probable” and “incurred” loss
recognition threshold and requires an entity to estimate lifetime expected credit losses for financial assets held at the
reporting date based on historical experience, current conditions, and reasonable and supportable forecasts,
including estimates for prepayments. Financial institutions and other organizations will now use forward-looking
information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will
still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit
losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and
purchased financial assets with credit deterioration. The ASU does not prescribe a specific method to estimate
credit losses. ASU 2016-13 is effective for public business entities that are not SEC filers for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2020 (i.e., January 1, 2021, for calendar year
entities). We are currently evaluating the impact that the standard will have on our consolidated financial statements,
and are currently evaluating various loss estimation methodologies.
In February 2018, FASB issued ASU 2018-02 “Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income” which permits entities to reclassify tax effects stranded in accumulated other
comprehensive income (loss) (AOCI) as a result of the Tax Cuts and Jobs Act (the “Tax Act”). ASU 2018-02 is
effective for interim and annual periods beginning after December 15, 2018; however, early adoption is permitted.
The Company adopted the provisions of ASU 2018-02 which resulted in a reclassification from AOCI to retained
earnings in the amount of $525,000, which is reflected in the 2017 consolidated financial statements. The adoption
of ASU 2018-02 during 2017 allows the Company to align the tax effects included in accumulated other
comprehensive income (loss) with the revised federal tax rates included in the Tax Act.
F-13
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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 cash accounts exceeded the $250,000 FDIC insurance limits by approximately $1.4 million at
December 31, 2017.
The Bank had no required reserve with the Federal Reserve Bank at December 31, 2017. The Bank’s deposit
balance held at the Federal Reserve Bank on December 31, 2017 was $3,732,000.
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, 2017.
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.
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.
F-14
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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-15
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
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-16
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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 on 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-17
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
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.
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 2014.
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 $(2,950,000) and $(3,381,000),
respectively, at December 31, 2017 and 2016.
F-18
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
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:
2017
2016
2015
(In thousands, except share and per share data)
Net Income
Dividends and accretion on preferred stock
Net income (loss) available to common stockholders
$
574 $
1,566 $
–
–
$
574 $
1,566 $
665
(1,333)
(668)
Average common shares outstanding
Average common share stock options outstanding and
restricted stock
5,432,082
5,383,621
4,932,847
688
507
705
Average diluted common shares
5,432,770
5,384,128
4,933,552
Basic income (loss) per share
Diluted income (loss) per share (A)
$0.11
$0.11
$0.29
$0.29
$(0.14)
$(0.14)
(A)
Diluted earnings per share above excludes conversion of the Company’s Series B Preferred Stock, which is
subject to conversion limitations as described in Note 11.
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-19
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
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. Government sponsored agencies mortgage-backed 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. Government sponsored agencies mortgage-backed securities
U.S. Small Business Administration loan pool certificates
Equity and other securities
December 31, 2017
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Fair Value
$
–
–
–
–
$ (2,363)
(487)
(1,124)
(76)
20
$
20
(11)
$ (4,061)
$ 52,084
13,486
31,800
3,151
2,609
$ 103,130
December 31, 2016
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Fair Value
$
–
–
–
–
–
$
–
$ (3,249)
(644)
(1,628)
(103)
(11)
$ (5,635)
$ 56,586
13,348
31,634
3,603
2,589
$ 107,760
Amortized
Cost
$ 54,447
13,973
32,924
3,227
2,600
$ 107,171
Amortized
Cost
$ 59,835
13,992
33,262
3,706
2,600
$ 113,395
The amortized cost and estimated fair value of available-for-sale securities at December 31, 2017, 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. Government sponsored agencies mortgage-backed securities
U.S. Small Business Administration loan pool certificates
Equity securities
Amortized
Cost
$
$
–
8,050
62,370
–
70,420
32,924
3,227
600
107,171
Fair Value
$
$
–
7,821
59,770
–
67,591
31,800
3,151
588
103,130
The amortized cost and estimated fair value of securities pledged as collateral to secure public deposits were
$6,303,000 and $6,045,000, respectively, at December 31, 2017 and $6,183,000 and $6,022,000, respectively, at
December 31, 2016.
There were no gross gains or gross losses realized in 2017 from sales of available-for-sale securities. Gross gains of
$1.9 million and gross losses of $5,000 were realized in 2016 from sales of available-for-sale securities. Gross gains
of $80,000 and gross losses of $158,000 were realized in 2015 from sales of available-for-sale securities.
F-20
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
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, 2017 and 2016, was
$101,110,000 and $105,760,000, respectively, which is approximately 98.1% and 98.1%, 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
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Less than 12 Months
December 31, 2017
12 Months or More
Total
Fair Value
Total
Unrealized
Losses
(In thousands)
U.S. Government sponsored agencies
State and political subdivision
securities
U.S. Government sponsored agencies
mortgage-backed securities
U.S. Small Business Administration
loan pool certificates
Equity securities
Total temporarily impaired
securities
$
– $
– $
52,084 $
2,363
$
52,084
$
2,363
–
–
–
–
–
–
–
–
13,486
31,800
3,151
589
487
1,124
76
11
13,486
31,800
3,151
589
487
1,124
76
11
$
–
$
– $
101,110
$
4,061
$
101,110
$
4,061
Description of
Securities
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Less than 12 Months
December 31, 2016
12 Months or More
$
56,586 $
3,249 $
– $
13,348
31,634
3,603
589
644
1,628
103
11
–
–
–
–
–
–
–
–
–
Total
Fair Value
Total
Unrealized
Losses
$
56,586
$
3,249
13,348
31,634
3,603
589
644
1,628
103
11
(In thousands)
U.S. Government sponsored agencies
State and political subdivision
securities
U.S. Government sponsored agencies
mortgage-backed securities
U.S. Small Business Administration
loan pool certificates
Equity and other securities
Total temporarily impaired
securities
$
105,760
$
5,635 $
–
$
–
$
105,760
$
5,635
F-21
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 2: AVAILABLE-FOR-SALE SECURITIES (Continued)
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, 2017 or 2016.
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, 2017 and 2016 were as follows:
Amounts Reclassified From
Accumulated Other
Comprehensive Income (Loss)
Year Ended
December 31,
2017
December 31,
2016
Affected line item in the Consolidated
Statements of Operations
(In thousands)
Realized gains (losses) on available-for-
sale securities
Income taxes
Total reclassifications out of accumulated
other comprehensive income
$
$
–
–
–
$
1,879
Realized gains on available-for-sale securities
(Total reclassified amount before tax)
(752) Benefit for income taxes
$
1,127
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Classes of loans at December 31, 2017 and 2016 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
2017
2016
$
149,540
227,167
68,406
25,970
37,529
13,200
12,988
534,800
5,535
$
163,765
193,449
48,542
29,691
39,921
11,039
7,275
493,682
6,164
Net loans
$
529,265
$
487,518
F-22
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
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, 2017,
2016 and 2015:
(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
Consumer
Lease
Financing
Total
For the Year Ended December 31, 2017
$
3,311
$
1,561
$
(1,076)
(20)
145
2,360
$
$
119
–
20
1,700
$
441
104
–
31
576
$
313
$
372
$
123
$
43
$
6,164
22
(25)
14
324
$
(157)
(26)
132
321
$
$
(52)
–
–
71
$
140
–
–
183
$
(900)
(71)
342
5,535
(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
Consumer
Lease
Financing
Total
For the Year Ended December 31, 2016
$
2,004
$
1,279
$
563
$
339
$
442
$
80
$
2,979
(2,296)
624
3,311
$
$
268
–
14
1,561
(1,237)
–
1,115
441
$
$
(53)
–
27
313
$
(94)
–
24
372
$
43
–
–
123
$
24
19
–
–
43
$
4,731
1,925
(2,296)
1,804
6,164
$
(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
Consumer
Lease
Financing
Total
For the Year Ended December 31, 2015
$
2,537
$
1,577
$
1,032
$
465
$
698
$
62
$
3,750
(4,354)
71
2,004
$
$
(421)
–
123
1,279
(1,448)
–
979
563
$
$
(137)
–
11
339
$
(321)
–
65
442
$
18
–
–
80
$
15
9
–
–
24
$
6,386
1,450
(4,354)
1,249
4,731
$
F-23
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
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, 2017 and 2016:
Commercial
Commercial
Real Estate
Construction
December 31, 2017
Home
Equity
Residential
Real Estate
Consumer
Lease
Financing
Total
(In thousands)
Allowance
losses:
Individually evaluated
for
loan
for impairment
Collectively evaluated
for impairment
Total
$
$
289
2,071
2,360
$
$
12
1,688
1,700
Loans:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Total
$
12,394
$
1,802
137,146
$ 149,540
225,365
$ 227,167
$
$
$
$
36
540
576
44
$
$
$
116
208
324
170
68,362
68,406
25,800
$ 25,970
$
$
$
$
19
302
321
350
37,179
37,529
$
$
$
$
28
$
155
183
$
–
71
71
$
$
500
5,035
5,535
28
$
–
$
14,788
13,172
13,200
$
12,988
12,988
520,012
$ 534,800
Commercial
Commercial
Real Estate
Construction
December 31, 2016
Home
Equity
Residential
Real Estate
Consumer
Lease
Financing
Total
(In thousands)
Allowance
losses:
Individually evaluated
for
loan
for impairment
Collectively evaluated
for impairment
Total
$
$
230
3,081
3,311
$
$
12
1,549
1,561
Loans:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Total
$
9,567
$
1,885
154,198
$ 163,765
191,564
$ 193,449
$
$
$
$
45
396
441
54
$
$
$
37
276
313
428
48,488
48,542
29,263
$ 29,691
$
$
$
$
3
369
372
530
39,391
39,921
$
$
$
$
–
$
123
123
$
–
43
43
$
$
327
5,837
6,164
–
$
–
$
12,464
11,039
11,039
$
7,275
7,275
481,218
$ 493,682
F-24
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
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, 2017 and 2016. 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
Consumer
Lease financing
Total
Pass
$ 147,033
227,167
68,362
25,800
37,179
13,171
12,988
$ 531,700
2017
Classified
2,508
–
44
170
350
28
–
3,100
$
$
Total
$ 149,540
227,167
68,406
25,970
37,529
13,200
12,988
$ 534,800
Pass
$ 160,842
193,449
48,488
29,263
39,391
11,039
7,275
$ 489,747
2016
Classified
2,923
$
–
54
428
530
–
–
3,935
$
Total
$ 163,765
193,449
48,542
29,691
39,921
11,039
7,275
$ 493,682
The following tables present the Company’s loan portfolio aging analysis, including loans on non-accrual, as of
December 31, 2017 and 2016:
December 31, 2017
(In thousands)
Commercial
Commercial real estate
Construction
Home equity
Residential real estate
Consumer
Lease financing
Total
(In thousands)
Commercial
Commercial real estate
Construction
Home equity
Residential real estate
Consumer
Lease financing
Total
$
30-59 Days
Past Due
–
–
–
–
–
–
–
–
$
$
60-89 Days
Past Due
–
–
–
–
–
–
–
–
$
$
Greater than
90 Days
Past Due
160
–
–
68
96
28
–
352
$
Total
Past Due
$
Current
160 $ 149,380
227,167
68,406
25,902
37,433
13,172
12,988
352 $ 534,448
–
–
68
96
28
–
Total
Loans
Receivable
$ 149,540
227,167
68,406
25,970
37,529
13,200
12,988
$ 534,800
Total
Loans
Receivable
$ 163,765
193,449
48,542
29,691
39,921
11,039
7,275
$ 493,682
Total
Loans >
90 Days &
Accruing
–
$
–
–
–
–
–
–
–
$
Total
Loans >
90 Days &
Accruing
–
$
–
–
–
–
–
–
–
$
$
$
December 31, 2016
Total
Past Due
$
Current
17 $ 163,748
193,449
48,542
29,388
39,437
11,039
7,275
804 $ 492,878
–
–
303
484
–
–
$
30-59 Days
Past Due
–
–
–
228
401
–
–
629
$
$
60-89 Days
Past Due
17
–
–
–
–
–
–
17
$
$
Greater than
90 Days
Past Due
–
–
–
75
83
–
–
158
$
F-25
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
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, 2017, 2016 and 2015:
December 31, 2017
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
Average
Investment
in
Impaired
Loans
Interest
Income
Recognized
(In thousands)
Loans without a specific
valuation allowance:
Commercial
$
612
$
598
$
Commercial real estate
Construction
Home equity
Residential real estate
Consumer
Lease financing
Loans with a specific
valuation allowance:
35
–
23
312
–
–
35
–
31
336
–
–
Commercial
$
105
$
106
$
Commercial real estate
Construction
Home equity
Residential real estate
Consumer
Lease financing
Total impaired loans:
–
–
146
84
28
–
–
–
150
100
29
–
Commercial
$
717
$
704
$
Commercial real estate
Construction
Home equity
Residential real estate
Consumer
Lease financing
35
–
169
396
28
–
35
–
181
436
29
–
–
–
–
–
–
–
–
50
–
–
116
55
28
–
50
–
–
116
55
28
–
$
256
$
41
–
39
260
–
–
$
101
$
–
–
59
90
14
–
$
357
$
41
–
98
350
14
–
Total
$
1,345
$
1,385
$
249
$
860
$
10
3
–
–
18
–
–
4
–
–
–
–
–
–
14
3
–
–
18
–
–
35
F-26
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
December 31, 2016
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
Construction
Home equity
Residential real estate
Consumer
Lease financing
Loans with a specific
valuation allowance:
82
45
–
74
442
–
–
$
100
$
45
–
84
585
–
–
Commercial
$
63
$
63
$
Commercial real estate
Construction
Home equity
Residential real estate
Consumer
Lease financing
Total impaired loans:
–
–
29
42
–
–
–
–
29
48
–
–
Commercial
$
145
$
163
$
Commercial real estate
Construction
Home equity
Residential real estate
Consumer
Lease financing
45
–
103
484
–
–
45
–
113
633
–
–
–
–
–
–
–
–
–
54
–
–
27
2
–
–
54
–
–
27
2
–
–
$
$
490
49
599
207
494
–
–
$
1,467
$
–
3,485
14
54
–
–
$
1,957
$
49
4,084
221
548
–
–
5
–
–
–
16
–
–
–
–
–
–
–
–
–
5
–
–
–
16
–
–
21
Total
$
777
$
954
$
83
$
6,859
$
F-27
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
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
Consumer
Lease financing
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
Consumer
Lease financing
Total impaired loans:
–
1,795
–
63
–
–
–
1,801
–
63
–
–
–
70
–
–
–
–
371
1,868
4
15
–
–
Commercial
$
3,437
$
3,437
$
259
$
5,525
$
Commercial real estate
Construction
Home equity
Residential real estate
Consumer
Lease financing
52
2,523
76
535
–
–
52
2,529
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
The following table presents the Company’s non-accrual loans, also included in impaired loans, at December 31,
2017 and 2016:
(In thousands)
Commercial
Commercial real estate
Construction
Home equity
Residential real estate
Consumer
Lease financing
2017
584
–
–
169
396
28
–
1,177
$
$
2016
17
–
–
484
103
–
–
604
$
$
F-28
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
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, 2017, the Company had $133,000 of commercial loans and $35,000 of
commercial real estate 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, 2017,
the Company modified one loan in a troubled debt restructuring transaction and classified the loan as impaired. The
modification 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 adjustment to the interest rate and extension
of the amortization period. During the years ended December 31, 2016 and 2015, the Company modified no loans
in troubled debt restructuring transactions.
The following table presents loans restructured and classified as troubled debt restructurings by class during the
years ended December 31, 2017, 2016 and 2015.
December 31, 2017
Pre-
Modification
Outstanding
Recorded
Balance
63
$
Post-
Modification
Outstanding
Recorded
Balance
63
$
December 31, 2016
Pre-
Modification
Outstanding
Recorded
Balance
–
$
Post-
Modification
Outstanding
Recorded
Balance
–
$
December 31, 2015
Pre-
Modification
Outstanding
Recorded
Balance
–
$
Post-
Modification
Outstanding
Recorded
Balance
–
$
Number
of
Loans
–
Number
of
Loans
–
Number
of
Loans
1
–
–
–
–
–
–
1
$
–
–
–
–
–
–
63
$
–
–
–
–
–
–
63
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
(In
thousands)
Commercial
Commercial
real estate
Construction
Home
equity
Residential
real estate
Lease
financing
Consumer
Total
As of December 31, 2017, the Company had no commitments outstanding to borrowers with loans identified as
troubled debt restructurings.
F-29
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
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/land development
Residential real estate
Commercial business assets
Foreclosed assets held for sale, net
2017
2016
$
3,954
14,380
6,438
24,772
12,450
$
3,954
13,475
6,200
23,629
11,583
$ 12,322
$ 12,046
2017
2016
$
$
2,252
–
–
2,252
$
$
4,751
182
950
5,883
As of December 31, 2017 and 2016, the Company had residential real estate loans in the process of foreclosure of
$182,000 and $104,000.
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
2017
2016
2015
$
2,957
1,483
(2,045)
$ 2,395
$
3,014
1,419
(1,476)
$ 2,957
$
4,233
1,854
(3,073)
$ 3,014
Income and expenses applicable to foreclosed assets at December 31 include the following:
(In thousands)
Net (gains) losses on sale of foreclosed assets
Provision for losses
Operating expenses, net of rental income
2017
2016
2015
$ 103
1,483
507
$ 2,093
$ 165
1,419
1,347
$ 2,931
$ (39)
1,854
658
$ 2,473
F-30
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 6: INTEREST-BEARING DEPOSITS
Interest-bearing time deposits in denominations in excess of $250,000 were $6,167,000 on December 31, 2017 and
$9,015,000 on December 31, 2016. The Company acquires brokered deposits in the normal course of business. At
December 31, 2017 and 2016, brokered deposits of $98,120,000 and $50,850,000, respectively, were included in the
Company’s time deposit balance. All of the $98,120,000 in brokered deposits at December 31, 2017 represented
customer funds placed through the Promontory Interfinancial Network LLC (“Promontory’) in the Certificate of
Deposit Account Registry Service (“CDARS”) or Insured Cash Sweep service (“ICS”). The Bank is a member of
Promontory which allows depositors to receive FDIC insurance in amounts of $250,000 per depositor, per FDIC
insured bank, per ownership category. Promontory allows the Bank to place amounts exceeding the standard
insurance limits per FDIC insured bank with other members of Promontory. Promontory allows FDIC insured
member banks to break large deposits in to smaller amounts and place them with other Promontory member banks
in the CDARS or ICS programs to ensure full FDIC insurance coverage is attained. Although classified as brokered
deposits for regulatory purposes, funds placed through Promontory are Bank customer relationships which
management views as core funding.
At December 31, 2017, the scheduled maturities of time deposits are as follows:
(In thousands)
2018
2019
2020
2021
2022
Thereafter
$
79,528
13,047
5,076
1,738
1,351
500
$
101,240
NOTE 7: OPERATING LEASES
The Company 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, 2017 was as follows:
(In thousands)
2018
2019
2020
2021
2022
Thereafter
$
800
749
771
524
30
-
$
2,874
F-31
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 8: 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, 2017, the Company had drawn a balance of $8,000,000 and at December 31, 2016, the Company
had drawn a balance of $29,267,000. The variable interest rate was 1.47% on December 31, 2017 and 0.72% on
December 31, 2016. FHLBank advance availability is determined quarterly and at December 31, 2017
approximately $91,850,000 was available. Advances are secured by loans totaling $146,812,000 as of December
31, 2017.
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, 2017 and 2016, 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, 2017 approximately $31,462,000 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, 2017, the Company had FFP lines of credit of $15,000,000 and $5,000,000 with no outstanding balances. The
variable interest rate for the $17,000,000 FFP line was 1.64% and 1.63% for the $5,000,000 FFP line of credit on
December 31, 2017.
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, 2017 and 2016, all of the Company’s sales of securities under agreements to repurchase had overnight
The securities underlying the agreements are book-entry securities issued by U.S.
contractual maturities.
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, 2017, or at any month end during the period, no material amount of agreements to repurchase securities sold was
outstanding with any individual entity.
Information on sales of securities under agreements to repurchase is as follows:
(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
2017
2016
$29,202
$46,040
$31,538
$35,509
$33,875
$47,563
$31,865
$42,178
F-32
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 9: LONG TERM DEBT
Long-term debt at December 31, 2017 and 2016 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)
Total long-term debt
2017
2016
$
–
–
–
13,214
7,732
11,856
$
20,000
(500)
19,500
14,245
7,732
11,856
$
32,802
$
53,333
(A)
Collateralized by various assets including mortgage-backed loans and available-for-sale securities totaling
$146,812,000 at December 31, 2017. FHLBank advance availability is determined quarterly and at December
31, 2017, approximately $91,850,000 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. In the fourth quarter of 2016, the Company repaid $20.0 million of FHLBank advances and
recognized an expense of approximately $750,000 for the unamortized modification fee on the advances paid
off. The remaining unamortized modification fee at December 31, 2016 was approximately $500,000. These
transactions reduced the effective interest rate, as well as modified the maturity date on these borrowings. The
balance of the FHLBank advances was paid in full during 2017 in quarterly payments of $5.0 million and the
remaining modification fee of $500,000 was recognized as expense during the year.
Payable in quarterly installments of principal plus interest, floating at the lender's prime rate plus 1.00% (5.25%
at December 31, 2017 and 4.75% at December 31, 2016), 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% (4.63% at December 31, 2017 and 4.14% at
December 31, 2016) 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% (3.29% at December 31, 2017 and 2.60% at
December 31, 2016) 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-33
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 9: LONG TERM DEBT (Continued)
Aggregate annual maturities of long-term debt at December 31, 2017 are as follows:
(In thousands)
2018
2019
2020
2021
2022
Thereafter
$
1,064
1,122
1,181
1,247
1,314
26,874
32,802
NOTE 10: INCOME TAXES
The provision for income taxes consists of the following:
(In thousands)
Taxes currently (refundable) payable
Income tax expense from revaluation of
deferred tax assets and liabilities
Deferred income taxes
2017
2016
2015
$ (29)
3,595
$
-
89
$
16
-
2,446
$
6,012
$
730
819
260
276
$
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
Deferred tax adjustment related to reduction of
statutory federal income tax rate
Other
Actual tax provision
2017
2016
2015
$ 2,239
$
811
$
320
(42)
272
3,595
(52)
(85)
(33)
–
126
(209)
52
–
113
$ 6,012
$
819
$
276
F-34
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 10: INCOME TAXES (Continued)
The tax effects of temporary differences related to deferred taxes shown on the December 31, 2017 and 2016
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
2017
2016
$
1,345
$
2,281
3,813
1,091
146
80
–
583
852
7,910
(39)
(10)
(88)
(18)
(155)
7,755
$
7,894
2,254
8
139
58
1,173
998
14,805
(121)
(80)
(279)
(21)
(501)
14,304
$
The Company has unused Federal net operating loss carryforwards of $15,108,000, which expire starting in 2030.
The Company has unused Kansas Privilege Tax net operating loss carryforwards of $19,403,000 which expire
between 2019 and 2025.
On December 22, 2017 the Tax Act was enacted, which, among other changes, reduced the federal corporate income
tax rate from 35% to 21% effective January 1, 2018 and changed or limited certain tax deductions. As a result of the
Tax Act, the Bank’s deferred tax assets and liabilities were revalued and resulted in a one-time income tax expense
of approximately $3.6 million during the fourth quarter of 2017. The Bank assessed the tax law changes as a result
of the Tax Act and believes that the assumptions and judgments utilized in determining the final and provisional
amounts recorded in the consolidated financial statements as of December 31, 2017 are appropriate. The Bank may
adjust its initial assumptions and judgments based on future tax law changes or accounting guidance, if any, or other
adjustments related to the Bank’s filing of its 2017 federal and state income tax returns during 2018. However, the
Bank believes that any future adjustments to the provisional amounts included in the income tax expense of $3.6
million that was recognized as a result of the Tax act will not be material.
The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding
amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation,
changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative
activity and the addition or elimination of uncertain tax positions.
F-35
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 11: 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).
NOTE 12: 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, 2017 and 2016, the Bank met all
capital adequacy requirements to which it was subject.
As of December 31, 2017, 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, 2017
that management believes have changed the Bank’s position.
F-36
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 12: REGULATORY MATTERS (Continued)
The Bank’s actual capital amounts and ratios are also presented in the following 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, 2017:
Common Equity Tier 1 Capital
(to Risk Weighted Assets)
Bank Only
$ 73,236
11.49%
$ 28,682
4.50%
$ 41,430
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, 2016:
Common Equity Tier 1 Capital
(to Risk Weighted Assets)
$ 78,771
12.36%
$ 50,991
8.00%
$ 63,738
10.00%
$ 73,236
11.49%
$ 38,243
6.00%
$ 50,991
8.00%
$ 73,236
10.56%
$ 25,495
4.00%
$ 31,869
5.00%
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Bank Only
$ 67,063
11.19%
$ 26,981
4.50%
$ 38,972
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
$ 73,227
12.21%
$ 47,966
8.00%
$ 59,958
10.00%
$ 67,063
11.19%
$ 35,975
6.00%
$ 47,966
8.00%
$ 67,063
10.14%
$ 23,983
4.00%
$ 29,979
5.00%
Effective January 1, 2015, the Bank became subject to new capital regulations (“Basel III Capital Rules”), adopted
by the Federal Reserve, which establish a new comprehensive capital framework for U.S. banks and are phased in
over a multi-year schedule. The above minimum capital requirements exclude the capital conservation buffer
implemented by the Basel III Capital Rules. The Bank is required maintain the capital conservation buffer in excess
of its capital adequacy limitations for common equity tier 1 capital, total capital and tier 1 capital to avoid certain
limitations on distributions, including dividend payments and certain discretionary bonus payments to executive
officers. The capital conservation buffer is phased-in to 2.50% of risk-weighted assets by 2019. As of December
31, 2017 and 2016, the capital conservation buffer was 1.25% and 0.625%, respectively. The Bank’s net unrealized
gain or loss on available-for-sale securities is excluded from the computations of regulatory capital above.
F-37
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 13: TRANSACTIONS WITH RELATED PARTIES
At December 31, 2017 and 2016, 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 $25,955,000 and $27,195,000, respectively. Annual activity consisted of the following:
(In thousands)
Balance, beginning of year
New loans and advances
Repayments and reclassifications
Balance, end of year
2017
2016
$ 27,195
19,160
(20,400)
$ 25,955
$ 30,961
30,425
(34,191)
$ 27,195
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, 2017, and 2016 totaled
$9,834,000 and $8,671,000, respectively.
NOTE 14: 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 2017, 2016 and 2015. 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 2017, 2016 and 2015 were $255,000, $276,000 and
$284,000, respectively.
F-38
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 15: 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, 2017, the Company had 475,492 shares available to be granted. Summary of shares authorized,
granted, and forfeited during 2017, 2016, and 2015 is presented below.
2017
2016
2015
Shares available to be granted, beginning of the year
Authorized
Granted
Forfeited
5,250
500,000
(50,815)
21,057
273,482
–
(270,431)
2,199
20,230
300,000
(48,153)
1,405
Shares available to be granted, end of the year
475,492
5,250
273,482
Restricted shares granted to officers and directors in 2017 and 2015 vested immediately. 222,000 of the shares
granted in 2016 vest over the subsequent three years, subject to the Company meeting financial performance goals.
Total non-vested shares as of December 31, 2017, 2016 and 2015 were 204,000, 222,000, and 0, respectively. The
cost basis of the restricted shares granted to officers which is equal to the fair value of the Company’s stock on the
date of grant, is amortized to compensation expense ratably over the applicable vesting period. The cost basis of
restricted shares granted to directors which is equal to the fair value of the Company’s stock on the date of grant, is
amortized to other operating expense ratably over the applicable vesting period. Expenses associated with restricted
stock grants were $1,258,000, $465,000, and $365,000 for 2017, 2016 and 2015, respectively. The amount of
unrecognized compensation costs was $1,360,000, $2,220,000, and $0 as of December 31, 2017, 2016, and 2015,
respectively.
During 2017, 2016 and 2015, the Company granted no stock options and there were no options outstanding and
exercisable as of December 31, 2017, 2016, or 2015.
NOTE 16: 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 stockholders of the Company. At December 31, 2017, the Company had 43,753 shares available to be
purchased. Summary of shares for the ESPP as of December 31, 2017, 2016, and 2015 is presented below.
2017
2016
2015
Shares available to be purchased, beginning of the year
47,307
52,275
Purchased
(3,554)
(4,968)
57,001
(4,726)
Shares available to be purchased, end of the year
43,753
47,307
52,275
F-39
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 16: EMPLOYEE STOCK PURCHASE PLAN (Continued)
Information about employee stock purchase plan activity as of December 31, 2017, 2016 and 2015 is set forth in the
following table. 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. Expense associated with the plan recognized in 2017, 2016 and 2015
was approximately $4,000, $5,000, and $4,000, respectively.
Plan year ending January 31,
2017
2016
2015
Employee Stock Purchase Plan Activity
Shares purchased
3,554
4,968
4,726
Purchase Price
$ 6.80
$ 5.31
$ 5.31
NOTE 17: OTHER INCOME/EXPENSE
Other income consists of the following:
(In thousands)
Rental income
Realized gain on foreclosed assets
Loans held for sale fee income
Other income
2017
2016
2015
$
814
154
–
335
$
787
89
95
1,088
$
792
44
879
1,216
Total
$
1,303
$
2,059
$
2,931
2016 other income includes approximately $764,000 of income collected on loans previously charged off. 2015
other income includes the realization of approximately $658,000 of income from the settlement of collection
litigation.
Other operating expenses consist of the following:
(In thousands)
Data processing
FDIC assessments
ATM and network fees
Professional fees
Other expense
2017
2016
2015
$
877
423
547
649
3,286
$
1,006
445
559
684
3,719
$
1,078
545
589
975
3,155
Total
$
5,782
$
6,413
$
6,342
As discussed in Note 9, the Company recognized an expense (included in other expense above) of approximately
$750,000 for the unamortized modification fee on the advances paid off during 2016.
F-40
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 18: 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
was $0 at December 31, 2017 and 2016, compared to losses of $8,000 at December 31, 2015. No gains or losses
from fair value changes included in loans held for sale fee income were realized for the year ended December 31,
2017, gains from fair value changes were $8,000 for the year ended December 31, 2016 and losses from fair value
changes were $21,000 for the year ended December 31, 2015. 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 19 for additional
disclosures regarding fair value of mortgage loans held for sale.
NOTE 19: 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
Level 2
Level 3
Quoted prices in active markets for identical assets or liabilities
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.
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, 2017, 2016 AND 2015
NOTE 19: 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, 2017 and 2016:
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, 2017:
Assets:
Available-for-sale securities:
U.S. Government sponsored agencies
State and political subdivision securities
U.S. Government sponsored agencies
mortgage-backed securities
U.S. Small Business Administration loan
pool certificates
Other securities
Equity 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, 2016:
Assets:
Available-for-sale securities:
U.S. Government sponsored agencies
State and political subdivision securities
U.S. Government sponsored agencies
mortgage-backed securities
U.S. Small Business Administration loan
pool certificates
Other securities
Equity 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
–
–
$
52,084
13,486
31,800
–
–
589
–
–
–
32,389
–
–
–
–
–
31,634
–
–
589
–
–
–
32,223
–
–
–
–
3,151
2,020
–
–
–
–
70,741
–
–
–
56,586
13,348
–
3,603
2,000
–
–
–
–
75,537
–
–
–
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
$
$
$
$
$
$
$
52,084
13,486
31,800
3,151
2,020
589
–
–
–
103,130
–
–
–
56,586
13,348
31,634
3,603
2,000
589
–
–
–
107,760
–
–
–
$
$
$
$
$
$
$
$
F-42
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 19: 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.
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.
Nonrecurring Measurements
The following table presents the fair value measurements at December 31, 2017 and 2016 of assets and liabilities
measured at fair value on a non-recurring basis during the respective year:
(In thousands)
December 31, 2017:
Impaired loans, net of reserves
Foreclosed assets held for sale, net
December 31, 2016:
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)
Fair Value
$
$
$
$
799
1,942
2,741
322
1,299
1,621
$
$
$
$
–
–
–
–
–
–
$
$
$
$
–
–
–
–
–
–
Unobservable
Inputs
(Level 3)
$
$
$
$
799
1,942
2,741
322
1,299
1,621
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.
F-43
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 19: DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Impaired Loans (Collateral Dependent)
Loans for which it is probable that the Company will not collect all principal and interest due according to the
contractual terms are measured for impairment. Allowable methods for determining the amount of impairment
include 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, 2017, 2016 AND 2015
NOTE 19: 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.
Forward Sales
Commitments
Collateral-dependent
impaired loans
Foreclosed assets held for
sale, net
Forward Sales
Commitments
Collateral-dependent
impaired loans
Foreclosed assets held for
sale, net
Fair Value at
12/31/17
Valuation Technique
Unobservable Inputs
– Market comparable
Quoted prices for similar loans
prices
799 Market comparable
Comparability adjustments (%)
properties
1,942 Market comparable
properties
Comparability adjustments (%)
Fair Value at
12/31/16
Valuation Technique
Unobservable Inputs
– Market comparable
Quoted prices for similar loans
prices
322 Market comparable
Comparability adjustments (%)
properties
1,299 Market comparable
properties
Comparability adjustments (%)
$
$
$
$
$
$
Range
(Weighted Average)
–
(–)
15.00%-100.00%
(19.00%)
Not available
Range
(Weighted Average)
–
(–)
15.00%-100.00%
(21.00%)
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, 2017, 2016 AND 2015
NOTE 19: 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, 2017 and 2016.
(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)
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)
2017
2016
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
13,544
529,265
$
13,544
527,022
$
26,038
487,518
$
26,038
481,599
3,888
1,888
568,845
37,202
32,802
400
–
–
–
3,888
1,888
569,326
37,202
29,897
400
–
–
–
5,244
1,785
512,477
63,142
53,333
238
–
–
–
5,244
1,785
512,903
63,142
52,840
238
–
–
–
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, 2017, 2016 AND 2015
NOTE 19: 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, 2017, 2016 AND 2015
NOTE 20: 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, 2017 and 2016, the Company had outstanding commitments to originate loans aggregating
approximately $1,080,000 and $3,800,000, respectively. The commitments extend over varying periods of time
with the majority being disbursed within a one-year period.
The strategic decision was made for the Company to discontinue originating and selling residential mortgage loans
to the secondary mortgage market by the Bank beginning in 2016. Mortgage loans in the process of origination
represented amounts that the Company plans to fund within a normal period of 60 to 90 days and which were
intended for sale to investors in the secondary market. Total mortgage loans in the process of origination amounted
to $0 at December 31, 2017 and 2016. Mortgage loans held for sale amounted to $0 at December 31, 2017 and
2016.
Forward commitments to sell mortgage loans were obligations to sell loans at a specified price on or before a
specified future date. These commitments were acquired to reduce market risk on mortgage loans in the process of
origination and mortgage loans held for sale since the Company was 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 $0 at December 31, 2017 and 2016.
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 $247,000 and $655,000 at December 31, 2017 and 2016,
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, 2017,
the Company had unused lines of credit to borrowers aggregating
approximately $171,638,000 for commercial, commercial real estate and construction lines and $36,415,000 for
open-end consumer lines of credit. At December 31, 2016, the Company had unused lines of credit to borrowers
aggregating approximately $179,229,000 for commercial, commercial real estate and construction lines and
$33,866,000 for open-end consumer lines of credit.
F-48
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 20: COMMITMENTS, CREDIT RISKS AND CURRENT ECONOMIC CONDITIONS (Continued)
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 21: LEGAL CONTINGENCIES
The Company and/or its subsidiaries have various unrelated legal proceedings, most of which involve loan
foreclosure activity pending, which, in the aggregate, are not expected to have a material adverse effect on the
financial position of the Company and its subsidiaries.
F-49
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 22: 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.
2017
2016
Fourth
Third
Quarter Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
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
$ 6,760 $ 6,650 $ 6,473 $ 6,146
833
5,313
–
873
5,887
(400)
889
5,761
(500)
857
5,616
–
6,287
1,241
5,933
1,595
4,183
(2,588)
–
6,261
1,130
5,600
1,791
654
1,137
–
5,616
1,147
4,994
1,769
646
1,123
–
5,313
1,151
5,033
1,431
529
902
–
$ 6,075
861
5,214
950
4,264
2,679
6,742
201
67
134
–
$ 5,787 $ 5,708 $ 5,704
928
4,776
475
896
4,891
–
904
4,804
500
4,891
1,617
5,712
796
234
562
–
4,304
1,905
5,260
949
369
580
–
4,301
1,312
5,174
439
149
290
–
$ (2,588) $ 1,137 $ 1,123 $
902
$
134
$
562 $
580 $
290
Basic
Diluted
$ (0.48) $
$ (0.48) $
0.21 $
0.21 $
0.20 $ 0.17
0.20 $ 0.17
$
$
0.02 $
0.02 $
0.10 $
0.10 $
0.11 $ 0.06
0.11 $ 0.06
Balance Sheet
Total assets
Total loans, net
Stockholders' equity
$687,490 $698,425 $693,448 $682,905
497,815
529,265
45,383
46,249
519,052
47,726
525,100
49,135
$674,432
487,518
43,435
$693,449 $645,363 $649,027
442,505
441,345
454,593
45,736
47,146
47,366
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, 2017, 2016 AND 2015
NOTE 23: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Condensed Balance Sheets
December 31, 2017 and 2016
(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
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of income tax (credit) of
$(1,091) in 2017 and $(2,254) in 2016
Total Stockholders’ Equity
2017
2016
$
1,869
$
2,590
$
$
73,485
232
356
3,308
79,250
13,214
19,588
199
33,001
472
5,678
32,108
10,941
(2,950)
46,249
$
$
70,104
232
356
4,168
77,450
14,245
19,588
182
34,015
472
5,644
30,858
9,842
(3,381)
43,435
Total Liabilities and Stockholders’ Equity
$
79,250
$
77,450
F-51
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 23: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
(Continued)
Condensed Statements of Operations
Years Ended December 31, 2017, 2016 and 2015
(In thousands)
Income
Dividends from subsidiaries
Other income
Expenses
Income before income taxes and equity in undistributed net
income (loss) of subsidiaries
Income tax expense (benefit)
Income before equity in undistributed net income (loss) of
subsidiaries
Equity in undistributed net income (loss) of subsidiaries
2017
2016
2015
$
1,676
22
1,698
2,686
(988)
863
(1,851)
2,425
$
2,242
18
2,260
1,732
528
(583)
1,111
455
$
6,944
16
6,960
1,517
5,443
(510)
5,953
(5,288)
Net income
$
574
$
1,566
$
665
Condensed Statements of Comprehensive Income (Loss)
Years Ended December 31, 2017, 2016 and 2015
(In thousands)
Net income
Other comprehensive income (loss)
2017
2016
2015
$
574
$
1,566
$
665
Change in unrealized appreciation (depreciation) on available-
for-sale securities, net of income taxes (credit) of $631 in
2017, $(1,455) in 2016, and $312 in 2015
Less: reclassification adjustment for realized gains included in
net income (loss), net of income taxes of $0 in 2017,
$(752) in 2016, and $31 in 2015
Comprehensive income (loss)
$
956
–
1,530
(2,204)
(1,127)
(1,765)
$
$
472
47
1,185
F-52
BLUE VALLEY BAN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
NOTE 23: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
(Continued)
Condensed Statements of Cash Flows
Years Ended December 31, 2017, 2016 and 2015
2017
2016
2015
$
574
863
$
1,566
$
665
(1,469)
(569)
(2,425)
575
(50)
730
(455)
443
–
–
5,288
355
–
–
(3)
18
282
–
(1,032)
–
29
–
–
(1,003)
(721)
330
10
425
–
(1,008)
–
31
–
–
(977)
(552)
(37)
(8,152)
(2,450)
15,500
(247)
7,871
29
(4)
(21,750)
1,399
(1,051)
2,590
3,142
4,193
$
1,869
$
2,590
$
3,142
(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
Forfeiture of unvested restricted common stock
Stock-based compensation expense
Changes in:
Other assets
Other liabilities
Net cash provided by (used in) operating activities
FINANCING ACTIVITIES
Proceeds from long-term debt
Repayments of long-term debt
Proceeds from sale of additional stock
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 (used in) financing activities
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS,
END OF YEAR
F-53
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STOCKHOLDER INFORMATION
CORPORATE OFFICE
11935 Riley St.
Overland Park, KS 66213
913.338.1000
913.234.7145 (fax)
HELPLINE
913.338.1000
WEBSITE
www.bankbv.com
ANNUAL MEETING OF
STOCKHOLDERS
The annual meeting will be held on May 16, 2018
at 5:30 p.m. at the Corporate Office,
11935 Riley St., Overland Park, KS 66213.
INVESTOR INQUIRIES
To request additional copies of our
Annual Report or to inquire about other
stockholder issues, visit our Investor Relations
webpage at www.bankbv.com/about or contact
Mark A. Fortino, Chief Financial Officer, at our
corporate office.
STOCK QUOTATION SYMBOL
Shares of Blue Valley Ban Corp. common stock
are currently quoted on the OTCQX under the
symbol BVBC.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
www.astfinancial.com
Stockholder Services: 800.937.5449
AUDITORS
BKD, LLP
1201 Walnut Street, Suite 1700
Kansas City, MO 64106-2246
CORPORATE COUNSEL
Husch Blackwell LLP
4801 Main Street, Suite 1000
Kansas City, MO 64112-2502
Stinson Leonard Street LLP
1201 Walnut Street, Suite 2900
Kansas City, MO 64106-2150
MARKET MAKER
Stifel, Nicolaus & Company, Incorporated
One Financial Plaza
501 N Broadway, 9th Floor
St. Louis, MO 63102-2102
Local trading desk: 913.345.4200
OVERLAND PARK
11935 Riley St. | Overland Park, KS 66213
OLATHE
1235 E. Santa Fe Rd. | Olathe, KS 66061
SHAWNEE
5520 Hedge Lane Terr. | Shawnee, KS 66226
LEAWOOD
13401 Mission Rd. | Leawood, KS 66209
LENEXA
9500 Lackman Rd. | Lenexa, KS 66219
WWW.BANKBV.COM
913.338.1000
SURCHARGE FREE ATM NETWORK
VISIT WWW.MONEYPASS.COM
TO FIND A LOCATION
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