Blue Valley Ban Corp. Announces Fourth Quarter 2018 Operating Results

Blue Valley Ban Corp. (OTCQX: BVBC) (the Company) today reported consolidated earnings for the quarter ended December 31, 2018 of $277,000 compared to a net loss of $2,588,000 for the comparable period ended December 31, 2017. For the twelve months ended December 31, 2018, the Company earned $5,263,000 compared to $574,000 for the twelve months ended December 31, 2017. Earnings per common share for the quarter- and year-to-date periods ended December 31, 2018 were $0.05 and $0.95, respectively, compared to $(0.48) and $0.11, respectively, for the quarter- and year-to-date periods ended December 31, 2017.

On January 16, 2019, the Company entered into an Agreement and Plan of Merger pursuant to which the Company will be acquired by Heartland Financial USA, Inc. (the Merger). Earnings for the quarter- and year-to-date periods ended December 31, 2018, included expenses related to the Merger (Transaction expenses) of $2,260,000. Transaction expenses included legal, accounting and equity compensation expenses. Numerous key aspects of the operating results and financial condition for the Company reflected positive trends and results as of and during the periods ended December 31, 2018.

Robert D. Regnier, Chairman and CEO of Blue Valley Ban Corp., commented, This past years performance was one of the best in the history of our Company. I am excited about our future as part of the Heartland organization, with the Merger providing us additional resources to continue to grow our business and better serve our customers.

1   Transaction related expenses, including legal, accounting and equity compensation expenses, have been excluded to demonstrate the impact. Net income and financial measures excluding the impact of transaction related expenses are non-GAAP financial measures. Management believes these measures help investors understand the effect of these items on reported results. The non-GAAP financial measures presented should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures presented may differ from that of other companies reporting measures with similar names. It is important to understand how other banking organizations calculate their financial measures with names similar to the non-GAAP financial measures presented when comparing such non-GAAP financial measures.
 

For the quarter ended December 31, 2018, net interest income increased by $702,000, or 11.9%, compared to the prior year period, primarily due to increased loan interest income. The Companys non-interest income increased by $413,000, or 33.3%, compared to the prior year period, primarily due to a gain of $363,000 recognized on the sale of a bank branch building and additional rental income of $136,000 as a result of a fully leased property held for sale. For the quarter ended December 31, 2018, the Companys non-interest expense increased by $2,153,000, or 36.3%, compared to the prior year period, primarily due to Transaction expenses of $2,260,000.

The Tax Cuts and Jobs Act (Tax Reform) enacted in December 2017 positively impacted consolidated earnings in 2018. The Tax Reform reduced the Companys effective tax rate to 24.4% for the twelve month period ended December 31, 2018 compared to 36.7% for the prior year period. This comparison excludes the one-time, non-cash charge of $3,595,000 for the re-measurement of the Companys deferred tax assets in December 2017. The lower effective tax rate in 2018 resulted in a tax savings of approximately $855,000 for the year ended December 31, 2018.

As a result of the volume and composition of loan growth and other factors used to determine the level of the allowance for loan losses, the Company did not record a provision for loan loss for the quarter ended December 31, 2018, compared to a negative provision of $400,000 recorded during the same period in the prior year. The Companys ratio of total reserves to non-accrual loans was approximately 1,866% as of December 31, 2018, which exceeds the most recent Uniform Bank Performance Report (UBPR) peer group ratio of 505%. At December 31, 2018, the Companys ratio of nonperforming loans to total loans was 0.06%, which compares favorably with the most recent UBPR peer group ratio of 0.62%.

About Blue Valley Ban Corp.

Blue Valley Ban Corp. is a bank holding company that, through its subsidiaries, provides banking services to closely-held businesses, their owners, professionals and individuals in Johnson County, Kansas.

This release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of those safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, can generally be identified by use of the words “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” or the negative of these terms or other comparable terminology. The Company is unable to predict the actual results of its future plans or strategies with certainty. Factors which could have a material adverse effect on the operations and future prospects of the Company include, but are not limited to, the ability to complete the Merger, the ability to successfully and timely combine the two organizations in the Merger; the ability to recognize the cost savings in the Merger; the ability to obtain the regulatory and shareholder approvals necessary to complete the Merger; fluctuations in market rates of interest and loan and deposit pricing; inability to maintain or increase deposit base and secure adequate funding; a continued deterioration of general economic conditions or the demand for housing in the Company’s market areas; legislative or regulatory changes; regulatory action; continued adverse developments in the Company’s loan or investment portfolio; any inability to obtain funding on favorable terms; the Companys non-payment on Trust Preferred Securities or other debt; the loss of key personnel; significant increases in competition; potential unfavorable actions from rating agencies; potential unfavorable results of litigation to which the Company may become a party, and the possible dilutive effect of potential acquisitions or expansions. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We operate in a very competitive and rapidly changing environment. New risks emerge from time to time, and it is not possible for us to predict all risk factors. Nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All statements in this release, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events, except as required by law.

Additional Information about the Merger and Where to Find It

Heartland intends to file with the SEC a registration statement on Form S-4 (the Registration Statement) to register the shares of Heartland common stock that will be issued to BVBC shareholders in the proposed Merger. The Registration Statement will include a proxy statement/prospectus that will be used to solicit proxies for a special meeting of the BVBC shareholders at which the Merger will be considered (the Proxy Statement/Prospectus). The Proxy Statement/Prospectus will contain important information about BVBC, Heartland and the Merger. All BVBC shareholders are urged to read the Proxy Statement/Prospectus carefully when it becomes available. Once filed, the Registration Statement, the Proxy Statement/Prospectus and related documentation will be available at no charge at the SECs website (www.sec.gov), BVBCs website (www.bankbv.com) or by contacting Mark Fortino, Secretary and Chief Financial Officer of BVBC.

BVBC and certain of the directors and executive officers of BVBC may be deemed to be participants in the solicitation of proxies from the shareholders of BVBC in connection with the Merger. Information about the directors and executive officers of BVBC and their securities holdings will be included in the Proxy Statement/Prospectus, when it is filed as part of the Registration Statement. Information about the directors and executive officers of Heartland and their beneficial ownership of Heartland common stock is set forth in the proxy statement for Heartlands 2018 Annual Meeting of Stockholders, as filed with the SEC on Schedule 14A on April 6, 2018. Information about the directors and executive officers of BVBC and their beneficial ownership of BVBC common stock is set forth in the proxy statement for BVBCs 2018 Annual Meeting of Stockholders, as filed with the OTCQX on April 9, 2018. Additional information regarding the interests in the Merger of the BVBC directors and executive officers and other persons who may be deemed participants in the transactions contemplated by the Merger Agreement and a description of their direct and indirect interests, by security holdings or otherwise, may be obtained by reading the Proxy Statement/Prospectus and other relevant documents regarding the Merger to be filed with the SEC. Free copies of these documents may be obtained as described above.

 
 
Blue Valley Ban Corp.
Condensed Consolidated Balance Sheets
December 31, 2018 and December 31, 2017

(In thousands, except share data)

 
ASSETS
       

December 31, 2018

    December 31, 2017
 
Cash and due from banks $ 14,294 $ 9,394
Interest-bearing deposits in other financial institutions   1,841     4,150  
Cash and cash equivalents 16,135 13,544
 
Available-for-sale securities 104,965 102,541
Equity securities 576 589
 

Loans, net of allowance for loan losses of $6,171 and $5,535  in 2018 and 2017, respectively

555,102 529,265
 
Premises and equipment, net 12,105 12,322
Bank-owned real estate held for sale, net 6,488 5,915
Foreclosed assets held for sale, net 2,252
Interest receivable 2,298 1,888
Deferred income taxes 6,267 7,755
Prepaid expenses and other assets 8,210 7,531

FHLBank stock, Federal Reserve Bank stock,  and other securities

  5,538     3,888  
 
Total assets $ 717,684   $ 687,490  
 
 

LIABILITIES AND STOCKHOLDERS EQUITY

December 31, 2018 December 31, 2017
 
LIABILITIES
 
Deposits
Demand $ 152,887 $ 152,052
Savings, NOW and money market 325,268 315,553
Time   84,418     101,240  
Total deposits 562,573 568,845
 
Other interest-bearing liabilities 72,550 37,202
Long-term debt 26,856 32,802
Interest payable and other liabilities   2,472     2,392  
 
Total liabilities   664,451     641,241  
 
STOCKHOLDERS EQUITY
 
Capital stock

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  2018 “ 471,979 shares; 2017 “ 471,979 shares

472 472

Common stock, par value $1 per share;  authorized 15,000,000 shares; issued and outstanding  2018 “ 5,851,027 shares; 2017 “ 5,677,865 shares

5,851 5,678
Additional paid-in capital 34,638 32,108
Retained earnings 16,193 10,941

Accumulated other comprehensive income loss, net of income  tax credit of $(1,424) in 2018 and $(1,091) in 2017

  (3,921 )   (2,950 )
 
Total stockholders equity   53,233     46,249  
 
Total liabilities and stockholders equity $ 717,684   $ 687,490  
 
 
Blue Valley Ban Corp.
Condensed Consolidated Statements of Income
Three and Twelve Months Ended December 31, 2018 and 2017

(In thousands, except share data)

       

 

Three months ended December 31,

Twelve months ended December 31,

2018   2017 2018   2017
(Unaudited) (Unaudited)
INTEREST INCOME
Interest and fees on loans $ 7,104 $ 6,112 $ 26,384 $ 23,665
Federal funds sold and other short-term investments 174 63 412 115
Available-for-sale securities 553 524 2,112 2,103
Dividends on FHLBank and Federal Reserve Stock   63     61     135   146  
Total interest income   7,894     6,760     29,043   26,029  
 
INTEREST EXPENSE
Interest-bearing demand deposits 106 85 322 258
Savings and money market deposit accounts 451 132 1,306 503
Other time deposits 345 268 1,295 976
Federal funds purchased and other interest-bearing liabilities 59 8 133 53
Long-term debt, net   344     380     1,523   1,662  
Total interest expense   1,305     873     4,579   3,452  
 
NET INTEREST INCOME 6,589 5,887 24,464 22,577
 
PROVISION FOR LOAN LOSSES       (400 )   400   (900 )
 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   6,589     6,287     24,064   23,477  
 
NON-INTEREST INCOME
Service fees 825 814 3,337 3,366
Other income   829     427     2,812   1,303  
Total non-interest income   1,654     1,241     6,149   4,669  
 
NON-INTEREST EXPENSE
Salaries and employee benefits 5,386 2,841 14,077 10,860
Net occupancy expense 709 663 2,674 2,671
Foreclosed assets expense 7 781 139 2,247
Other operating expense   1,984     1,648     6,359   5,782  
Total non-interest expense   8,086     5,933     23,249   21,560  
 
INCOME BEFORE INCOME TAXES 157 1,595 6,964 6,586
 
PROVISION FOR INCOME TAXES   (120 )   4,183     1,701   6,012  
 
NET INCOME $ 277   $ (2,588 ) $ 5,263 $ 574  
 
BASIC EARNINGS PER SHARE $ 0.05   $ (0.48 ) $ 0.95 $ 0.11  
DILUTED EARNINGS PER SHARE $ 0.05   $ (0.48 ) $ 0.95 $ 0.11  
 
 

Blue Valley Ban Corp.

Condensed Consolidated Statements of Income

Three and Twelve Months Ended December 31, 2018 and 2017

(In thousands, except share data)

 

Reconciliation of Non-GAAP Financial Measures (unaudited)

 

 

   

Three months ended December 31,

   

Twelve months ended December 31,

2018   2017 2018   2017
INCOME BEFORE INCOME TAXES $ 157 $ 1,595 $ 6,964 $ 6,586
Transaction expenses1   2,260       2,260  
ADJUSTED INCOME BEFORE INCOME TAXES 2,417 1,595 9,224 6,586
Adjusted provision for income taxes2,3   705   588     2,520   2,417
ADJUSTED NET INCOME $ 1,712 $ 1,007   $ 6,704 $ 4,169

BASIC AND DILUTED EARNINGS PER SHARE

$ 0.05 $ (0.48 ) $ 0.95 $ 0.11
Transaction related adjustments1,2 0.26 0.26
Income tax expense related to 2017 Tax Reform3     0.66       0.66
Adjusted basic and diluted net income per share $ 0.31 $ 0.18   $ 1.21 $ 0.77
        1   Transaction related expenses, including legal, accounting and equity compensation expenses, have been excluded to demonstrate the impact. Net income and financial measures excluding the impact of transaction related expenses are non-GAAP financial measures. Management believes these measures help investors understand the effect of these items on reported results. The non-GAAP financial measures presented should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures presented may differ from that of other companies reporting measures with similar names. It is important to understand how other banking organizations calculate their financial measures with names similar to the non-GAAP financial measures presented when comparing such non-GAAP financial measures.
 
2 The fourth quarter 2018 and full-year 2018 adjusted provision for income taxes is a recalculation of the provision after the removal of transaction related expenses.
 
3

The fourth quarter and full-year 2017 adjusted provision for income taxes is due to the Tax Cuts & Jobs Act (Tax Reform) that was signed into law on December 22, 2017. The fourth quarter and full-year 2017 results reflects the estimated impact of the enactment of the Tax Reform, which resulted in a $3.6 million decrease to net income. Net income and earnings per share excluding the impact of the Tax Reform are non-GAAP financial measures. Management believes these measures help investors understand the effect of these items on reported results.

Blue Valley Ban Corp.
Mark A. Fortino
Chief Financial
Officer
(913) 338-1000