"...Regnier said he thinks the bank is headed in the right direction. Like other banks in town, Bank of Blue Valley is loaded with deposits, so it has plenty of money to lend. Historically, its specialty has been in residential construction lending, and it’s not changing its focus."

James Dornbrook

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Although many bank analysts say the beleaguered Bank of Blue Valley    faces bleak times, CEO Bob Regnier refuses to lose his bright outlook.

Regnier pointed to the bank’s non-performing loan ratio declining to 2.55 percent, now lower than the 2.79 percent average of his peers. Although the bank lost $13.5 million in 2011 ­— mainly because of loan-loss reserves and write-offs — its core earnings have improved every month for the past 24 months. The bank may have $28.9 million in “other real estate owned” (collateral from bad loans) on the books, but the bank slowly is selling that off and recouping some of that money.

“The problem loan number isn’t the issue for us anymore,” Regnier said. “Now it’s a real estate-owned problem. Those numbers aren’t enormous.”

And the real estate should be easy to sell with a strengthening market, he said.

The bank’s numbers are slowly improving, but it’s far from free of trouble.

Bank of Blue Valley borrowed $21.75 million from the U.S. Treasury’s Troubled Asset Relief Program (TARP). The Treasury buys preferred shares that pay 5 percent interest for the first five years. After that, the rate jumps to 9 percent. Bank of Blue Valley hasn’t paid any of the 5 percent dividends.

And time is not on the bank’s side; it has until Dec. 5, 2013, to repay the Treasury before the dividend rate goes up to a prohibitive 9 percent.

“The only way out is to raise capital, but with their lack of earnings, they can’t raise capital,” said Tom Bishop, CEO of Shawnee-based consultants T.E. Bishop and Co.

Julee Fox, banking practice partner for McGladrey & Pullen in Kansas City, said if a bank can’t make TARP dividend payments at 5 percent, it won’t be allowed to pay off the overall investment because of concerns that retiring TARP would push its capital reserves below the legal minimum.

“Small banks like this were given TARP investments to buy time as they worked out some of their financial situations,” Fox said. “It helped them, but instead of a crutch, it may have become a permanent cast.”

Regnier said that he’d love to get to the point where he could pay back TARP as soon as possible but that the bank is not quite there yet. The plan right now is to first get back to a profitable position and then attempt to get out from under the TARP. He sees a few options.

“One is that we just leave it alone, which is not impossible, but 9 percent after taxes is pretty stiff,” Regnier said. “We could refinance it into a bank stock loan. We could raise capital. Treasury has also shown an indication that they would like to sell it, where the preferred stock is sold to a third party that we could renegotiate with.”

Bob Wray, CEO of The Capital Corporation LLC in Lenexa, said the most likely option is the Treasury auctioning off its TARP holdings at a discount. Treasury already got a good return when it auctioned off the TARP investments of about six banks several months ago.

“So I think the federal government will just get out of it by selling this stuff to private equity or some type of investor pool and let them deal with collecting the dividends,” Wray said.

Regnier said he thinks the bank is headed in the right direction. Like other banks in town, Bank of Blue Valley is loaded with deposits, so it has plenty of money to lend. Historically, its specialty has been in residential construction lending, and it’s not changing its focus.

“We’re open for business,” Regnier said. “Things haven’t changed dramatically. We’re still looking to expand our business and find new customers.”

James reports about banking, financial services, manufacturing and sports business.

http://www.bizjournals.com/kansascity/print-edition/2012/05/18/regnier-sees-bank-of-blue-valley.html?page=all
Reporter- Kansas City Business Journal