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| IBCA > SEC Filings for IBCA > Form 10-Q on 30-Apr-2009 | All Recent SEC Filings |
30-Apr-2009
Quarterly Report
Overview
The following management's discussion of financial condition and results of operations of Intervest Bancshares Corporation and Subsidiaries should be read in conjunction with the accompanying quarterly condensed consolidated financial statements in this report on Form 10-Q as well as the entire annual report on Form 10-K for the year ended December 31, 2008.
Intervest Bancshares Corporation has two wholly owned consolidated subsidiaries, Intervest National Bank and Intervest Mortgage Corporation (together with Intervest Bancshares Corporation are referred to collectively as the "Company" on a consolidated basis in this report). Intervest Bancshares Corporation, Intervest National Bank and Intervest Mortgage Corporation may be referred to individually as "IBC," "INB" and "IMC," respectively, in this report. IBC also has four wholly owned unconsolidated subsidiaries, Intervest Statutory Trust II, III, IV and V, all of which were formed at various times in connection with the issuance of trust preferred securities. For a more detailed discussion of the Company's business, see note 2 to the condensed consolidated financial statements included in this report.
Critical Accounting Policies
The Company believes that currently its only significant critical accounting policy relates to the determination of the allowance for loan losses. The allowance for loan losses is a critical accounting estimate because it is highly susceptible to change from period to period requiring management to make assumptions about future loan chargeoffs. The impact of a large chargeoff could deplete the allowance and potentially require increased provisions to replenish the allowance, which could negatively affect the Company's earnings and financial position.
A more detailed discussion of the factors and estimates used in computing the allowance can be found under the caption "Critical Accounting Policies" on pages 36 to 39 of the Company's annual report on Form 10-K for the year ended December 31, 2008.
Comparison of Financial Condition at March 31, 2009 and December 31, 2008 Selected balance sheet information by entity as of March 31, 2009 follows: ($ in thousands) IBC INB IMC Eliminations (1) Consolidated Cash and cash equivalents $ 3,004 $ 25,276 $ 5,318 $ (3,395 ) $ 30,203 Security investments - 554,359 - - 554,359 Loans receivable, net of deferred fees 2,580 1,667,855 38,317 - 1,708,752 Allowance for loan losses (30 ) (29,141 ) (1,200 ) - (30,371 ) Foreclosed real estate - 7,415 2,327 - 9,742 Investment in consolidated subsidiaries 260,475 - - (260,475 ) - All other assets 3,690 39,504 2,508 (774 ) 44,928 Total assets $ 269,719 $ 2,265,268 $ 47,270 $ (264,644 ) $ 2,317,613 Deposits $ - $ 1,941,519 $ - $ (3,396 ) $ 1,938,123 Borrowed funds and related interest payable 56,817 50,778 14,599 - 122,194 All other liabilities 285 43,620 1,547 (773 ) 44,679 Total liabilities 57,102 2,035,917 16,146 (4,169 ) 2,104,996 Stockholders' equity 212,617 229,351 31,124 (260,475 ) 212,617 Total liabilities and stockholders' equity $ 269,719 $ 2,265,268 $ 47,270 $ (264,644 ) $ 2,317,613 |
(1) All significant intercompany balances and transactions are eliminated in consolidation. Nearly all the amounts arise from intercompany deposit accounts and investments in consolidated subsidiaries.
A comparison of selected consolidated balance sheet information follows:
At March 31, 2009 At December 31, 2008
Carrying % of Carrying % of
($ in thousands) Value Total Assets Value Total Assets
Cash and cash equivalents $ 30,203 1.3 % $ 54,903 2.4 %
Security investments 554,359 23.9 484,482 21.4
Loans receivable, net of deferred
fees and loan loss allowance 1,678,381 72.5 1,677,187 73.8
Foreclosed real estate losses 9,742 0.4 9,081 0.4
All other assets 44,928 1.9 46,180 2.0
Total assets $ 2,317,613 100.0 % $ 2,271,833 100.0 %
Deposits $ 1,938,123 83.6 % $ 1,864,135 82.1 %
Borrowed funds and related interest
payable 122,194 5.3 149,566 6.6
All other liabilities 44,679 1.9 46,158 2.0
Total liabilities 2,104,996 90.8 2,059,859 90.7
Stockholders' equity 212,617 9.2 211,974 9.3
Total liabilities and stockholders'
equity $ 2,317,613 100.0 % $ 2,271,833 100.0 %
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Cash and Cash Equivalents
Cash and cash equivalents include interest-bearing and noninterest-bearing cash balances with banks, and other short-term investments that have original maturities of three months or less. Cash and cash equivalents decreased to $30 million at March 31, 2009 from $55 million at December 31, 2008. The level of cash and cash equivalents fluctuates based on various factors, including liquidity needs, loan demand, deposit flows, calls of securities, repayments of borrowed funds and alternative investment opportunities.
Security Investments
Security investments consist of securities held to maturity and Federal Reserve Bank (FRB) and Federal Home Loan Bank of New York (FHLB) stock. Securities are classified as held to maturity and are carried at amortized cost when management has the intent and ability to hold them to maturity. Such investments, all of which are held by INB, increased to $545 million at March 31, 2009, from $476 million at December 31, 2008. The increase reflected $276 million of new purchases with lower yields exceeding $206 million of calls and maturities of securities with higher yields during the period. INB invests in U.S. government agency debt obligations to emphasize safety and liquidity. The Company does not own or invest in any collateralized debt obligations, collateralized mortgage obligations, or any preferred or common stock of the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation.
At March 31, 2009, securities held to maturity consisted of investment grade rated debt obligations of the Federal Home Loan Bank, Federal Farm Credit Bank, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation totaling $537 million and noninvestment grade rated corporate securities (consisting of variable-rate pooled trust preferred securities backed by obligations of companies in the banking industry) totaling $7.7 million. As discussed in more detail in note 3 to the condensed consolidated financial statements in this report, in the first quarter of 2009, INB recorded an impairment charge of $0.3 million on one trust preferred security, representing a 32% reduction in its cost basis of $1.0 million.
At March 31, 2009, the entire securities held to maturity portfolio had a weighted-average yield of 3.19% and a weighted-average remaining maturity of 4.4 years, compared to 3.80% and 4.2 years, respectively, at December 31, 2008. Nearly all of the securities in the portfolio have fixed rates of interest or have predetermined rate increases, and many have call features that allow the issuer to call the security before its stated maturity without penalty. In the first quarter of 2009, $202 million of securities with a weighted average yield of approximately 3.88% were called by the issuers and the resulting proceeds were invested by INB into new lower yielding securities. As a result of these calls, the overall average yield on the portfolio decreased from December 31, 2008. At March 31, 2009 and December 31, 2008, the held-to-maturity portfolio's estimated fair value was $541 million and $475 million, respectively. At March 31, 2009, the portfolio had a net unrealized loss of $3.9 million, compared to a net unrealized loss of $0.5 million at December 31, 2008. See note 3 to the condensed consolidated financial statements in this report for a discussion regarding unrealized losses.
In order for INB to be a member of the FRB and FHLB, INB maintains an investment in the capital stock of each entity, which amounted to $4.4 million and $5.3 million, respectively, at March 31, 2009.
Loans Receivable, Net of Deferred Fees and Allowance for Loan Losses
Loans receivable, net of deferred fees, amounted to $1.71 billion at March 31, 2009, relatively unchanged from December 31, 2008, as $46 million of new loans originated by INB and secured primarily by commercial real estate was offset by $43 million of principal repayments and $0.8 million of loans transferred to foreclosed real estate. Nearly all the new loans have fixed interest rates and a weighted-average yield and term of 6.77% and 5.7 years, respectively. Fixed-rate loans constituted approximately 73% of the consolidated loan portfolio at March 31, 2009.
The consolidated loan portfolio is concentrated in mortgage loans secured by commercial and multifamily real estate properties (including rental and cooperative/condominium apartment buildings, office buildings, mixed-use properties, shopping centers, hotels, restaurants, industrial/warehouse properties, parking lots/garages, mobile home parks, self storage facilities and vacant land). At March 31, 2009, such loans consisted of 641 loans with an aggregate principal balance of $1.71 billion and an average loan size of $2.7 million. Loans with principal balances of more than $10 million consisted of 19 loans or $258 million, with the largest loan being $20.4 million. Loans with principal balances of $5 million to $10 million consisted of 79 loans and aggregated to $530 million.
Nonaccrual (Impaired) Loans
Nonaccrual loans increased to $119.3 million (31 loans) at March 31, 2009, from $108.6 million (26 loans) at December 31, 2008. At March 31, 2009 and December 31, 2008, there was one loan amounting to $2.0 million classified as ninety days past due and still accruing interest. At March 31, 2009, there also were $30.6 million of accruing loans on which INB has granted certain concessions generally consisting of the temporary deferral of interest or principal payments to provide relief to the borrower. These loans are considered troubled debt restructurings (TDRs) and are also impaired.
Nonaccrual loans and TDRs are considered impaired under the criteria of SFAS 114 "Accounting by Creditors for Impairment of a Loan-an amendment of FASB Statements 5 and 15". At March 31, 2009 and December 31, 2008, nonaccrual loans had a specific valuation allowance in the aggregate amount of $10.2 million and $8.2 million, respectively, (included as part of the overall allowance for loan losses) in accordance with SFAS 114. Estimated loan-to-value ratios, net of specific valuation allowances, on nonaccrual (impaired) loans ranged from 51% to 100% at March 31, 2009. There was no specific valuation allowance maintained for TDRs at March 31, 2009. TDRs are considered in the determination of the overall adequacy of the allowance for loan losses.
In addition to nonaccrual loans and troubled debt restructuring discussed above, there were $13.8 million of real estate loans held by INB at March 31, 2009, for which management has concerns regarding the ability of the borrowers to meet existing repayment terms. Potential problem loans are normally classified as substandard for regulatory purposes and reflect the distinct possibility, but not the probability, that INB will not be able to collect all amounts due according to the contractual terms of the loan. Although these loans have been identified as potential problem loans, they may never become delinquent, non-performing or impaired. Potential problem loans are considered in the determination of the overall adequacy of the allowance for loan losses.
The Company's ability to complete foreclosure or other proceedings to acquire and sell certain collateral properties continues to be delayed by bankruptcy proceedings. As a result of these delays and other factors, the timing of the resolution/disposition of nonperforming assets cannot be predicted with certainty. There can be no assurance that the Company will not incur significant additional loan loss provisions or expenses in connection with the ultimate collection of nonaccrual loans or in carrying and disposing of foreclosed real estate. Although the Company has never originated or acquired subprime loans nor invested in securities collateralized by subprime loans, the current world financial crisis has affected the Company indirectly through reductions in overall real estate values, reduced home sales and construction, increased unemployment and a weakening of national and local economic conditions, particularly in New York and Florida, the Company's two primary markets. The Company does not own or originate construction/development loans.
Nonaccrual loans are detailed in the table that follows:
Property Type City State Lender Month Nonaccrual Mar 31, 2009 Dec 31, 2008 Notes
Retail store Avenel New Jersey INB Mar 2007 $ 3,064 $ 3,064 (1)
Retail stores Neptune New Jersey INB Mar 2007 512 512 (1)
Retail stores South Amboy New Jersey INB Mar 2007 1,339 1,339 (1)
Retail store Little Silver New Jersey INB Mar 2007 739 739 (1)
Multifamily Long Island New York INB Jun 2007 11,316 11,316 (2)
Hotel St. Augustine Florida INB Jun 2007 9,053 9,053 (3)
Undeveloped land Long Island City New York INB Mar 2008 11,001 11,001 (7)
Undeveloped land Hollywood Florida INB Apr 2008 - 830 (4)
Mobile home park Perryville Maryland INB May 2008 4,024 4,024 (7)
Office building Staten Island New York INB May 2008 5,762 5,762 (5)
Motel Lakewood New Jersey INB Jun 2008 1,390 1,390 (7)
Retail Stores Flushing New York INB Aug 2008 13,060 13,060 (7)
Multifamily Brooklyn New York INB Aug 2008 786 786 (7)
Hotel Orlando Florida INB Aug 2008 5,939 5,939 (7)
Undeveloped land Carabelle Florida INB Aug 2008 1,569 1,569 (7)
Multifamily Tampa Florida INB Sep 2008 10 10 (7)
Multifamily Tampa Florida INB Oct 2008 7,475 7,475 (7)
Hotel Clearwater Florida INB Nov 2008 2,977 2,977 (7)
Hotel Clearwater Florida INB Nov 2008 6,954 6,954 (6)
Office building Yonkers New York INB Nov 2008 2,644 2,644 (7)
Retail Store New York New York INB Nov 2008 7,905 7,905 (7)
Land Long Island City New York INB Dec 2008 697 697 (7)
Multifamily Springfield Massachusetts INB Dec 2008 1,272 1,272 (7)
Retail Store New York New York INB Jan 2009 198 - (7)
Office building Waterbury Connecticut INB Jan 2009 641 - (7)
Warehouse Brooklyn New York INB Feb 2009 1,893 - (7)
Warehouse New York New York INB Feb 2009 4,456 - (7)
Office building East Orange New Jersey INB Mar 2009 2,869 - (7)
Retail Store Cedarhurst New York INB Mar 2009 1,468 - (7)
111,013 100,318
Hotel St. Augustine Florida IMC Jul 2007 6,034 6,034 (3)
Hotel Howell New Jersey IMC Dec 2007 1,659 1,659 (7)
Office building Staten Island New York IMC May 2008 389 389 (5)
Office building Yonkers New York IMC Dec 2008 210 210 (7)
8,292 8,292
$ 119,305 $ 108,610
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(1) The completion of foreclosure proceedings, which involve multiple properties, have been delayed by reason of a bankruptcy filing.
(2) A contract of sale and stipulation of settlement has been signed by the owner, a buyer and INB. The sales price has a minimum of $11.5 million to a maximum of $12 million depending on when the closing occurs. A receiver is controlling the property and the rents. Currently, the rents are not sufficient to cover the operating costs of the property and INB is funding the shortfall as necessary, including paying real estate taxes directly.
(3) Both amounts represent one loan ($15.1 million) originated by INB and IMC owns a participation. The loan is secured by a waterfront hotel, restaurant and marina resort. In April 2009, INB and the debtor reached a multi-faceted settlement agreement whereby the loan's principal balance will be reduced to $13 million, the debtor will pay outstanding real estate taxes, and the debtor will make a principal payment to INB of $0.1 million to reduce the loan further to $12.9 million. INB will finance a portion of the unpaid real estate taxes being paid by the debtor and the advance of these funds will be collateralized by the existing property and additional collateral from the debtor. The Company's net recorded investment in this property, net of a specific valuation allowance, is approximately $13 million. Payments on the modified loan are scheduled to begin on October 1, 2009 and such loan will remain on nonaccrual status until a satisfactory payment history has been achieved under the restructured terms. The settlement agreement is subject to confirmation of the bankruptcy court.
(4) Title to the collateral property was acquired in January 2009. A $10,000 loan charge off was recorded upon transfer to foreclosed real estate.
(5) Borrower has requested and INB has agreed to the deferral of contractual loan payments through June 2009 to give the borrower time to lease vacant space at the property. The borrower will continue to make monthly escrow payments as required under INB's first mortgage loan. IMC holds a second mortgage on this property.
(6) A 148 unit suite hotel secures this loan. The hotel is operational but revenues are currently insufficient to service the loan. INB agreed to allow an existing borrower of INB, experienced in hotel management, to assume the loan under modified terms. The loan will be maintained on nonaccrual status and be accounted for on a cash basis until such time the normal payments resume.
(7) Foreclosure proceedings are in progress.
Allowance For Loan Losses
The allowance for loan losses increased to $30.4 million at March 31, 2009, from $28.5 million at December 31, 2008. The allowance represented 1.78% of total loans (net of deferred fees) outstanding at March 31, 2009 compared to 1.67% at December 31, 2008. The increase in the allowance was due to provisions totaling $1.9 million attributable to the following: $1.8 million resulted from downgrades of internal risk ratings on nonaccrual loans as well as lower estimates of real estate values on certain collateral properties and $0.1 million resulted from net loan growth of $3 million. At March 31, 2009 and December 31, 2008, in accordance with SFAS 114, the allowance for loan losses included a specific valuation allowance in the aggregate amount of $10.2 million and $8.2 million, respectively, for impaired nonaccrual loans.
The following table summarizes the activity in the allowance for loan losses by entity:
($ in thousands) INB IMC IBC Consolidated Balance at December 31, 2008 $ 27,506 $ 988 $ 30 $ 28,524 Chargeoffs (10 ) - - (10 ) Provision for loan losses charged to expense 1,645 212 - 1,857 Balance at March 31, 2009 $ 29,141 $ 1,200 $ 30 $ 30,371 |
The following table sets forth information concerning nonperforming assets by entity at March 31, 2009:
($ in thousands) INB IMC IBC Consolidated Nonaccrual (impaired) loans $ 111,013 $ 8,292 - $ 119,305 Real estate acquired through foreclosure 7,415 2,327 - 9,742 Total nonperforming assets $ 118,428 $ 10,619 - $ 129,047 Nonperforming assets to total assets 5.23 % 22.46 % - 5.57 % Nonaccrual loans to total gross loans 6.62 % 21.56 % - 6.95 % Allowance for loan losses to total net loans 1.75 % 3.13 % 1.16 % 1.78 % Allowance for loan losses to nonaccrual loans 26.25 % 14.47 % - 25.46 % |
There can be no assurance that the Company will not incur additional significant loan loss provisions, loan chargeoffs or expenses in connection with the ultimate collection of its nonaccrual loans. The Company may also incur significant expenses in carrying and disposing of properties acquired through foreclosure. For the quarter ended March 31, 2009, full year 2008 and full year 2007, the Company has incurred a total of $1.1 million, $5.4 million and $0.7 million, respectively, in various expenses and costs associated with nonaccrual loans/foreclosed real estate. These amounts do not include interest income that has not been recorded and loan chargeoffs.
Real Estate Acquired Through Foreclosure
Real estate acquired through foreclosure is detailed as follows:
Net carrying value (1)
($ in thousands) At March 31, At December 31,
Property Type City State Owned By 2009 2008
Undeveloped land North Fort Myers Florida INB $ 2,785 $ 2,933
Multifamily Hollywood Florida INB 3,821 3,821
Undeveloped land Hollywood Florida INB 809 -
Office building Brooklyn New York IMC 2,327 2,327
$ 9,742 $ 9,081
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(1) Net carrying value is reported net of any valuation allowance that has been recorded due to decreases in the estimated fair value of the property subsequent to the date of foreclosure. The total valuation allowance amounted to $0.7 million and $0.5 million at March 31, 2009 and December 31, 2008, respectively.
Real estate properties that the Company acquires through, or in lieu of, loan foreclosure are to be sold. Upon foreclosure of the property, the related loan is transferred from the loan portfolio to foreclosed real estate at the lower of the loan's carrying value at the date of transfer, or estimated fair value of the property less estimated selling costs. Such amount becomes the new cost basis of the property. Adjustments made to the carrying value at the time of transfer are charged to the allowance for loan losses. After foreclosure, management periodically performs market valuations and the property continues to be carried at the lower of cost or estimated fair value less estimated selling costs. Revenue and expenses from operations and changes in the valuation allowance of the property are included in the caption "Real Estate Activities Expenses" in the consolidated statements of earnings.
All Other Assets
All other assets at March 31, 2009 as denoted in the table on page 23 amounted to $45 million, relatively unchanged from $46 million at December 31, 2008.
Deposits
Deposits increased to $1.94 billion at March 31, 2009, from $1.86 billion at December 31, 2008, reflecting an increase of $93 million in money market accounts, partially offset by a $20 million decrease in certificate of deposit accounts.
At March 31, 2009, certificate of deposit accounts totaled $1.50 billion, and checking, savings and money market accounts aggregated to $439 million. The same categories of deposit accounts totaled $1.52 billion and $345 million, respectively, at December 31, 2008. Certificate of deposit accounts represented . . .
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