Add
IBCA to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| IBCA > SEC Filings for IBCA > Form 10-Q on 31-Jul-2009 | All Recent SEC Filings |
31-Jul-2009
Quarterly Report
Overview
Management's discussion of financial condition and results of operations of Intervest Bancshares Corporation and Subsidiaries that follows 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
As of June 30, 2009, the Company considers its critical accounting policies to be those that relate to the determination of: the allowance for loan losses; the valuation allowance for real estate losses and the other than temporary impairment charge of its security investments. These three items are considered critical accounting estimates because each is highly susceptible to change from period to period and require management to make numerous assumptions about a variety of information that directly affect the calculation of the amounts reported in the consolidated financials statements. For example, the impact of a large unexpected chargeoff could deplete the allowance for loan losses and potentially require increased provisions to replenish the allowance, which could negatively affect the Company's earnings and financial condition.
A more detailed discussion of the factors and estimates used in computing the above items can be found as follows: for the allowance for loan losses - 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; for the valuation allowance for real estate losses - note 14 to the condensed consolidated financial statements in this report; and for the other than temporary impairment charge of security investments - note 3 to the condensed consolidated financial statements in this report.
Comparison of Financial Condition at June 30, 2009 and December 31, 2008
Selected balance sheet information by entity as of June 30, 2009 follows:
($ in thousands) IBC INB IMC Eliminations (1) Consolidated
Cash and cash equivalents $ 6,318 $ 20,402 $ 10,776 $ (14,055) $ 23,441
Security investments - 576,651 - - 576,651
Loans receivable, net of deferred
fees - 1,717,553 28,534 - 1,746,087
Allowance for loan losses - (31,404) (650) - (32,054)
Foreclosed real estate - 15,887 2,327 - 18,214
Investments in consolidated
subsidiaries 260,645 - - (260,645) -
All other assets 3,251 42,901 1,743 (190) 47,705
Total assets $270,214 $2,341,990 $42,730 $(274,890) $2,380,044
Deposits $ - $2,009,221 $ - $ (14,056) $1,995,165
Borrowed funds and related
interest payable 56,805 50,768 10,462 - 118,035
All other liabilities 272 52,349 1,275 (189) 53,707
Total liabilities 57,077 2,112,338 11,737 (14,245) 2,166,907
Stockholders' equity 213,137 229,652 30,993 (260,645) 213,137
Total liabilities and
stockholders' equity $270,214 $2,341,990 $42,730 $(274,890) $2,380,044
|
(1) All significant intercompany balances and transactions are eliminated in consolidation. Nearly all the amounts arise from intercompany deposit accounts and investments in consolidated subsidiaries.
A comparison of selected consolidated balance sheet information follows:
At June 30, 2009 At December 31, 2008
Carrying % of Carrying % of
($ in thousands) Value Total Assets Value Total Assets
Cash and cash equivalents $ 23,441 1.0% $ 54,903 2.4%
Security investments 576,651 24.2 484,482 21.4
Loans receivable, net of deferred fees
and loan loss allowance 1,714,033 72.0 1,677,187 73.8
Foreclosed real estate 18,214 0.8 9,081 0.4
All other assets 47,705 2.0 46,180 2.0
Total assets $2,380,044 100.0% $2,271,833 100.0%
Deposits $1,995,165 83.8% $1,864,135 82.1%
Borrowed funds and related interest
payable 118,035 5.0 149,566 6.6
All other liabilities 53,707 2.2 46,158 2.0
Total liabilities 2,166,907 91.0 2,059,859 90.7
Stockholders' equity 213,137 9.0 211,974 9.3
Total liabilities and stockholders'
equity $2,380,044 100.0% $2,271,833 100.0%
|
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 $23 million at June 30, 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 $567 million at June 30, 2009, from $476 million at December 31, 2008. The increase reflected $461 million of new purchases exceeding a total of $369 million of calls and maturities of securities 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 June 30, 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 $559.3 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 $7.4 million. As discussed in more detail in note 3 to the condensed consolidated financial statements in this report, in the first half of 2009, INB recorded impairment charges aggregating to $0.7 million on three trust preferred securities, representing a 22% reduction in their aggregate cost basis of $3.0 million.
At June 30, 2009, the entire securities held to maturity portfolio had a weighted-average yield of 2.94% and a weighted-average remaining maturity of 4.7 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 half of 2009, $360 million of agency securities with a weighted average yield of approximately 3.72% were called by the issuers and the resulting proceeds were invested into new securities yielding approximately 100 basis points less. As a result of these calls, the overall average yield on the portfolio decreased from December 31, 2008. At June 30, 2009 and December 31, 2008, the held-to-maturity portfolio's estimated fair value was $563 million and $475 million, respectively. At June 30, 2009, the portfolio had a net unrealized loss of $3.4 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 $5.5 million, respectively, at June 30, 2009.
Loans Receivable, Net of Deferred Fees and Allowance for Loan Losses
Loans receivable, net of deferred fees, amounted to $1.75 billion at June 30, 2009, a $40 million increase from $1.71 billion at December 31, 2008. The increase was due to $129 million of new loan originations secured primarily by commercial real estate exceeding the aggregate of $77 million of principal repayments, $9.4 million of loans transferred to foreclosed real estate and $2.3 million of loan chargeoffs. Nearly all of the new loans have fixed interest rates and a weighted-average yield and term of 6.57% and 5.3 years, respectively. These terms have been largely a function of the high demand by borrowers for longer-term, fixed-rate product that has been driven by the historically low interest rate environment. The Company expects this trend for longer-term, fixed-rate product will continue for the foreseeable future and most of its new loan originations for 2009 will have similar terms. Fixed-rate loans constituted approximately 71% of the consolidated loan portfolio at June 30, 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). The Company does not own or originate construction/development loans or condominium conversion loans. At June 30, 2009, such loans consisted of 653 loans with an aggregate principal balance of $1.75 billion and an average loan size of $2.7 million. Loans with principal balances of more than $10 million consisted of 21 loans or $287 million, with the largest loan being $20.4 million. Loans with principal balances of $5 million to $10 million consisted of 51 loans and aggregated to $379 million.
Nonaccrual and Restructured (Impaired) Loans
Nonaccrual loans increased to $129.8 million (37 loans) at June 30, 2009, from $108.6 million (26 loans) at December 31, 2008. At June 30, 2009, there were three loans totaling $6.4 million classified as ninety days past due and still accruing interest, compared to one loan for $2.0 million at December 31, 2008. At June 30, 2009, there also were $76.2 million of accruing loans on which INB has granted certain concessions to provide payment relief to the borrower generally consisting of the deferral of principal and or a partial reduction in interest payments for a period of time. These loans are considered troubled debt restructurings (TDRs).
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 June 30, 2009 and December 31, 2008, nonaccrual loans had a SFAS 114 specific valuation allowance (included as part of the overall allowance for loan losses) in the aggregate amount of $11.9 million and $8.2 million, respectively. Estimated loan-to-value ratios, net of specific valuation allowances, on nonaccrual loans ranged from 51% to 100% at June 30, 2009. At June 30, 2009, there was an additional SFAS 114 specific valuation allowance of $1.6 million maintained for TDRs.
In addition to the above, at June 30, 2009 there were $13.8 million of loans held by INB for which there were concerns regarding the ability of the borrowers to meet existing repayment terms. Such 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. Potential problem loans may never become delinquent, nonaccrual or impaired. Potential problem loans are considered in the determination of the overall adequacy of the allowance for loan losses.
The Company is taking various steps to resolve its nonaccrual loans, including proceeding with foreclosures on many of the collateral properties as well as working with certain borrowers to provide payment relief. The Company believes that concentrating its effort towards the individual collection of nonaccrual loans either through the restructure of certain loans or through the acquisition and eventual sale of the collateral properties in most cases will maximize the recovery of the Company's investment. The Company's ability to complete foreclosure or other proceedings to acquire and sell certain collateral properties however continues to be delayed by various factors including bankruptcy proceedings and an overloaded court system. As a result of these delays, the timing and amount of the resolution/disposition of nonaccrual loans as well as foreclosed real estate cannot be predicted with certainty. In addition, if the current downturn in commercial real estate values and local economic conditions in both New York and Florida as well as other factors noted above continue for an additional extended period, it could have an adverse impact on the Company's future asset quality and level of nonperforming assets, charge offs and profitability. 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.
Nonaccrual loans are detailed in the table that follows:
(Dollars in thousands) Principal Balance Outstanding
Property Type City State Lender Month Nonaccrual Jun 30, 2009 Dec 31, 2008 Notes
Retail Flushing New York INB Aug 2008 $13,060 $13,060 (7)
Multifamily Long Island New York INB Jun 2007 11,316 11,316 (2)
Undeveloped Land Long Island City New York INB Mar 2008 11,001 11,001 (7)
Multifamily Melbourne Florida INB Jun 2009 10,822 - (7)
Mixed Use New York New York INB Nov 2008 7,905 7,905 (7)
Hotel St. Augustine Florida INB Jun 2007 7,800 9,053 (3)
Multifamily Tampa Florida INB Oct 2008 7,475 7,475 (7)
Hotel Clearwater Florida INB Nov 2008 6,954 6,954 (6)
Hotel Orlando Florida INB Aug 2008 - 5,939 (9)
Office Building Staten Island New York INB May 2008 5,762 5,762 (5)
Warehouse New York New York INB Feb 2009 4,456 - (7)
Undeveloped Land Perryville Maryland INB May 2008 4,024 4,024 (7)
Hotel Brooklyn New York INB Jun 2009 3,091 - (7)
Retail Avenel New Jersey INB Mar 2007 3,064 3,064 (1)
Hotel Clearwater Florida INB Nov 2008 - 2,977 (8)
Office Building East Orange New Jersey INB Mar 2009 2,869 - (7)
Office Building Yonkers New York INB Nov 2008 2,644 2,644 (7)
Office Building Hollywood Florida INB May 2009 1,967 - (7)
Warehouse Brooklyn New York INB Feb 2009 1,893 - (11)
Undeveloped Land Carabelle Florida INB Aug 2008 1,569 1,569 (7)
Retail New Windsor New York INB April 2009 1,515 - (7)
Mixed Use Cedarhurst New York INB Mar 2009 1,468 - (7)
Office Building Miami Florida INB Apr 2009 1,414 - (10)
Hotel Lakewood New Jersey INB Jun 2008 1,390 1,390 (7)
Retail South Amboy New Jersey INB Mar 2007 1,339 1,339 (1)
Multifamily Springfield Massachusetts INB Dec 2008 1,272 1,272 (7)
Office building Oakland Park Florida INB May 2009 1,179 - (7)
Undeveloped land Hollywood Florida INB Apr 2008 - 830 (4)
Multifamily Brooklyn New York INB Aug 2008 786 786 (7)
Retail West Babylon New York INB April 2009 784 - (7)
Retail Little Silver New Jersey INB Mar 2007 739 739 (1)
Multifamily East Orange New Jersey INB June 2009 711 - (7)
Undeveloped Land Long Island City New York INB Dec 2008 697 697 (7)
Office Building Waterbury Connecticut INB Jan 2009 641 - (7)
Retail Neptune New Jersey INB Mar 2007 512 512 (1)
Mixed Use New York New York INB Jan 2009 198 - (7)
Multifamily Tampa Florida INB Sep 2008 10 10 (7)
122,327 100,318
Hotel St. Augustine Florida IMC Jul 2007 5,199 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)
7,457 8,292
$129,784 $108,610
|
(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 was reduced (charged off) to a principal amount of $13 million, the debtor paid outstanding real estate taxes, and the debtor agreed to 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. Loan payments are scheduled to begin on October 1, 2009. The loan will remain on nonaccrual status until a satisfactory payment history has been achieved under the restructured terms. Further modification to the settlement agreement may be required.
(4) Title to property was acquired in January 2009. A loan chargeoff of $10,000 was recorded upon transfer to foreclosed real estate.
(6) The hotel has 148 suites and 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.
(8) Title to property was acquired in April 2009 and a loan chargeoff of $307,000 was recorded upon transfer to foreclosed real estate.
(9) Title to property was acquired in April 2009 and loan was transferred to foreclosed real estate.
(10) Borrower and INB have agreed to interest only payments. Loan is on nonaccrual status until satisfactory payment history is established.
(11) Borrower and INB have agreed to modified loan payments. Loan is on nonaccrual status until satisfactory payment history is established.
The table that follows summarizes nonaccrual loans at June 30, 2009 by collateral type and location.
($ in thousands)
Property Type NY FL NJ CT MA MD Totals
Retail $15,359 $ - $5,654 $ - $ - $ - $ 21,013
Hotel 3,091 19,953 3,049 - - - 26,093
Office Building 9,004 4,559 2,869 641 - - 17,073
Warehouse 6,349 - - - - - 6,349
Mixed Use 9,572 - - - - - 9,572
Mulitifamily 12,102 18,308 711 - 1,272 - 32,393
Undeveloped Land 11,698 1,569 - - - 4,024 17,291
$67,175 $44,389 $12,283 $641 $1,272 $4,024 $129,784
|
The table that follows summarizes the change in nonaccrual loans for the six-months ended June 30, 2009.
Nonaccrual
(Dollars in thousands) Loans
Balance at December 31, 2008 $108,610
New nonaccrual loans 33,007
Principal reductions (70)
Loan chargeoffs (2,342)
Loans transferred to foreclosed real estate (9,421)
Balance at June 30, 2009 $129,784
|
Allowance For Loan Losses
The allowance for loan losses increased to $32.0 million at June 30, 2009, from $28.5 million at December 31, 2008. The allowance represented 1.84% of total loans (net of deferred fees) outstanding at June 30, 2009 compared to 1.67% at December 31, 2008. The increase in the allowance was due to $4.5 million of loan loss provisions and a $1.3 million partial recovery of a previous chargeoff, partially offset by $2.3 million of new chargeoffs. The loan loss provision of $4.5 million was attributable to the following: $4.1 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 $0.4 million resulted from net loan growth of $40 million. At June 30, 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 $13.5 million and $8.2 million, respectively, for nonaccrual and restructured loans, all of which are considered impaired loans.
The following table summarizes the activity in the allowance for loan losses by entity:
($ in thousands) INB IMC IBC Consolidated Balance at December 31, 2008 $27,506 $ 988 $ 30 $28,524 Recoveries 1,329 - - 1,329 Chargeoffs (1,507) (835) - (2,342) Provision (credit) for loan losses charged to expense 4,076 497 (30) 4,543 Balance at June 30, 2009 $31,404 $ 650 $ - $32,054 |
The following table sets forth information concerning nonperforming assets by entity at June 30, 2009:
($ in thousands) INB IMC IBC Consolidated . . . |
|
|