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| IBCA > SEC Filings for IBCA > Form 10-Q on 29-Oct-2009 | All Recent SEC Filings |
29-Oct-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 Company's entire 2008 annual report on Form 10-K.
Intervest Bancshares Corporation has two wholly owned consolidated subsidiaries, Intervest National Bank and Intervest Mortgage Corporation (Intervest Bancshares Corporation and its subsidiaries 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 other 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 currently 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 financial 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 2008 annual report on Form 10-K; 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 on security investments - note 3 to the condensed consolidated financial statements in this report.
Comparison of Financial Condition at September 30, 2009 and December 31, 2008 Selected balance sheet information by entity as of September 30, 2009 follows: ($ in thousands) IBC INB IMC Eliminations (1) Consolidated Cash and cash equivalents $ 6,670 $ 29,492 $ 1,697 $ (7,199 ) $ 30,660 Security investments - 608,242 - - 608,242 Loans receivable, net of deferred fees - 1,677,901 18,163 - 1,696,064 Allowance for loan losses - (31,225 ) (590 ) - (31,815 ) Foreclosed real estate - 30,588 2,327 - 32,915 Investments in consolidated subsidiaries 260,832 - - (260,832 ) - All other assets 3,187 42,083 911 (77 ) 46,104 Total assets $ 270,689 $ 2,357,081 $ 22,508 $ (268,108 ) $ 2,382,170 Deposits $ - $ 2,020,197 $ - $ (7,202 ) $ 2,012,995 Borrowed funds and related interest payable 56,784 50,763 - - 107,547 All other liabilities 286 46,733 1,064 (74 ) 48,009 Total liabilities 57,070 2,117,693 1,064 (7,276 ) 2,168,551 Stockholders' equity 213,619 239,388 21,444 (260,832 ) 213,619 Total liabilities and stockholders' equity $ 270,689 $ 2,357,081 $ 22,508 $ (268,108 ) $ 2,382,170 |
(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 September 30, 2009 At December 31, 2008
Carrying % of Carrying % of
($ in thousands) Value Total Assets Value Total Assets
Cash and cash equivalents $ 30,660 1.3 % $ 54,903 2.4 %
Security investments 608,242 25.5 484,482 21.4
Loans receivable, net of deferred
fees and loan loss allowance 1,664,249 69.9 1,677,187 73.8
Foreclosed real estate 32,915 1.4 9,081 0.4
All other assets 46,104 1.9 46,180 2.0
Total assets $ 2,382,170 100.0 % $ 2,271,833 100.0 %
Deposits $ 2,012,995 84.5 % $ 1,864,135 82.1 %
Borrowed funds and related interest
payable 107,547 4.5 149,566 6.6
All other liabilities 48,009 2.0 46,158 2.0
Total liabilities 2,168,551 91.0 2,059,859 90.7
Stockholders' equity 213,619 9.0 211,974 9.3
Total liabilities and stockholders'
equity $ 2,382,170 100.0 % $ 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 $31 million at September 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 $598 million at September 30, 2009, from $476 million at December 31, 2008. The increase reflected $564 million of new purchases exceeding a total of $439 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 September 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 $591.7 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 $6.7 million. As discussed in more detail in note 3 to the condensed consolidated financial statements in this report, in the first nine months of 2009, INB recorded impairment charges of $1.4 million on six trust preferred securities.
At September 30, 2009, the entire securities held to maturity portfolio had a weighted-average yield of 2.86% and a weighted-average remaining maturity of 4.6 years, compared to 3.80% and 4.2 years, respectively, at December 31, 2008. Nearly all of the securities in the portfolio have fixed interest rates or have predetermined rate increases, and have call features that allow the issuer to call the security before its stated maturity without penalty. In the first nine months of 2009, $428 million of agency securities with a weighted average yield of approximately 3.62% were called by the issuers and the resulting proceeds were invested into new securities yielding 91 basis points less. Largely as a result of these calls, the overall average yield on the portfolio decreased from December 31, 2008. At September 30, 2009 and December 31, 2008, the held-to-maturity portfolio's estimated fair value was $597 million and $475 million, respectively. At September 30, 2009, the portfolio had a net unrealized loss of $1.5 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 September 30, 2009.
Loans Receivable, Net of Deferred Fees
Loans receivable, net of deferred fees, amounted to $1.70 billion at September 30, 2009, a $10 million decrease from $1.71 billion at December 31, 2008. The decrease was due to the aggregate of $143 million of principal repayments, $27.2 million of transfers to foreclosed real estate and $4.9 million of loan chargeoffs exceeding $165 million of new loan originations that were primarily secured by commercial real estate. The new originations are nearly all fixed-rate loans with a weighted-average yield and term of 6.71% and 5.1 years, respectively. The terms of the loans have largely been a function of the demand by borrowers for longer-term, fixed-rate product that has been driven by the historically low interest rate environment. The Company expects this demand for longer-term, fixed-rate product to continue and expects that most of its new loan originations for the foreseeable future will have similar terms. Fixed-rate loans constituted approximately 75% of the consolidated loan portfolio at September 30, 2009, up from 72% at December 31, 2008. New loan originations for the first nine-months of 2008 amounted to $327 million. The lower level of originations as compared to the same period of 2009 primarily reflects a decrease in suitable lending opportunities for the Company.
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 September 30, 2009, such loans consisted of 652 loans with an aggregate principal balance of $1.70 billion and an average loan size of $2.6 million. Loans with principal balances of more than $10 million consisted of 18 loans or $247 million, with the largest loan being $20.4 million. Loans with principal balances of $5 million to $10 million consisted of 54 loans and aggregated to $393 million. The Company does not own or originate construction/development loans or condominium conversion loans.
Nonaccrual and Restructured (Impaired) Loans
Nonaccrual loans increased to $131.7 million (38 loans) at September 30, 2009, from $108.6 million (26 loans) at December 31, 2008. At September 30, 2009 and December 31, 2008, there was one loan for $1.9 million classified as ninety days past due and still accruing interest. This loan is past its maturity date but the borrower continues to make monthly loan payments. At September 30, 2009, there also were $71.2 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 GAAP. At September 30, 2009 and December 31, 2008, nonaccrual loans had a specific valuation allowance (included as part of the overall allowance for loan losses) in the aggregate amount of $11.7 million and $8.2 million, respectively. Estimated loan-to-value ratios, net of specific valuation allowances, on nonaccrual loans ranged from 50% to 99% at September 30, 2009. At September 30, 2009, there was an additional specific valuation allowance of $1.8 million maintained for TDRs. At September 30, 2009 there were also $12.0 million of loans 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 the Company will not be able to collect all amounts due according to the contractual terms of the loan. Such 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, working with certain borrowers to provide payment relief and in limited cases, accepting partial payment as full satisfaction of a nonaccrual loan. In the third quarter of 2009, nonperforming assets with an original carrying value of $23.3 million were repaid or sold for total proceeds of $22.8 million. The Company believes that concentrating its effort towards the individual collection of nonaccrual loans either through the restructure of certain loans or through the acquisition and eventual sale of the collateral properties in most cases will maximize the recovery of its investment. The ability to complete foreclosure or other proceedings to acquire and sell certain collateral properties however continues to be delayed by various factors including bankruptcy proceedings and an overloaded court system. As a result of these delays, the timing and amount of the resolution/disposition of nonaccrual loans as well as foreclosed real estate cannot be predicted with certainty. In addition, if the current downturn in commercial real estate values and local economic conditions in both New York and Florida as well as other factors noted above continue for an additional extended period, it could have an adverse impact on the Company's future asset
quality and level of nonperforming assets, chargeoffs and profitability. There can be no assurance that the Company will not have significant additional loan loss provisions or expenses in connection with the ultimate collection of nonaccrual loans or in carrying and disposing of foreclosed real estate.
Nonaccrual loans are detailed in the table that follows:
($ in thousands) Principal Balance as of: Property Type City State Lender Month Nonaccrual Sep 30, 2009 Dec 31, 2008 Notes Retail Flushing New York INB Aug 2008 $ 13,060 $ 13,060 Hotel St. Augustine Florida INB Jun 2007 13,000 15,087 (1 ) Multifamily Long Island New York INB Jun 2007 - 11,316 (2 ) Undeveloped Land Long Island City New York INB Mar 2008 11,001 11,001 Multifamily Philadelphia Pennsylvania INB Sep 2009 9,512 - Mixed Use New York New York INB Nov 2008 8,104 8,104 Multifamily Tampa Florida INB Oct 2008 7,475 7,475 Hotel Clearwater Florida INB Nov 2008 6,954 6,954 (3 ) Hotel Orlando Florida INB Aug 2008 - 5,939 (4 ) Multifamily Brooklyn New York INB Sep 2009 6,470 - Office Building Staten Island New York INB May 2008 6,150 6,150 (5 ) Multifamily Jacksonville Florida INB Sep 2009 4,644 - Warehouse New York New York INB Feb 2009 4,456 - Office Building Wappinger Falls New York INB Sep 2009 4,156 - Undeveloped Land Perryville Maryland INB May 2008 4,024 4,024 Retail Avenel New Jersey INB Mar 2007 - 3,064 (6 ) Hotel Clearwater Florida INB Nov 2008 - 2,977 (4 ) Multifamily Cleveland Ohio INB Sep 2009 3,529 - Office Building East Orange New Jersey INB Mar 2009 2,869 - Mobile Home Venice Florida INB Aug 2009 2,603 - (7 ) Hotel Far Rockaway New York INB Aug 2009 2,274 - Office Building Yonkers New York INB Nov 2008 - 2,644 (4 ) |
(1) Loan was originated by INB and IMC owns a 40% 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 by $2.0 million) to a principal amount of $13 million and the debtor agreed to and paid a portion of outstanding real estate taxes. This agreement was further modified in October 2009 and now calls for the borrower to begin making new loan payments as per the modified agreement beginning on March 1, 2010. The borrower is also required to make escrow payments for real estate taxes, with any previous shortfall to be paid in a lump sum by February 1, 2010. This loan will remain on nonaccrual status until a satisfactory payment history has been achieved under the restructured terms. The modified agreement is subject to the approval of the bankruptcy court.
(2) Loan paid off in full in September 2009.
(3) The loan is secured by a hotel that 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. This loan will be maintained on nonaccrual status and be accounted for on a cash basis until such time the normal payments resume and a satisfactory payment history has been achieved.
(4) Title to collateral property was acquired and the loan was transferred to foreclosed real estate at the lower of its carrying value or estimated fair value less estimated selling costs.
(5) INB agreed to the deferral of contractual loan payments through June 2010 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 $5.8 million first mortgage loan. IMC holds a second mortgage of $0.4 million on this property. This loan will remain on nonaccrual status until such time normal payments resume and a satisfactory payment history has been achieved.
(6) Loan paid off in full in August 2009, including receipt of all nonaccrual interest.
(7) Restructured terms are being negotiated which will include deferral of principal and/or interest for a short period of time.
The table that follows summarizes nonaccrual loans at September 30, 2009 by collateral type and location.
($ in thousands)
Property Type NY FL NJ MA PA MD OH Totals
Retail $ 16,775 $ - $ 2,590 $ - $ - $ - $ - $ 19,365
Hotel 2,274 19,953 3,049 - - - - 25,276
Office Building 10,306 - 4,470 - - 14,776
Warehouse 6,349 - - - - - - 6,349
Mixed Use 11,569 - - - - - - 11,569
Mulitifamily 7,361 12,129 710 1,272 9,512 - 3,529 34,513
Mobile home - 2,604 - - - - - 2,604
Undeveloped Land 11,697 1,569 - - - 4,024 - 17,290
$ 66,331 $ 36,255 $ 10,819 $ 1,272 $ 9,512 $ 4,024 $ 3,529 $ 131,742
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The table that follows summarizes the change in nonaccrual loans for the nine-months ended September 30, 2009.
($ in thousands) Amount
Balance at December 31, 2008 $ 108,610
New nonaccrual loans 75,285
Principal repayments (19,966 )
Loan chargeoffs (4,977 )
Loans transferred to foreclosed real estate (27,210 )
Balance at September 30, 2009 $ 131,742
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Allowance For Loan Losses
The allowance for loan losses increased to $31.8 million at September 30, 2009, from $28.5 million at December 31, 2008. The allowance represented 1.88% of total loans (net of deferred fees) outstanding at September 30, 2009 compared to 1.67% at December 31, 2008. The increase in the allowance was due to $6.9 million of loan loss provisions and a $1.3 million partial recovery of a previous chargeoff, partially offset by $4.9 million of new chargeoffs. The loan loss provision of $6.9 million was attributable to downgrades of internal risk ratings on nonaccrual loans as well as lower estimates of real estate values on certain collateral properties. At September 30, 2009 and December 31, 2008, 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 (3,932 ) (1,045 ) - (4,977 ) Provision (credit) for loan losses charged to expense 6,322 647 (30 ) 6,939 Balance at September 30, 2009 $ 31,225 $ 590 $ - $ 31,815 |
The following table sets forth information concerning nonperforming assets by entity at September 30, 2009:
($ in thousands) INB IMC IBC Consolidated Nonaccrual loans $ 124,495 $ 7,247 - $ 131,742 Real estate acquired through foreclosure 30,588 2,327 - 32,915 Total nonperforming assets $ 155,083 $ 9,574 - $ 164,657 Nonperforming assets to total assets 6.58 % 42.53 % - 6.91 % Nonaccrual loans to total gross loans 7.39 % 39.79 % - 7.73 % Allowance for loan losses to total net loans 1.86 % 3.25 % - 1.88 % Allowance for loan losses to nonaccrual loans 25.08 % 8.14 % - 24.15 % |
There can be no assurance that the Company will not have 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 nine-months ended September 30, 2009, full year 2008 and full year 2007, the Company has incurred a total of $4.8 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 or loan chargeoffs.
Real Estate Acquired Through Foreclosure
Real estate properties that are acquired through, or in lieu of, loan foreclosure are held for sale. 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 the 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 . . .
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