UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008
or
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For The Transition Period From
to
Commission file number 000-23377
INTERVEST BANCSHARES CORPORATION
(Exact name of registrant as specified in
its charter)
|
|
|
Delaware
|
|
13-3699013
|
(State or other jurisdiction of
incorporation or organization)
|
|
(IRS Employer
Identification No.)
|
One Rockefeller Plaza, Suite 400
New York, New York 10020-2002
(Address of principal executive offices) (Zip
Code)
(212) 218-2800
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES
x
NO
¨
.
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act). Check one:
Large Accelerated Filer
¨
Accelerated Filer
x
Non-accelerated
Filer
¨
Smaller Reporting Company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YES
¨
NO
x
.
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest
practicable date:
|
|
|
Title of Each Class:
|
|
Shares Outstanding:
|
Class A Common Stock, $1.00 par value per share
|
|
7,690,812 outstanding as of April 24, 2008
|
Class B Common Stock, $1.00 par value per share
|
|
580,000 outstanding as of April 24, 2008
|
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 2008
TABLE OF
CONTENTS
Private Securities Litigation Reform Act Safe Harbor Statement
The Company is making this statement in order to satisfy the Safe Harbor provision contained in the Private Securities Litigation Reform Act of 1995. The
statements contained in this report on Form 10-Q that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements are made based on managements
expectations concerning future events affecting the Company and are subject to uncertainties and factors relating to the Companys operations and economic environment, all of which are difficult to predict and many of which are beyond the
control of the Company, that could cause actual results of the Company to differ materially from those matters expressed in or implied by forward-looking statements.
2
PART 1. FINANCIAL INFORMATION
ITEM 1.
|
Financial Statements
|
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
At March 31,
2008
|
|
|
At December 31,
2007
|
|
($ in thousands, except par value)
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
17,780
|
|
|
$
|
5,371
|
|
Federal funds sold
|
|
|
23,061
|
|
|
|
24,178
|
|
Commercial paper and other short-term investments
|
|
|
6,388
|
|
|
|
3,537
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
47,229
|
|
|
|
33,086
|
|
Securities held to maturity, net (estimated fair value of $409,207 and $345,536, respectively)
|
|
|
406,727
|
|
|
|
344,105
|
|
Federal Reserve Bank and Federal Home Loan Bank stock, at cost
|
|
|
7,368
|
|
|
|
6,351
|
|
Loans receivable (net of allowance for loan losses of $23,856 and $21,593, respectively)
|
|
|
1,653,263
|
|
|
|
1,592,439
|
|
Accrued interest receivable
|
|
|
11,864
|
|
|
|
10,981
|
|
Loan fees receivable
|
|
|
9,814
|
|
|
|
9,781
|
|
Premises and equipment, net
|
|
|
5,772
|
|
|
|
5,897
|
|
Foreclosed real estate
|
|
|
4,022
|
|
|
|
|
|
Deferred income tax asset
|
|
|
11,261
|
|
|
|
10,387
|
|
Deferred debenture offering costs, net
|
|
|
3,861
|
|
|
|
4,098
|
|
Other assets
|
|
|
3,836
|
|
|
|
4,267
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,165,017
|
|
|
$
|
2,021,392
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposit accounts
|
|
$
|
11,018
|
|
|
$
|
4,303
|
|
Interest-bearing deposit accounts:
|
|
|
|
|
|
|
|
|
Checking (NOW) accounts
|
|
|
5,550
|
|
|
|
5,668
|
|
Savings accounts
|
|
|
8,058
|
|
|
|
8,399
|
|
Money market accounts
|
|
|
280,114
|
|
|
|
235,804
|
|
Certificate of deposit accounts
|
|
|
1,476,448
|
|
|
|
1,405,000
|
|
|
|
|
|
|
|
|
|
|
Total deposit accounts
|
|
|
1,781,188
|
|
|
|
1,659,174
|
|
Borrowed Funds:
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances
|
|
|
22,500
|
|
|
|
|
|
Subordinated debentures
|
|
|
76,250
|
|
|
|
76,250
|
|
Subordinated debenturescapital securities
|
|
|
56,702
|
|
|
|
56,702
|
|
Accrued interest payable on all borrowed funds
|
|
|
3,541
|
|
|
|
3,282
|
|
Mortgage note payable
|
|
|
196
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
Total borrowed funds
|
|
|
159,189
|
|
|
|
136,434
|
|
Accrued interest payable on deposits
|
|
|
5,097
|
|
|
|
6,706
|
|
Mortgage escrow funds payable
|
|
|
28,741
|
|
|
|
24,079
|
|
Official checks outstanding
|
|
|
3,464
|
|
|
|
12,417
|
|
Other liabilities
|
|
|
3,635
|
|
|
|
3,021
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,981,314
|
|
|
|
1,841,831
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock (300,000 shares authorized, none issued and outstanding)
|
|
|
|
|
|
|
|
|
Class A common stock ($1.00 par value; 12,000,000 shares authorized; 8,095,151 shares issued; and 7,690,812 outstanding)
|
|
|
8,095
|
|
|
|
8,095
|
|
Class B common stock ($1.00 par value, 700,000 shares authorized, and 580,000 and 385,000 shares issued and outstanding,
respectively)
|
|
|
580
|
|
|
|
385
|
|
Additional paid-in-capital, common
|
|
|
78,842
|
|
|
|
77,176
|
|
Retained earnings
|
|
|
106,186
|
|
|
|
103,905
|
|
Treasury stock (404,339 shares, at cost)
|
|
|
(10,000
|
)
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
183,703
|
|
|
|
179,561
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,165,017
|
|
|
$
|
2,021,392
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
3
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited)
|
|
|
|
|
|
|
|
|
Quarter Ended
March 31,
|
($ in thousands, except per share data)
|
|
2008
|
|
2007
|
INTEREST AND DIVIDEND INCOME
|
|
|
|
|
|
|
Loans receivable
|
|
$
|
26,862
|
|
$
|
27,988
|
Securities
|
|
|
4,703
|
|
|
4,987
|
Other interest-earning assets
|
|
|
223
|
|
|
290
|
|
|
|
|
|
|
|
Total interest and dividend income
|
|
|
31,788
|
|
|
33,265
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
Deposits
|
|
|
20,402
|
|
|
18,737
|
Subordinated debentures
|
|
|
1,567
|
|
|
1,771
|
Subordinated debenturescapital securities
|
|
|
886
|
|
|
886
|
Other borrowed funds
|
|
|
78
|
|
|
301
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
22,933
|
|
|
21,695
|
|
|
|
|
|
|
|
|
|
|
Net interest and dividend income
|
|
|
8,855
|
|
|
11,570
|
Provision for loan losses
|
|
|
2,263
|
|
|
854
|
|
|
|
|
|
|
|
Net interest and dividend income after provision for loan losses
|
|
|
6,592
|
|
|
10,716
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME
|
|
|
|
|
|
|
Customer service fees
|
|
|
114
|
|
|
79
|
Income from mortgage lending activities
|
|
|
271
|
|
|
267
|
Income from the early repayment of mortgage loans
|
|
|
134
|
|
|
1,246
|
Gain from early call of investment securities
|
|
|
424
|
|
|
10
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
943
|
|
|
1,602
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSES
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
1,486
|
|
|
1,375
|
Occupancy and equipment, net
|
|
|
441
|
|
|
463
|
FDIC and general insurance
|
|
|
448
|
|
|
96
|
Professional fees and services
|
|
|
332
|
|
|
230
|
Data processing
|
|
|
248
|
|
|
201
|
Director and committee fees
|
|
|
80
|
|
|
88
|
Stationery, printing and supplies
|
|
|
48
|
|
|
62
|
Advertising and promotion
|
|
|
53
|
|
|
61
|
Postage and delivery
|
|
|
31
|
|
|
35
|
Real estate activities expense
|
|
|
213
|
|
|
|
Loss on the early extinguishment of debentures
|
|
|
|
|
|
13
|
All other
|
|
|
138
|
|
|
145
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
3,518
|
|
|
2,769
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
4,017
|
|
|
9,549
|
Provision for income taxes
|
|
|
1,736
|
|
|
4,196
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
2,281
|
|
$
|
5,353
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.28
|
|
$
|
0.64
|
Diluted earnings per share
|
|
$
|
0.28
|
|
$
|
0.62
|
Cash dividends per share
|
|
$
|
|
|
$
|
|
See accompanying notes to condensed consolidated financial statements
.
4
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in
Stockholders Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31,
|
|
|
2008
|
|
|
2007
|
($ thousands)
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
Amount
|
CLASS A COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
8,095,151
|
|
|
$
|
8,095
|
|
|
7,986,595
|
|
$
|
7,986
|
Issuance of shares upon the conversion of debentures
|
|
|
|
|
|
|
|
|
5,526
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
8,095,151
|
|
|
|
8,095
|
|
|
7,992,121
|
|
|
7,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLASS B COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
385,000
|
|
|
|
385
|
|
|
385,000
|
|
|
385
|
Issuance of shares upon the exercise of warrants
|
|
195,000
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
580,000
|
|
|
|
580
|
|
|
385,000
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL PAID-IN-CAPITAL, COMMON
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
|
|
|
77,176
|
|
|
|
|
|
75,098
|
Issuance of shares upon the conversion of debentures
|
|
|
|
|
|
|
|
|
|
|
|
93
|
Issuance of shares upon the exercise of Class B warrants, inclusive of income tax benefits
|
|
|
|
|
|
1,608
|
|
|
|
|
|
|
Compensation expense related to common stock options
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
|
|
|
78,842
|
|
|
|
|
|
75,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
|
|
|
103,905
|
|
|
|
|
|
86,577
|
Net earnings for the period
|
|
|
|
|
|
2,281
|
|
|
|
|
|
5,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
|
|
|
106,186
|
|
|
|
|
|
91,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TREASURY STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning and end of period
|
|
(404,339
|
)
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity at end of period
|
|
8,270,812
|
|
|
|
183,703
|
|
|
8,377,121
|
|
$
|
175,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
5
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
March 31,
|
|
($ in thousands)
|
|
2008
|
|
|
2007
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
2,281
|
|
|
$
|
5,353
|
|
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
140
|
|
|
|
158
|
|
Provision for loan losses
|
|
|
2,263
|
|
|
|
854
|
|
Deferred income tax benefit
|
|
|
(874
|
)
|
|
|
(355
|
)
|
Amortization of deferred debenture offering costs
|
|
|
237
|
|
|
|
266
|
|
Compensation expense related to common stock options
|
|
|
58
|
|
|
|
|
|
Loss on the early extinguishment of debentures
|
|
|
|
|
|
|
13
|
|
Amortization of premiums (accretion) of discounts and deferred loan fees, net
|
|
|
(1,890
|
)
|
|
|
(2,024
|
)
|
Net increase in accrued interest payable on debentures
|
|
|
195
|
|
|
|
113
|
|
Net decrease in official checks outstanding
|
|
|
(8,953
|
)
|
|
|
(9,728
|
)
|
Net (increase) decrease in loan fees receivable
|
|
|
(33
|
)
|
|
|
181
|
|
Net change in all other assets and liabilities
|
|
|
(483
|
)
|
|
|
7,858
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(7,059
|
)
|
|
|
2,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Maturities and calls of securities held to maturity
|
|
|
190,509
|
|
|
|
50,127
|
|
Purchases of securities held to maturity
|
|
|
(252,653
|
)
|
|
|
(19,258
|
)
|
Net increase in loans receivable
|
|
|
(66,597
|
)
|
|
|
(59,050
|
)
|
(Redemptions) purchases of FRB and FHLB stock, net
|
|
|
(1,017
|
)
|
|
|
937
|
|
Purchases of premises and equipment, net
|
|
|
(15
|
)
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(129,773
|
)
|
|
|
(27,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
122,014
|
|
|
|
89,171
|
|
Net increase in mortgage escrow funds payable
|
|
|
4,662
|
|
|
|
7,932
|
|
Net increase (decrease) in short-term FHLB advances
|
|
|
22,500
|
|
|
|
(25,000
|
)
|
Principal repayments of debentures and mortgage note payable
|
|
|
(4
|
)
|
|
|
(3,253
|
)
|
Cash received from issuance of common stock upon exercise of stock warrants
|
|
|
1,467
|
|
|
|
|
|
Excess tax benefit from exercise of stock warrants recorded to paid in capital
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
150,975
|
|
|
|
68,850
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
14,143
|
|
|
|
44,258
|
|
Cash and cash equivalents at beginning of period
|
|
|
33,086
|
|
|
|
40,195
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
47,229
|
|
|
$
|
84,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
24,046
|
|
|
$
|
20,799
|
|
Income taxes
|
|
|
1,150
|
|
|
|
675
|
|
Noncash activities:
|
|
|
|
|
|
|
|
|
Loans transferred to foreclosed real estate
|
|
|
4,022
|
|
|
|
|
|
Conversion of debentures and related accrued interest payable and deferred offering costs into Class A common stock, net
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
6
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1Principles of Consolidation, Basis of Presentation and Use of Estimates
The condensed consolidated financial statements of Intervest Bancshares Corporation and Subsidiaries in this report have not been audited except for information derived
from the 2007 audited consolidated financial statements and notes thereto. The condensed consolidated financial statements in this report should be read in conjunction with the 2007 audited consolidated financial statements and notes thereto
included in the Companys annual report on Form 10-K for the year ended December 31, 2007.
All significant intercompany balances and
transactions have been eliminated in consolidation. The accounting and reporting policies of the Company conform to United States generally accepted accounting principles and to general practices within the banking industry. In preparing the
consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent liabilities as of the date of the consolidated financial statements, and
revenues and expenses during the reporting periods. Actual results could differ from those estimates. Estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses. In the opinion of
management, all material adjustments necessary for a fair presentation of financial condition and results of operations for the interim periods presented in this report have been made. These adjustments are of a normal recurring nature. The results
of operations for the interim periods are not necessarily indicative of results that may be expected for the entire year or any other interim period. Certain information and note disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.
Note 2Description of Business
Intervest Bancshares Corporation is a registered financial holding company
referred to by itself as the Holding Company. Its wholly owned consolidated subsidiaries are Intervest National Bank (the Bank) and Intervest Mortgage Corporation. All the entities are referred to collectively as the
Company on a consolidated basis.
The Holding Companys primary business is the ownership and operation of its subsidiaries. It does not
engage in any other substantial business activities other than a limited amount of real estate mortgage lending, including the participation in loans originated by the Bank. From time to time, the Holding Company also issues debt and equity
securities to raise funds for working capital purposes. The Holding Company also has four wholly owned subsidiaries, Intervest Statutory Trust II, III, IV and V, that are unconsolidated entities as required by Financial Accounting Standards Board
(FASB) Interpretation No. 46-R, Consolidation of Variable Interest Entities.
The offices of the Holding Company, Intervest Mortgage
Corporation and the Banks headquarters and full-service banking office are located on the entire fourth floor of One Rockefeller Plaza in New York City, New York, 10020-2002 and the main telephone number is 212-218-2800.
The Companys primary business is banking and real estate lending. Its lending activities are comprised almost entirely of the origination for its loan portfolio of
mortgage loans secured by commercial and multifamily real estate (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 and vacant land). Loans in the portfolio had an average life of approximately 3.9 years at March 31, 2008. The Company tends to lend in areas that are in the process of being revitalized or redeveloped,
with a concentration of loans on properties located in New York State and the State of Florida. A large number of the properties in New York are located in Manhattan, Brooklyn, Queens and the Bronx. A large number of the properties in Florida are
located in Clearwater, Tampa, St. Petersburg, Fort Lauderdale, Miami, and Orlando. Many of the multifamily properties located in New York City and surrounding boroughs are also subject to rent control and rent stabilization laws, which limit the
ability of the property owners to increase rents, which may in turn limit the borrowers ability to repay those mortgage loans. At March 31, 2008, the Company also had loans on properties in Alabama, Connecticut, Georgia, Illinois,
Indiana, Kentucky, Massachusetts, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina and Virginia.
The Bank is a
nationally chartered commercial bank that has its headquarters and full-service banking office at One Rockefeller Plaza, Suite 400, in New York City, and a total of six full-service banking offices in Pinellas County, Floridafour in
Clearwater, one in Clearwater Beach and one in South Pasadena.
7
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 2Description of BusinessContinued
The Bank conducts a personalized commercial and consumer banking business and attracts deposits from the areas served by its banking offices. The Bank also provides
internet banking services through its web site: www.intervestnatbank.com, which can attract deposit customers from outside its primary market areas. The deposits, together with funds derived from other sources, are mainly used to originate mortgage
loans secured by commercial and multifamily real estate and to purchase investment securities. The information on the aforementioned web site is not and should not be considered part of this report and is not incorporated by reference.
Intervest Mortgage Corporations business focuses on the origination of first mortgage and junior mortgage loans secured by commercial and multifamily real
estate. It also provides loan origination services to the Bank. Intervest Mortgage Corporation funds its loans through the issuance of subordinated debentures in public offerings.
Intervest Statutory Trust II, III, IV and V are statutory business trusts that were formed for the sole purpose of issuing and administering trust preferred securities and lending the proceeds to the Holding Company.
They do not conduct any trade or business. For a further discussion, see note 9 to the consolidated financials statements included in the Companys 2007 annual report on Form 10-K.
Note 3Securities
The carrying value (amortized cost) and estimated fair value of securities held to maturity
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Number of
Securities
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
Wtd-Avg
Yield
|
|
|
Wtd-Avg
Remaining
Maturity
|
At March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies (1)
|
|
244
|
|
$
|
398,696
|
|
$
|
3,416
|
|
$
|
69
|
|
$
|
402,043
|
|
4.47
|
%
|
|
4.7 Years
|
Corporate
|
|
8
|
|
|
8,031
|
|
|
|
|
|
867
|
|
|
7,164
|
|
5.30
|
%
|
|
25.4 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252
|
|
$
|
406,727
|
|
$
|
3,416
|
|
$
|
936
|
|
$
|
409,207
|
|
4.48
|
%
|
|
5.1 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies (1)
|
|
214
|
|
$
|
336,074
|
|
$
|
1,640
|
|
$
|
14
|
|
$
|
337,700
|
|
4.99
|
%
|
|
3.5 Years
|
Corporate
|
|
8
|
|
|
8,031
|
|
|
7
|
|
|
202
|
|
|
7,836
|
|
5.78
|
%
|
|
25.6 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222
|
|
$
|
344,105
|
|
$
|
1,647
|
|
$
|
216
|
|
$
|
345,536
|
|
5.01
|
%
|
|
4.0 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Consist of debt obligations of FHLB, FNMA, FHLMC or FFCB.
|
The estimated
fair values of securities with gross unrealized losses segregated between securities that have been in a continuous unrealized loss position for less than twelve months at the respective dates and those that have been in a continuous unrealized loss
position for twelve months or longer are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Securities
|
|
Less Than Twelve Months
|
|
Twelve Months or Longer
|
|
Total
|
($ in thousands)
|
|
|
Estimated
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
Gross
Unrealized
Losses
|
At March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
10
|
|
$
|
13,068
|
|
$
|
65
|
|
$
|
3,008
|
|
$
|
4
|
|
$
|
16,076
|
|
$
|
69
|
Corporate
|
|
8
|
|
|
1,805
|
|
|
174
|
|
|
5,359
|
|
|
693
|
|
|
7,164
|
|
|
867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
$
|
14,873
|
|
$
|
239
|
|
$
|
8,367
|
|
$
|
697
|
|
$
|
23,240
|
|
$
|
936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
6
|
|
$
|
5,348
|
|
$
|
6
|
|
$
|
5,997
|
|
$
|
8
|
|
$
|
11,345
|
|
$
|
14
|
Corporate
|
|
6
|
|
|
939
|
|
|
83
|
|
|
4,911
|
|
|
119
|
|
|
5,850
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
$
|
6,287
|
|
$
|
89
|
|
$
|
10,908
|
|
$
|
127
|
|
$
|
17,195
|
|
$
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management believes that the cause of unrealized gains and losses in the portfolio is directly related to changes
in interest rates, which is consistent with its experience. In general, as interest rates rise, the estimated fair value of fixed rate securities will decrease; as interest rates fall, their estimated fair value will increase. Nearly all of the
securities in the portfolio have fixed rates or have predetermined scheduled rate increases, and many have call features that allow the issuer to call the security at par before its stated maturity without penalty.
Management views the gross unrealized losses to be temporary based on the impact of interest rates and the high credit quality of the securities. In addition, the Bank,
which holds the portfolio, has the ability and intent to hold its investments for a period of time sufficient for the estimated fair value of the securities with unrealized losses to recover, which may be at maturity.
8
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 3SecuritiesContinued
Historically, the Bank has always recovered the cost of its investment securities upon maturity. Management evaluates the securities for other-than-temporary impairment at least on a quarterly basis, and more
frequently when economic or market concerns warrant such evaluation. There were no other-than-temporary impairment write-downs recorded, securities classified as available for sale, or sales of securities during the reporting periods in this report.
The amortized cost and estimated fair value of securities held to maturity by remaining term to contractual maturity as of March 31, 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
|
Average
Yield
|
|
Due in one year or less
|
|
$
|
29,831
|
|
$
|
30,108
|
|
4.81
|
%
|
Due after one year through five years
|
|
|
222,339
|
|
|
224,127
|
|
4.19
|
|
Due after five years through ten years
|
|
|
127,313
|
|
|
128,498
|
|
4.80
|
|
Due after ten years
|
|
|
27,244
|
|
|
26,474
|
|
5.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
406,727
|
|
$
|
409,207
|
|
4.48
|
%
|
|
|
|
|
|
|
|
|
|
|
Note 4Loans Receivable
Major classifications of loans receivable are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2008
|
|
|
At December 31, 2007
|
|
($ in thousands)
|
|
# of Loans
|
|
Amount
|
|
|
# of Loans
|
|
Amount
|
|
Commercial real estate loans
|
|
338
|
|
$
|
980,785
|
|
|
322
|
|
$
|
932,351
|
|
Residential multifamily loans
|
|
248
|
|
|
671,474
|
|
|
244
|
|
|
657,387
|
|
Land development and other land loans
|
|
16
|
|
|
33,482
|
|
|
17
|
|
|
33,318
|
|
Residential 1-4 family loans
|
|
2
|
|
|
481
|
|
|
2
|
|
|
486
|
|
Commercial business loans
|
|
19
|
|
|
474
|
|
|
19
|
|
|
575
|
|
Consumer loans
|
|
18
|
|
|
311
|
|
|
15
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
641
|
|
|
1,687,007
|
|
|
619
|
|
|
1,624,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees
|
|
|
|
|
(9,888
|
)
|
|
|
|
|
(10,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net of deferred fees
|
|
|
|
|
1,677,119
|
|
|
|
|
|
1,614,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
|
|
(23,856
|
)
|
|
|
|
|
(21,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
|
|
$
|
1,653,263
|
|
|
|
|
$
|
1,592,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2008 and December 31, 2007, there were $97.7 million and $90.8 million of loans on a
nonaccrual status, respectively, and considered impaired under the criteria of SFAS No.114. A valuation allowance was not maintained at any time since the Company believes that the estimated fair value of each of the underlying collateral properties
exceeded its recorded investment in the related loan during the reporting periods. No other loans were classified as impaired. At March 31, 2008, one loan in the amount of $0.8 million was classified as ninety days past due and still accruing
interest, compared to two loans totaling $11.9 million at December 31, 2007.
Interest income that was not recorded on nonaccrual loans under their
contractual terms for the quarter ended March 31, 2008 and 2007 amounted to $2.2 million and $0.2 million, respectively. The average balance of nonaccrual loans (same as impaired loans) for the quarter ended March 31, 2008 and 2007 was
$95.8 million and $8.0 million, respectively.
Note 5Allowance for Loan Losses
Activity in the allowance for loan losses is summarized as follows:
|
|
|
|
|
|
|
|
|
Quarter Ended
March 31,
|
($ in thousands)
|
|
2008
|
|
2007
|
Balance at beginning of period
|
|
$
|
21,593
|
|
$
|
17,833
|
Provision for loan losses charged to expense
|
|
|
2,263
|
|
|
854
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
23,856
|
|
$
|
18,687
|
|
|
|
|
|
|
|
9
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 6Deposits
Scheduled maturities of certificates of deposit accounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2008
|
|
|
At December 31, 2007
|
|
($ in thousands)
|
|
Amount
|
|
Wtd-Avg
Stated Rate
|
|
|
Amount
|
|
Wtd-Avg
Stated Rate
|
|
Within one year
|
|
$
|
555,215
|
|
4.64
|
%
|
|
$
|
495,002
|
|
4.82
|
%
|
Over one to two years
|
|
|
341,152
|
|
4.69
|
|
|
|
296,318
|
|
4.74
|
|
Over two to three years
|
|
|
206,995
|
|
4.85
|
|
|
|
233,248
|
|
4.81
|
|
Over three to four years
|
|
|
141,827
|
|
5.28
|
|
|
|
129,949
|
|
5.27
|
|
Over four years
|
|
|
231,259
|
|
5.11
|
|
|
|
250,483
|
|
5.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,476,448
|
|
4.82
|
%
|
|
$
|
1,405,000
|
|
4.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate of deposit accounts (CDs) of $100,000 or more totaled $623 million and $586 million at March 31,
2008 and December 31, 2007, respectively, and included brokered CDs of $166 million at each date. At March 31, 2008, CDs of $100,000 or more by remaining maturity were as follows: $186 million due within one year; $131 million due over one
to two years; $83 million due over two to three years; $73 million due over three to four years; and $150 million due over four years.
Note
7Subordinated Debentures and Mortgage Note Payable
Subordinated debentures by series and mortgage note payable are summarized as follows:
|
|
|
|
|
|
|
($ in thousands)
|
|
At March 31,
2008
|
|
At December 31,
2007
|
INTERVEST MORTGAGE CORPORATION:
|
|
|
|
|
|
|
Series 01/21/03interest at 7.00% fixeddue July 1, 2008
|
|
$
|
3,000
|
|
$
|
3,000
|
Series 07/25/03interest at 6.75% fixeddue October 1, 2008
|
|
|
3,000
|
|
|
3,000
|
Series 11/28/03interest at 6.50% fixeddue April 1, 2009
|
|
|
3,500
|
|
|
3,500
|
Series 03/21/05interest at 6.25% fixeddue April 1, 2009
|
|
|
3,000
|
|
|
3,000
|
Series 01/17/02interest at 7.75% fixeddue October 1, 2009
|
|
|
2,250
|
|
|
2,250
|
Series 08/12/05interest at 6.25% fixeddue October 1, 2009
|
|
|
2,000
|
|
|
2,000
|
Series 08/05/02interest at 7.75% fixeddue January 1, 2010
|
|
|
3,000
|
|
|
3,000
|
Series 06/07/04interest at 6.50% fixeddue January 1, 2010
|
|
|
4,000
|
|
|
4,000
|
Series 01/21/03interest at 7.25% fixeddue July 1, 2010
|
|
|
3,000
|
|
|
3,000
|
Series 06/12/06interest at 6.50% fixeddue July 1, 2010
|
|
|
2,000
|
|
|
2,000
|
Series 07/25/03interest at 7.00% fixeddue October 1, 2010
|
|
|
3,000
|
|
|
3,000
|
Series 11/28/03interest at 6.75% fixeddue April 1, 2011
|
|
|
4,500
|
|
|
4,500
|
Series 03/21/05interest at 6.50% fixeddue April 1, 2011
|
|
|
4,500
|
|
|
4,500
|
Series 08/12/05interest at 6.50% fixeddue October 1, 2011
|
|
|
4,000
|
|
|
4,000
|
Series 06/07/04interest at 6.75% fixeddue January 1, 2012
|
|
|
5,000
|
|
|
5,000
|
Series 06/12/06interest at 6.75% fixeddue July 1, 2012
|
|
|
4,000
|
|
|
4,000
|
Series 03/21/05interest at 7.00% fixeddue April 1, 2013
|
|
|
6,500
|
|
|
6,500
|
Series 08/12/05interest at 7.00% fixeddue October 1, 2013
|
|
|
6,000
|
|
|
6,000
|
Series 06/12/06interest at 7.00% fixeddue July 1, 2014
|
|
|
10,000
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
76,250
|
|
|
76,250
|
INTERVEST NATIONAL BANK:
|
|
|
|
|
|
|
Mortgage note payable (1)interest at 7% fixeddue February 1, 2017
|
|
|
196
|
|
|
200
|
|
|
|
|
|
|
|
|
|
$
|
76,446
|
|
$
|
76,450
|
|
|
|
|
|
|
|
(1)
|
The note cannot be prepaid except during the last year of its term.
|
10
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 7Subordinated Debentures and Mortgage Note Payable, Continued
Scheduled contractual maturities as of March 31, 2008 were as follows:
|
|
|
|
|
|
|
($ in thousands)
|
|
Principal
|
|
Accrued
Interest
|
For the period April 1, 2008 to December 31, 2008 (1)
|
|
$
|
11,262
|
|
$
|
1,497
|
For the year ended December 31, 2009
|
|
|
8,517
|
|
|
303
|
For the year ended December 31, 2010
|
|
|
12,019
|
|
|
246
|
For the year ended December 31, 2011
|
|
|
13,020
|
|
|
529
|
For the year ended December 31, 2012
|
|
|
9,021
|
|
|
257
|
Thereafter
|
|
|
22,607
|
|
|
508
|
|
|
|
|
|
|
|
|
|
$
|
76,446
|
|
$
|
3,340
|
|
|
|
|
|
|
|
(1)
|
Includes various debentures that were repaid with cash on hand on April 1, 2008 prior to their stated maturity as follows: Series 1/17/02 debentures due October 1, 2009;
Series 8/5/02 debentures due January 1, 2010; and Series 1/21/03 debentures due 7/1/08 for an aggregate total of $8,250,000 of principal and $496,000 of related accrued interest payable.
|
Interest is paid quarterly on Intervest Mortgage Corporations debentures except for the following: $0.1 million of Series 1/17/02; $0.6 million of Series 8/05/02;
$1.3 million of Series 11/28/03; $1.4 million of Series 6/7/04; $1.9 million of Series 3/21/05; $1.8 million of Series 8/12/05 and $2.3 million of Series 6/12/06, all of which accrue and compound interest quarterly, with such interest due and
payable at maturity.
The holders of Intervest Mortgage Corporations Series 1/21/03 through Series 8/12/05 debentures can require Intervest Mortgage
Corporation, on a first come basis during a specified time, to repurchase the debentures for face amount plus accrued interest once each year (beginning April 1, 2009 for Series 3/21/05 and October 1, 2009 for Series 8/12/05). However, in
no calendar year can the required purchases be more than $100,000 in principal amount of each maturity, in each series of debentures, on a non-cumulative basis.
Intervest Mortgage Corporation may redeem its debentures at any time, in whole or in part, for face value. All the debentures are unsecured and subordinate to all present and future senior indebtedness, as defined in the indenture related
to each debenture.
Note 8Short-Term Borrowings and Lines of Credit
At March 31, 2008, the Bank had agreements with correspondent banks whereby it could borrow up to $28 million on an unsecured basis. In addition, as a member of the Federal Home Loan Bank of New York (FHLB) and
the Federal Reserve Bank of New York (FRB), the Bank can also borrow from these institutions on a secured basis. At March 31, 2008, the Bank had available collateral consisting of investment securities to support additional total borrowings of
$363 million from the FHLB and FRB.
The following is a summary of certain information regarding short-term borrowings in the aggregate:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
March 31,
|
|
($ in thousands)
|
|
2008
|
|
|
2007
|
|
Balance at period end (1)
|
|
$
|
22,500
|
|
|
$
|
|
|
Maximum amount outstanding at any month end
|
|
$
|
22,500
|
|
|
$
|
27,400
|
|
Average outstanding balance for the period
|
|
$
|
8,853
|
|
|
$
|
21,928
|
|
Weighted-average interest rate paid for the period
|
|
|
3.42
|
%
|
|
|
5.49
|
%
|
Weighted-average interest rate at period end
|
|
|
2.53
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
(1)
|
Balance at March 31, 2008 matures as follows: $6.5 million on April 15, 2008 and $16.0 million on May 19, 2008.
|
Note 9Common Stock Options and Warrants
The Holding Company
has a shareholder-approved Long Term Incentive Plan (the Plan) under which stock options and other forms of incentive compensation may be awarded to officers, employees and directors of the Holding Company and its subsidiaries. The
maximum number of shares of Class A common stock that may be awarded under the Plan is 750,000. At March 31, 2008, 613,960 shares of Class A common stock were available for award under this plan.
11
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 9Common Stock Options and Warrants, Continued
A summary of the activity in the Holding Companys common stock options and warrants and related information for the quarter ended March 31, 2008 follows
(intrinsic value is presented in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price
Per Option
|
|
|
|
|
|
Wtd.-Avg.
Exercise Price
|
Class A Common Stock Options:
|
|
|
|
|
|
$
|
17.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
|
|
|
|
137,640
|
|
|
|
|
|
$
|
17.10
|
Forfeited
|
|
|
|
|
|
|
(1,600
|
)
|
|
|
|
|
$
|
17.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008
|
|
|
|
|
|
|
136,040
|
|
|
|
|
|
$
|
17.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining contractual term at March 31, 2008 (1)
|
|
|
|
|
|
|
9.72 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value (2)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price
Per Warrant
|
|
|
Total
Warrants
|
|
|
Wtd.-Avg.
Exercise Price
|
Class B Common Stock Warrants:
|
|
$
|
6.67
|
|
|
$
|
10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
145,000
|
|
|
|
50,000
|
|
|
195,000
|
|
|
$
|
7.52
|
Exercised (3)
|
|
|
(145,000
|
)
|
|
|
(50,000
|
)
|
|
(195,000
|
)
|
|
$
|
7.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The options expire on December 13, 2017 and vest in equal installments as follows: one third (45,880) vested on December 13, 2007 (grant date) and are exercisable,
one third vest and become exercisable on December 13, 2008 and one third vest and become exercisable on December 13, 2009.
|
(2)
|
There is no intrinsic value since the closing stock price of $9.56 of the Class A common stock on March 31, 2008 was below the exercise price of the options.
|
(3)
|
Total intrinsic value of Class B warrants exercised in 2008 was $1.0 million and the related income tax benefit was $0.4 million, which was recorded in paid in capital. Intrinsic
value was calculated using the closing stock price of $12.40 of the Class A common stock on January 22, 2008 in excess of the exercise price multiplied by the number of warrants exercised. There is no trading market for the Class B common
stock. The Class B common stock can be converted into Class A common stock at anytime.
|
In the first quarter of 2008, $58,000 of
compensation expense was recorded in connection with stock options outstanding with a corresponding increase to paid in capital. There was no such compensation expense in the first quarter of 2007. As of March 31, 2008, there was $394,000 of
unrecognized compensation cost related to outstanding stock options granted in 2007, of which approximately $173,000 is expected to be recognized over the remainder of 2008 and $221,000 in 2009.
Note 10Earnings Per Share (EPS)
Basic and diluted EPS are
calculated in accordance with SFAS No. 128, Earnings per Share. Basic EPS is calculated by dividing net earnings by the weighted-average number of shares of common stock outstanding. Diluted EPS is calculated by dividing adjusted
net earnings by the weighted-average number of shares of common stock and dilutive potential common stock shares that may be outstanding in the future.
Potential common stock shares consist of shares that may arise from outstanding dilutive common stock warrants/options (the number of which is computed using the treasury stock method) and from outstanding convertible debentures
(the number of which is computed using the if converted method). Diluted EPS considers the potential dilution that could occur if the Companys outstanding common stock warrants/options and convertible debentures were converted into
common stock that then shared in the Companys earnings (as adjusted for interest expense, net of taxes, that would no longer occur if the debentures were converted).
12
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 10Earnings Per Share (EPS), Continued
Net earnings applicable to common stock and the weighted-average number of shares used for basic and diluted earnings per share computations are summarized in the table that follows:
|
|
|
|
|
|
|
|
|
Quarter Ended
March 31,
|
($ in thousands, except share and per share amounts)
|
|
2008
|
|
2007
|
Basic Earnings Per Share:
|
|
|
|
|
|
|
Net earnings applicable to common stockholders
|
|
$
|
2,281
|
|
$
|
5,353
|
Weighted-Average number of common shares outstanding
|
|
|
8,225,812
|
|
|
8,373,096
|
|
|
|
|
|
|
|
Basic Earnings Per Share
|
|
$
|
0.28
|
|
$
|
0.64
|
|
|
|
|
|
|
|
Diluted Earnings Per Share:
|
|
|
|
|
|
|
Net earnings applicable to common stockholders
|
|
$
|
2,281
|
|
$
|
5,353
|
Adjustment to net earnings from assumed conversion of debentures (1)
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
Adjusted net earnings for diluted earnings per share computation
|
|
$
|
2,281
|
|
$
|
5,387
|
|
|
|
|
|
|
|
Weighted-Average number of common shares outstanding:
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
8,225,812
|
|
|
8,373,096
|
Potential dilutive shares resulting from exercise of warrants /options (2)
|
|
|
12,219
|
|
|
86,006
|
Potential dilutive shares resulting from conversion of debentures (3)
|
|
|
|
|
|
162,293
|
|
|
|
|
|
|
|
Total average number of common shares outstanding used for dilution
|
|
|
8,238,031
|
|
|
8,621,395
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
$
|
0.28
|
|
$
|
0.62
|
|
|
|
|
|
|
|
(1)
|
Represents interest expense on dilutive convertible debentures, net of taxes, that would not occur if they were assumed converted.
|
(2)
|
All outstanding options/warrants were considered for the EPS computations, except for 136,040 options, which were not dilutive because the exercise price was above the average
market price of the Class A common stock during the quarter ended March 31, 2008.
|
(3)
|
Convertible debentures (principal and accrued interest) outstanding at March 31, 2007 totaled $2.9 million and were convertible into common stock at a price of $18.00 per share
(shares are computed based on average balance outstanding during the period). There were no convertible debentures outstanding in 2008 period.
|
Note 11Off-Balance Sheet Financial Instruments
The Company is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These instruments are in the form of commitments to extend credit, unused lines of credit and standby letters of credit, and may involve, to varying degrees, elements of credit
and interest rate risk in excess of the amounts recognized in the consolidated financial statements. The Companys maximum exposure to credit risk is represented by the contractual amount of those instruments.
Commitments to extend credit are agreements to lend funds to a customer as long as there is no violation of any condition established in the contract. Such commitments
generally have fixed expiration dates or other termination clauses and normally require payment of fees to the Company. Since some of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily
represent future cash requirements. The Company evaluates each customers creditworthiness on a case-by-case basis. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third
party. The credit risk involved in the underwriting of letters of credit is essentially the same as that involved in originating loans.
The contractual
amounts of off-balance sheet financial instruments is summarized as follows:
|
|
|
|
|
|
|
|
|
At March 31,
2008
|
|
At December 31,
2007
|
($ in thousands)
|
|
|
Unfunded loan commitments
|
|
$
|
122,238
|
|
$
|
82,545
|
Available lines of credit
|
|
|
679
|
|
|
654
|
Standby letters of credit
|
|
|
300
|
|
|
300
|
|
|
|
|
|
|
|
|
|
$
|
123,217
|
|
$
|
83,499
|
|
|
|
|
|
|
|
13
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 12Regulatory Capital
The Company is subject to regulation, examination and supervision by the FRB. The Bank is also subject to regulation, examination and supervision by the Federal Deposit Insurance Corporation (FDIC) and the Office of
the Comptroller of the Currency of the United States of America (OCC).
The Company (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by the federal banking agencies. Failure to meet them can initiate certain mandatory and possibly discretionary actions by the regulators that, if undertaken, could have a direct material effect on the
Companys and the Banks financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures
of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. These capital amounts are also subject to qualitative judgement by the regulators about components, risk weighting and other
factors. Quantitative measures established by the regulations to ensure capital adequacy require the Company, on a consolidated basis, and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of
Tier 1 capital to average assets, as defined by the regulations.
The Federal Reserve allows trust preferred securities to be included in the Tier 1
capital of bank holding companies (BHC), but with stricter limitations on the use of such securities becoming fully effective by March 31, 2009. Until then, BHCs generally must comply with the current Tier 1 capital limits. As of March 31,
2008 and December 31, 2007, assuming the Holding Company had excluded all of its eligible trust preferred securities (which totaled $55 million) from Tier 1 Capital and included such amount in Tier 2 capital, the Company would still have
exceeded its minimum capital requirement threshold under the regulatory framework for prompt corrective action.
Management believes, as of March 31,
2008 and December 31, 2007, that the Company and the Bank met all capital adequacy requirements to which they are subject. The most recent notification from the Banks regulators categorized the Bank as a well-capitalized institution under
the regulatory framework for prompt corrective action, which requires minimum Tier 1 leverage and Tier 1 and total risk-based capital ratios of 5%, 6% and 10%, respectively. Management is not aware of any current conditions or events
outstanding that would change the designation from well capitalized.
At March 31, 2008, the actual capital of the Company (consolidated basis) on a
percentage basis was as follows:
|
|
|
|
|
|
|
|
|
Actual
Ratios
|
|
Minimum
Requirement
|
|
To Be Considered
Well Capitalized
|
Total capital to risk-weighted assets
|
|
14.40%
|
|
8.00%
|
|
NA
|
Tier 1 capital to risk-weighted assets
|
|
13.15%
|
|
4.00%
|
|
NA
|
Tier 1 capital to total average assets leverage ratio
|
|
11.39%
|
|
4.00%
|
|
NA
|
At March 31, 2008, the actual capital of the Bank on a percentage basis was as follows:
|
|
|
|
|
|
|
|
|
Actual
Ratios
|
|
Minimum
Requirement
|
|
To Be Considered
Well Capitalized
|
Total capital to risk-weighted assets
|
|
12.97%
|
|
8.00%
|
|
10.00%
|
Tier 1 capital to risk-weighted assets
|
|
11.71%
|
|
4.00%
|
|
6.00%
|
Tier 1 capital to total average assets leverage ratio
|
|
10.08%
|
|
4.00%
|
|
5.00%
|
Note 13Contingencies
The Company is periodically a party to or otherwise involved in legal proceedings arising in the normal course of business, such as foreclosure proceedings. Based on review and consultation with legal counsel,
management does not believe that there is any pending or threatened proceeding against the Company, which, if determined adversely, would have a material effect on the business, results of operations, financial position or liquidity of the Company.
14
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 14Recent Accounting Pronouncements
SFAS 141(R)Business Combinations
. SFAS No. 141(R) is effective for the Companys 2009 financial statements. SFAS 141(R) requires, among other things, the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the
acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. The adoption of this statement is expected to have no effect on the
Companys financial statements.
SFAS 157Fair Value Measurements.
On January 1, 2008, the Company adopted SFAS No. 157,
Fair Value Measurements. SFAS 157, among other things, defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements required under other accounting pronouncements, but does
not change existing guidance as to whether or not an instrument is carried at fair value. The adoption of this statement had no effect on the Companys financial statements.
SFAS 159Fair Value Accounting
. On January 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 allows companies to
elect to follow fair value accounting for certain financial assets and liabilities in an effort to mitigate volatility in earnings without having to apply complex hedge accounting provisions. The adoption of this statement had no effect on the
Companys financial statements.
SFAS 160Noncontrolling Interest in Consolidated Financial Statements.
In December 2007, the FASB
issued SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements. SFAS 160s objective is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides
in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for deconsolidation of a subsidiary. SFAS 160 shall be effective for the Companys 2009 financial
statements. The adoption of this statement is not expected to have any effect on the Companys financial statements.
Note 15Subsequent Event
On April 23, 2008, the Holding Companys board of directors approved the payment of a cash dividend of $0.25 per share on the Holding
Companys outstanding Class A and Class B common stock. The dividend is payable June 16, 2008 to shareholders of record on the close of business June 2, 2008.
15
Intervest Bancshares Corporation and Subsidiaries
Review by Independent Registered Public Accounting Firm
Hacker, Johnson & Smith, P.A., P.C., the Companys independent registered public accounting firm, has made a limited
review of the financial data as of March 31, 2008 and for the three-month periods ended March 31, 2008 and 2007 presented in this document, in accordance with the standards established by the Public Company Accounting Oversight Board.
The report of Hacker, Johnson & Smith, P.A., P.C. furnished pursuant to Article 10 of Regulation S-X is included herein.
16
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Intervest Bancshares Corporation
New York, New York:
We have reviewed the accompanying condensed consolidated balance sheet of Intervest Bancshares Corporation and Subsidiaries (the Company) as of March 31,
2008 and the related condensed consolidated statements of earnings, changes in stockholders equity and cash flows for the three-month periods ended March 31, 2008 and 2007. These interim financial statements are the responsibility of the
Companys management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit
conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the
Public Company Accounting Oversight Board, the consolidated balance sheet of the Company as of December 31, 2007, and the related consolidated statements of earnings, changes in stockholders equity and cash flows for the year then ended
(not presented herein); and in our report dated February 22, 2008, we, based on our audit expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 2007 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
|
/s/ Hacker, Johnson & Smith, P.A., P.C.
|
HACKER, JOHNSON & SMITH, P.A.,P.C.
|
Tampa, Florida
|
April 24, 2008
|
17
ITEM 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
Overview
The following managements 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, 2007.
Intervest Bancshares Corporation has two wholly owned consolidated subsidiaries, Intervest
National Bank and Intervest Mortgage Corporation (hereafter, together with Intervest Bancshares Corporation, referred to collectively as the Company on a consolidated basis). Intervest Bancshares Corporation and Intervest National Bank
may be referred to individually as the Holding Company and the Bank, respectively. The Holding Company also has four wholly owned unconsolidated subsidiaries, Intervest Statutory Trust II, III, IV and V, which were formed in
connection with the issuance of trust preferred securities. For a discussion of the Companys business, see note 2 to the condensed consolidated financial statements in this report.
The Companys revenues consist of interest, dividends and fees earned on its interest-earning assets, which are comprised of mortgage loans, securities and other short-term investments, and noninterest income.
The Companys expenses consist of interest paid on its interest-bearing liabilities, which are comprised of deposits, debentures and other short-term borrowings, as well as its operating and general expenses.
The Companys profitability depends primarily on its net interest income, which is the difference between interest income generated from its interest-earning assets
and interest expense incurred on its interest-bearing liabilities. Net interest income is dependent upon the interest-rate spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on
interest-bearing liabilities. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest-rate spread will generate net interest income. The interest-rate spread is affected by interest rates, deposit flows
and loan demand.
The Companys profitability is also affected by the level of its noninterest income and expenses, provision for loan losses and
income tax expense. Noninterest income consists mostly of loan and other banking fees as well as income from loan prepayments. When a mortgage loan is repaid prior to maturity, the Company may recognize prepayment income, which consists of the
recognition of unearned fees associated with such loans at the time of payoff and the receipt of additional prepayment fees and or interest in certain cases, in accordance with the prepayment provisions of the mortgage loan. The Companys
income from loan prepayments fluctuates and cannot be predicted. Normally, loan prepayments tend to increase during periods of declining interest rates and tend to decrease during periods of increasing interest rates. However, given the nature and
type of mortgage loans the Company originates, including their short average life, the Company may still experience loan prepayments notwithstanding the effects of movements in interest rates. Noninterest expenses consist of the following: salaries
and employee benefits, occupancy and equipment, data processing, advertising and promotion, professional fees and services, FDIC insurance, general insurance and other operating and general expenses. The Companys profitability is also
significantly affected by general and local economic conditions, competition, changes in market interest rates, government policies and actions of regulatory authorities.
The Companys 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 and vacant land). Loans in the portfolio had an average life of approximately 3.9 years as of March 31, 2008.
The Company does not own or originate sub prime single-family home loans or construction/development loans.
The Company tends to lend in areas that are in
the process of being revitalized or redeveloped, with a concentration of loans on properties located in New York State and the State of Florida. A significant portion of the residential properties are located in New York City and are subject to rent
control and rent stabilization laws, which limit the ability of the property owners to increase rents, which in turn may affect the borrowers ability to repay those mortgage loans. At March 31, 2008, the Company also had loans on
properties in Alabama, Connecticut, Georgia, Illinois, Indiana, Kentucky, Massachusetts, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina and Virginia.
18
Critical Accounting Policies
The Company believes that currently its only accounting policy that is critical to the presentation of its financial statements and requires estimates and judgment on the part of management relates to the
determination of the Companys 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 sudden large chargeoff could deplete the allowance and potentially require increased provisions to replenish the allowance, which could negatively affect the Companys 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 37 to 39 of the Companys annual report on Form 10-K for the year ended December 31, 2007.
Comparison of Financial Condition at March 31, 2008 and December 31, 2007
Overview
Selected balance sheet information as of March 31, 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Holding
Company
|
|
|
Intervest
National
Bank
|
|
|
Intervest
Mortgage
Corporation
|
|
|
Inter-
Company
Amounts (1)
|
|
|
Consolidated
|
|
Cash and cash equivalents
|
|
$
|
3,106
|
|
|
$
|
30,880
|
|
|
$
|
16,571
|
|
|
$
|
(3,328
|
)
|
|
$
|
47,229
|
|
Security investments
|
|
|
|
|
|
|
414,095
|
|
|
|
|
|
|
|
|
|
|
|
414,095
|
|
Loans receivable, net of deferred fees
|
|
|
2,615
|
|
|
|
1,582,245
|
|
|
|
92,259
|
|
|
|
|
|
|
|
1,677,119
|
|
Allowance for loan losses
|
|
|
(30
|
)
|
|
|
(22,527
|
)
|
|
|
(1,299
|
)
|
|
|
|
|
|
|
(23,856
|
)
|
Investment in consolidated subsidiaries
|
|
|
231,068
|
|
|
|
|
|
|
|
|
|
|
|
(231,068
|
)
|
|
|
|
|
All other assets
|
|
|
3,958
|
|
|
|
41,908
|
|
|
|
5,149
|
|
|
|
(585
|
)
|
|
|
50,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
240,717
|
|
|
$
|
2,046,601
|
|
|
$
|
112,680
|
|
|
$
|
(234,981
|
)
|
|
$
|
2,165,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
|
|
|
$
|
1,784,517
|
|
|
$
|
|
|
|
$
|
(3,329
|
)
|
|
$
|
1,781,188
|
|
Borrowed funds and related interest payable
|
|
|
56,839
|
|
|
|
22,760
|
|
|
|
79,590
|
|
|
|
|
|
|
|
159,189
|
|
All other liabilities
|
|
|
175
|
|
|
|
39,017
|
|
|
|
2,329
|
|
|
|
(584
|
)
|
|
|
40,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
57,014
|
|
|
|
1,846,294
|
|
|
|
81,919
|
|
|
|
(3,913
|
)
|
|
|
1,981,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
183,703
|
|
|
|
200,307
|
|
|
|
30,761
|
|
|
|
(231,068
|
)
|
|
|
183,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
240,717
|
|
|
$
|
2,046,601
|
|
|
$
|
112,680
|
|
|
$
|
(234,981
|
)
|
|
$
|
2,165,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
All significant intercompany balances and transactions are eliminated in consolidation. Such amounts arise largely from intercompany deposit accounts and investments in
subsidiaries.
|
A comparison of selected balance sheet information follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2008
|
|
|
At December 31, 2007
|
|
|
|
Carrying
Value
|
|
% of
Total Assets
|
|
|
Carrying
Value
|
|
% of
Total Assets
|
|
($ in thousands)
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
47,229
|
|
2.2
|
%
|
|
$
|
33,086
|
|
1.6
|
%
|
Security investments
|
|
|
414,095
|
|
19.1
|
|
|
|
350,456
|
|
17.3
|
|
Loans receivable, net of deferred fees and loan loss allowance
|
|
|
1,653,263
|
|
76.4
|
|
|
|
1,592,439
|
|
78.8
|
|
All other assets
|
|
|
50,430
|
|
2.3
|
|
|
|
45,411
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,165,017
|
|
100.0
|
%
|
|
$
|
2,021,392
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,781,188
|
|
82.3
|
%
|
|
$
|
1,659,174
|
|
82.1
|
%
|
Borrowed funds and related interest payable
|
|
|
159,189
|
|
7.3
|
|
|
|
136,434
|
|
6.7
|
|
All other liabilities
|
|
|
40,937
|
|
1.9
|
|
|
|
46,223
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,981,314
|
|
91.5
|
|
|
|
1,841,831
|
|
91.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
183,703
|
|
8.5
|
|
|
|
179,561
|
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,165,017
|
|
100.0
|
%
|
|
$
|
2,021,392
|
|
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
increased to $47 million at March 31, 2008, from $33 million at December 31, 2007. 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.
19
Security Investments
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, which are held by the Bank, increased to $407 million at March 31,
2008, from $344 million at December 31, 2007. The increase reflected new purchases exceeding maturities and calls during the period.
The Bank invests
in U.S. government agency debt obligations to emphasize safety and liquidity. The Company does not own or invest in collateralized debt obligations or collateralized mortgage obligations. At March 31, 2008, securities held to maturity consisted
of debt obligations of the Federal Home Loan Bank, Federal Farm Credit Bank, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation totaling $399 million and corporate securities (trust preferred notes) of $8 million. At
March 31, 2008, the entire portfolio had a weighted-average yield of 4.48% and a weighted-average remaining maturity of 5.1 years, compared to 5.01% and 4.0 years, respectively, at December 31, 2007. 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. The sharp decline in market interest rates during the
first quarter of 2008 resulted in a higher level of securities being called by the issuers.
At March 31, 2008 and December 31, 2007, the
held-to-maturity portfolios estimated fair value was $409 million and $346 million, respectively. At March 31, 2008, the held-to-maturity portfolio had a net unrealized gain of $2.5 million, compared to a net unrealized gain of $1.4
million at December 31, 2007. Management believes that the cause of unrealized losses and gains in the portfolio is directly related to changes in market interest rates, which is consistent with its experience. In general, as interest rates
rise, the estimated fair value of fixed-rate securities will decrease; as interest rates fall, their estimated fair value will increase. Management views any unrealized losses to be temporary based on the impact of changes in interest rates and the
high credit quality of the securities. In addition, the Bank has the ability and intent to hold the securities that have unrealized losses for a period of time sufficient for the estimated fair value of the securities to recover, which may be at
maturity. Historically, the Bank has always recovered the cost of its investment securities upon maturity.
In order for the Bank to be a member of the
Federal Reserve Bank (FRB) and the Federal Home Loan Bank of New York (FHLB), the Bank maintains an investment in their capital stock, which amounted to $3.6 million and $3.8 million, respectively, at March 31, 2008. The FRB stock has
historically paid a dividend of 6%, while the FHLB stock dividend fluctuates quarterly and most recently was 7.8%. The total investment, which amounted to $7.4 million at March 31, 2008, compared to $6.4 million at December 31, 2007,
fluctuates based on the Banks capital level for the FRB stock and the Banks loans and outstanding FHLB borrowings for the FHLB stock.
Loans Receivable, Net of Deferred Fees and Allowance for Loan Losses
Loans receivable, net of deferred fees, increased to $1.68
billion at March 31, 2008, from $1.61 billion at December 31, 2007. The growth reflected new mortgage loan originations secured by commercial and multifamily real estate exceeding principal repayments.
Loan originations and repayments for the last eight consecutive quarters are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Mar 31,
2008
|
|
Dec 31,
2007
|
|
Sep 30,
2007
|
|
Jun 30,
2007
|
|
Mar 31,
2007
|
|
Dec 31,
2006
|
|
Sep 30,
2006
|
|
Jun 30,
2006
|
Originations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intervest National Bank
|
|
$
|
95,978
|
|
$
|
80,919
|
|
$
|
140,137
|
|
$
|
146,499
|
|
$
|
138,687
|
|
$
|
105,941
|
|
$
|
142,016
|
|
$
|
124,355
|
Intervest Mortgage Corp
|
|
|
1,200
|
|
|
6,933
|
|
|
16,650
|
|
|
18,355
|
|
|
6,450
|
|
|
5,033
|
|
|
5,400
|
|
|
22,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
97,178
|
|
$
|
87,852
|
|
$
|
156,787
|
|
$
|
164,854
|
|
$
|
145,137
|
|
$
|
110,974
|
|
$
|
147,416
|
|
$
|
146,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Repayments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intervest National Bank
|
|
$
|
26,117
|
|
$
|
99,316
|
|
$
|
140,155
|
|
$
|
82,040
|
|
$
|
78,302
|
|
$
|
96,373
|
|
$
|
83,526
|
|
$
|
87,668
|
Intervest Mortgage Corp.
|
|
|
4,452
|
|
|
3,252
|
|
|
6,759
|
|
|
12,459
|
|
|
7,714
|
|
|
16,391
|
|
|
11,172
|
|
|
21,187
|
Holding Company (1)
|
|
|
12
|
|
|
14
|
|
|
41
|
|
|
1,830
|
|
|
72
|
|
|
70
|
|
|
57
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,581
|
|
$
|
102,582
|
|
$
|
146,955
|
|
$
|
96,329
|
|
$
|
86,088
|
|
$
|
112,834
|
|
$
|
94,755
|
|
$
|
108,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes the repurchase by the Bank of the Holding Companys participations in loans originated by the Bank.
|
The Companys 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 and vacant land).
20
At March 31, 2008, such loans consisted of 602 loans with an aggregate principal balance of $1.69 billion and an
average loan size of $2.8 million. Loans with principal balances of more than $10 million consisted of 20 loans or $278 million, with the largest loan being $20.7 million. Loans with principal balances of $5 million to $10 million consisted of 78
loans and aggregated to $524 million.
Nonaccrual loans increased to $97.7 million (18 loans) at March 31, 2008, from $90.8 million (18 loans) at
December 31, 2007. At March 31, 2008, there was one loan in the amount of $0.8 million classified as ninety days past due and still accruing interest, compared to two loans totaling $11.9 million classified as such at December 31,
2007.
Nonaccrual loans are summarized for the Bank and Intervest Mortgage Corporation (IMC) as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
Principal Balance Outstanding
|
|
|
|
Property Type
|
|
City
|
|
State
|
|
Lender
|
|
Date Nonaccrual
|
|
Mar 31, 2008
|
|
Dec 31, 2007
|
|
Notes
|
|
Multifamily
|
|
Lauderhill
|
|
Florida
|
|
Bank
|
|
November 2007
|
|
$
|
18,012
|
|
$
|
18,012
|
|
(7
|
)
|
Multifamily
|
|
Long Island
|
|
New York
|
|
Bank
|
|
June 2007
|
|
|
11,316
|
|
|
11,316
|
|
(2
|
)
|
Undeveloped land
|
|
Long Island City
|
|
New York
|
|
Bank
|
|
March 2008
|
|
|
11,001
|
|
|
|
|
(11
|
)
|
Hotel
|
|
St. Augustine
|
|
Florida
|
|
Bank
|
|
June 2007
|
|
|
9,053
|
|
|
9,053
|
|
(3
|
)
|
Office building
|
|
Sunny Isles
|
|
Florida
|
|
Bank
|
|
September 2007
|
|
|
4,284
|
|
|
4,284
|
|
(10
|
)
|
Multifamily
|
|
Hollywood
|
|
Florida
|
|
Bank
|
|
September 2007
|
|
|
|
|
|
4,065
|
|
(9
|
)
|
Multifamily
|
|
New York
|
|
New York
|
|
Bank
|
|
August 2007
|
|
|
3,864
|
|
|
3,864
|
|
(4
|
)
|
Undeveloped land
|
|
North Fort Myers
|
|
Florida
|
|
Bank
|
|
September 2007
|
|
|
3,330
|
|
|
3,330
|
|
(6
|
)
|
Retail store
|
|
Avenel
|
|
New Jersey
|
|
Bank
|
|
March 2007
|
|
|
3,064
|
|
|
3,064
|
|
(1
|
)
|
Retail stores
|
|
Neptune
|
|
New Jersey
|
|
Bank
|
|
March 2007
|
|
|
2,439
|
|
|
2,439
|
|
(1
|
)
|
Retail stores
|
|
South Amboy
|
|
New Jersey
|
|
Bank
|
|
March 2007
|
|
|
2,220
|
|
|
2,220
|
|
(1
|
)
|
Retail store
|
|
Little Silver
|
|
New Jersey
|
|
Bank
|
|
March 2007
|
|
|
739
|
|
|
739
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
69,322
|
|
$
|
62,386
|
|
|
|
Hotel
|
|
St. Augustine
|
|
Florida
|
|
IMC
|
|
July 2007
|
|
|
6,034
|
|
|
6,034
|
|
(3
|
)
|
Multifamily
|
|
New York
|
|
New York
|
|
IMC
|
|
August 2007
|
|
|
4,445
|
|
|
4,445
|
|
(4
|
)
|
Multifamily
|
|
New York
|
|
New York
|
|
IMC
|
|
August 2007
|
|
|
4,387
|
|
|
4,387
|
|
(4
|
)
|
Multifamily
|
|
New York
|
|
New York
|
|
IMC
|
|
August 2007
|
|
|
4,178
|
|
|
4,178
|
|
(4
|
)
|
Multifamily
|
|
New York
|
|
New York
|
|
IMC
|
|
August 2007
|
|
|
4,119
|
|
|
4,119
|
|
(4
|
)
|
Office building
|
|
Brooklyn
|
|
New York
|
|
IMC
|
|
October 2006
|
|
|
2,299
|
|
|
2,299
|
|
(5
|
)
|
Hotel
|
|
Howell
|
|
New Jersey
|
|
IMC
|
|
December 2007
|
|
|
1,659
|
|
|
1,659
|
|
(8
|
)
|
Multifamily
|
|
New York
|
|
New York
|
|
IMC
|
|
August 2007
|
|
|
1,249
|
|
|
1,249
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,370
|
|
$
|
28,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
97,692
|
|
$
|
90,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
One principal guarantees each of the four loans, which total $8.5 million. Foreclosure proceedings concerning these loans are in progress but have temporarily been stayed by reason
of a bankruptcy filing. The foreclosure proceedings involve multiple properties.
|
(2)
|
Foreclosure proceedings are in progress. A receiver has been appointed and has taken control of the property and the rents. Currently, the rents are not sufficient to cover the
operating costs of the property and the Bank is funding the shortfall as necessary, including paying real estate taxes directly, in order to protect its interest in the property.
|
(3)
|
Both amounts represent one loan ($15.1 million) originated by the Bank. Intervest Mortgage Corporation owns a participation in this loan. The loan is secured by a waterfront hotel,
restaurant and marina resort. Foreclosure proceedings are in progress but have temporarily been stayed by reason of a bankruptcy filing.
|
(4)
|
All six loans totaling $22.2 million are to borrowers with common principals. The principals are experiencing legal difficulties in connection with activities alleged by independent
third parties to be fraudulent with respect to the placing of unauthorized and unrecorded mortgages on these and other properties. On July 30, 2007, independent third parties filed an involuntary bankruptcy proceeding against the borrowers and
the principals. A Trustee has been appointed and has taken control of the properties and the rents. The Trustee advised the Company in February 2008 that a contract of sale was signed with respect to these and other properties. However, the sale was
never consummated. In April, the Trustee advised the Company that a new contract of sale has been entered into for these and other properties.
|
(5)
|
A foreclosure sale had been scheduled pursuant to an order entered in the State Court, but has temporarily been stayed by reason of a bankruptcy filing.
|
(6)
|
Foreclosure proceedings are in progress. The principals have consented to the entry of judgment.
|
(7)
|
Foreclosure proceedings are in progress. A court appointed receiver has taken over the management of the property, which is currently vacant. A portion of the insurance proceeds for
storm damage suffered at this property has not been accounted for. The Bank is funding any operating costs as necessary, including paying real estate taxes directly, in order to protect its interest in the property.
|
(8)
|
Foreclosure proceedings are in progress.
|
(9)
|
The Bank acquired title to the collateral property in February 2008 and the loan was transferred to foreclosed real estate. The property is being marketed for sale.
|
(10)
|
Foreclosure proceedings are in progress but have been temporarily stayed by reason of a bankruptcy filing.
|
(11)
|
Foreclosure proceedings are in progress.
|
21
Nonaccrual loans are considered impaired under the criteria of SFAS No.114 Accounting by Creditors for Impairment
of a Loanan amendment of FASB Statements No. 5 and 15. A specific valuation allowance in accordance with SFAS No. 114 was not maintained for nonaccrual loans at any time during the reporting periods since the Company believed
that the estimated fair value of each of the underlying collateral properties exceeded its recorded investment in the related nonaccrual loan. At March 31, 2008 and December 31, 2007, there were no other loans classified as impaired.
Subsequent to March 31, 2008 and prior to the filing of this report, a loan in the amount of $2.7 million secured by vacant land in the State of Florida was transferred to nonaccrual status for non-payment and foreclosure proceedings have been
initiated.
Estimates of fair value of the collateral properties is determined based on a variety of information, including available appraisals, estimates
of market value by local real estate brokers and the knowledge and experience of the Companys two senior lending officers (the Chairman and the President of the Bank) related to values of properties in the Companys market areas. The
existing appraisals for the properties collateralizing the nonaccrual loans at March 31, 2008 indicated loan-to-value ratios ranging from 50% to 87%. Determination of the need for updating appraisals is made on a loan-by-loan basis. In addition
to appraisals, the Company also takes into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value.
In the first quarter of 2008, the Company downgraded its internal credit ratings on several nonaccrual loans to reflect lower real estate values as well as the
uncertainty as to the timing of the collection of these loans. These downgrades resulted in $1.6 million of additional loan loss provision in the first quarter of 2008. The Company believes that the estimated fair value of each of the underlying
collateral properties continues to exceed its net recorded investment in each related nonaccrual loan as of March 31, 2008. However, there can be no assurance that the Company will not incur additional loan loss provisions, loan chargeoffs or
significant expenses with respect to the ultimate collection of its nonaccrual loans, which collection is anticipated to be through the eventual sale of the collateral property in most cases.
A prolonged downturn in real estate values and local economic conditions, as well as other factors, could have an adverse impact on the Companys asset quality and
the future level of nonperforming assets, chargeoffs and profitability.
During the first quarter of 2008, the Bank acquired title to a multifamily
real estate property located in Hollywood, Florida, that had collateralized one of its nonaccrual loans with a principal balance of $4.0 million. The Bank is marketing this property for sale.
Allowance For Loan Losses
The allowance for loan losses
increased to $23.9 million at March 31, 2008, from $21.6 million at December 31, 2007. The allowance represented 1.42% of total loans (net of deferred fees) outstanding at March 31, 2008 and 1.34% at December 31, 2007, and 24% of
nonaccrual loans at each date. The increase in the allowance was due to provisions totaling $2.3 million during the quarter, of which $1.6 million was attributable to downgrades of internal credit ratings on nonaccrual loans and $0.7 million from
net loan growth of $63 million from December 31, 2007. There were no loan chargeoffs during the period.
A detailed discussion of the factors and
estimates used in computing the allowance can be found under the caption Critical Accounting Policies on pages 37 to 39 of the Companys annual report on Form 10-K for the year ended December 31, 2007.
The following table summarizes the activity in the allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Intervest
National
Bank
|
|
Intervest
Mortgage
Corporation
|
|
Holding
Company
|
|
Consolidated
|
Balance at December 31, 2007
|
|
$
|
20,268
|
|
$
|
1,295
|
|
$
|
30
|
|
$
|
21,593
|
Provision charged to operations
|
|
|
2,259
|
|
|
4
|
|
|
|
|
|
2,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
$
|
22,527
|
|
$
|
1,299
|
|
$
|
30
|
|
$
|
23,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Assets
All other assets increased to $50 million at March 31, 2008, from $45 million at December 31, 2007. The increase was largely due to the addition of $4 million of real estate acquired through foreclosure as
noted above.
22
Deposits
Deposits increased to $1.78 billion at March 31, 2008, from $1.66 billion at December 31, 2007, reflecting an increase in certificate of deposit accounts of $71 million and an aggregate increase in checking, savings and money
market accounts of $51 million.
At March 31, 2008, certificate of deposit accounts totaled $1.48 billion, and checking, savings and money market
accounts aggregated $305 million. The same categories of deposit accounts totaled $1.41 billion and $254 million, respectively, at December 31, 2007. Certificate of deposit accounts represented 83% of total consolidated deposits at
March 31, 2008, compared to 85% at December 31, 2007. At March 31, 2008 and December 31, 2007, certificate of deposit accounts included $166 million of brokered deposits.
Borrowed Funds and Related Interest Payable
Borrowed funds
and related interest payable increased to $159 million at March 31, 2008, from $136 million at December 31, 2007, due to a $23 million increase in short-term FHLB advances.
All Other Liabilities
All other liabilities decreased to $41 million at March 31, 2008, from $46 million
at December 31, 2007. The decrease was primarily due to a lower level of official checks outstanding, partially offset by an increase in mortgage escrow funds payable.
Stockholders Equity
Stockholders equity increased to $184 million at March 31, 2008 as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Amount
|
|
Class A
Shares
|
|
Class B
Shares
|
|
Total
Shares
|
|
Amount
Per Share
|
Stockholders equity at December 31, 2007
|
|
$
|
179,561
|
|
7,690,812
|
|
385,000
|
|
8,075,812
|
|
$
|
22.23
|
Net earnings for the period
|
|
|
2,281
|
|
|
|
|
|
|
|
|
|
Compensation from stock options
|
|
|
58
|
|
|
|
|
|
|
|
|
|
Exercise of Class B common stock warrants (1)
|
|
|
1,803
|
|
|
|
195,000
|
|
195,000
|
|
|
9.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity at March 31, 2008
|
|
$
|
183,703
|
|
7,690,812
|
|
580,000
|
|
8,270,812
|
|
$
|
22.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
A total of 195,000 Class B common stock warrants were exercised in January 2008 at an average exercise price of $7.52 per share for total cash proceeds of $1.5 million. A $0.3
million income tax benefit in connection with the exercise was recorded in paid-in capital for a total increase to stockholders equity of $1.8 million from the exercise of Class B common stock warrants.
|
23
Comparison of Results of Operations for the Quarters Ended March 31, 2008 and 2007
Overview
Consolidated net earnings for the
first quarter of 2008 (Q1-08) decreased by $3.0 million, or 57%, to $2.3 million, or $0.28 per diluted share, from $5.3 million, or $0.62 per diluted share, in the first quarter of 2007 (Q1-07). The decrease in consolidated
net earnings was due to the following: a $2.7 million decrease in net interest and dividend income; a $1.4 million increase in the provision for loan losses; a $0.7 million increase in noninterest expenses; and a $0.7 million decrease in noninterest
income; partially offset by a $2.5 million decrease in the provision for income tax expense. Return on average assets and equity decreased to 0.44% and 5.01% respectively, in Q1-08, from 1.08% and 12.45%, respectively, in Q1-07. The Companys
book value per common share was $22.21 at March 31, 2008.
Selected information regarding results of operations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Intervest
National
Bank
|
|
|
Intervest
Mortgage
Corporation
|
|
Holding
Company
|
|
|
Inter-
Company
Amounts (2)
|
|
|
Consolidated
Q1-08
|
|
Consolidated
Q1-07
|
Interest and dividend income
|
|
$
|
30,246
|
|
|
$
|
1,578
|
|
$
|
64
|
|
|
$
|
(100
|
)
|
|
$
|
31,788
|
|
$
|
33,265
|
Interest expense
|
|
|
20,580
|
|
|
|
1,567
|
|
|
886
|
|
|
|
(100
|
)
|
|
|
22,933
|
|
|
21,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest and dividend income (expense)
|
|
|
9,666
|
|
|
|
11
|
|
|
(822
|
)
|
|
|
|
|
|
|
8,855
|
|
|
11,570
|
Provision for loan losses
|
|
|
2,259
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
2,263
|
|
|
854
|
Noninterest income
|
|
|
849
|
|
|
|
805
|
|
|
113
|
|
|
|
(824
|
)
|
|
|
943
|
|
|
1,602
|
Noninterest expenses
|
|
|
3,407
|
|
|
|
796
|
|
|
139
|
|
|
|
(824
|
)
|
|
|
3,518
|
|
|
2,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before taxes
|
|
|
4,849
|
|
|
|
16
|
|
|
(848
|
)
|
|
|
|
|
|
|
4,017
|
|
|
9,549
|
Provision (benefit) for income taxes
|
|
|
2,117
|
|
|
|
8
|
|
|
(389
|
)
|
|
|
|
|
|
|
1,736
|
|
|
4,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
2,732
|
|
|
$
|
8
|
|
$
|
(459
|
)
|
|
$
|
|
|
|
$
|
2,281
|
|
$
|
5,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany dividends (1)
|
|
|
(885
|
)
|
|
|
|
|
|
885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings after intercompany dividends
|
|
$
|
1,847
|
|
|
$
|
8
|
|
$
|
426
|
|
|
$
|
|
|
|
$
|
2,281
|
|
$
|
5,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings after intercompany dividends for the same period of 2007
|
|
$
|
4,297
|
|
|
$
|
618
|
|
$
|
438
|
|
|
$
|
|
|
|
$
|
5,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Dividends to the Holding Company from the Bank provide funds for the debt service on the subordinated debentures-capital securities, which is included in the Holding Companys
interest expense.
|
(2)
|
All significant intercompany balances and transactions are eliminated in consolidation. Such amounts arise from intercompany deposit accounts and management and service agreements.
|
Net Interest and Dividend Income
Net interest and dividend income is the Companys primary source of earnings and is influenced by the amount, distribution and repricing characteristics of its interest-earning assets and interest-bearing liabilities as well as by the
relative levels and movements of interest rates. Net interest income and dividend income is the difference between interest income earned on interest-earning assets, such as loans and securities, and interest expense paid on interest-bearing
liabilities, such as deposits and borrowings.
Net interest and dividend income decreased by $2.7 million to $8.9 million in Q1-08, from $11.6 million in
Q1-07 largely due to an $88 million increase in average nonaccrual loans. Interest income that was not recorded on nonaccrual loans amounted to $2.2 million in Q1-08, compared to a $0.2 million in Q1-07.
The Companys net interest margin (excluding income from loan prepayments) decreased to 1.71% in Q1-08, from 2.38% in Q1-07. The margin was negatively affected by
the increase in nonaccrual loans, repayments of higher yielding loans coupled with lower competitive pricing for new loans, and lower yields earned on investment securities and short-term investments.
Total average interest-earning assets increased $107 million in Q1-08 from Q1-07 due to growth in loans. This growth was funded largely by the following: a $115 million
increase in interest-bearing deposits; a $10 million increase in stockholders equity (largely due to retained earnings and the exercise of common stock warrants and conversion of debentures into common stock); partially offset by a $23 million
decrease in borrowed funds.
The yield on interest-earning assets decreased 69 basis points to 6.16% in Q1-08 due to the factors noted above. The cost of
funds decreased by only 2 basis points to 4.94% in Q1-08 despite a 300 basis point decrease in the Federal Open Market Committees (FOMC) federal funds rate since April 1, 2007. The cost of deposits actually increased slightly in Q1-08 in
comparison to Q1-07. The Bank believes this was attributable to the fact that large national banks continued to offer high interest rates on deposit accounts during this time period, and as a result, in order to remain competitive, smaller banks did
not lower their deposit rates in step with the FOMC.
24
The following table provides information on: average assets, liabilities and stockholders equity; yields earned on
interest-earning assets; and rates paid on interest-bearing liabilities for the periods indicated. The yields and rates shown are based on a computation of income/expense (including any related fee income or expense) for each period divided by
average interest-earning assets/interest-bearing liabilities during each period. Average balances are derived from daily balances. Net interest margin is computed by dividing net interest and dividend income by the average of total interest-earning
assets during each period. The interest rate spread is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest margin is greater than the interest rate
spread due to the additional income earned on those assets funded by non-interest-bearing liabilities, primarily demand deposits and stockholders equity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31, 2008
|
|
|
March 31, 2007
|
|
($ in thousands)
|
|
Average
Balance
|
|
|
Interest
Inc./Exp.
|
|
Yield/
Rate (2)
|
|
|
Average
Balance
|
|
|
Interest
Inc./Exp.
|
|
Yield/
Rate (2)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1)
|
|
$
|
1,646,655
|
|
|
$
|
26,862
|
|
6.56
|
%
|
|
$
|
1,539,966
|
|
|
$
|
27,988
|
|
7.37
|
%
|
Securities
|
|
|
401,143
|
|
|
|
4,703
|
|
4.72
|
|
|
|
407,763
|
|
|
|
4,987
|
|
4.96
|
|
Other interest-earning assets
|
|
|
29,207
|
|
|
|
223
|
|
3.07
|
|
|
|
22,673
|
|
|
|
290
|
|
5.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
2,077,005
|
|
|
$
|
31,788
|
|
6.16
|
%
|
|
|
1,970,402
|
|
|
$
|
33,265
|
|
6.85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets
|
|
|
18,646
|
|
|
|
|
|
|
|
|
|
20,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,095,651
|
|
|
|
|
|
|
|
|
$
|
1,990,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking deposits
|
|
$
|
5,591
|
|
|
$
|
24
|
|
1.73
|
%
|
|
$
|
11,781
|
|
|
$
|
58
|
|
2.00
|
%
|
Savings deposits
|
|
|
8,391
|
|
|
|
62
|
|
2.97
|
|
|
|
10,218
|
|
|
|
74
|
|
2.94
|
|
Money market deposits
|
|
|
253,008
|
|
|
|
2,547
|
|
4.05
|
|
|
|
221,710
|
|
|
|
2,377
|
|
4.35
|
|
Certificates of deposit
|
|
|
1,455,641
|
|
|
|
17,769
|
|
4.91
|
|
|
|
1,364,343
|
|
|
|
16,228
|
|
4.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposit accounts
|
|
|
1,722,631
|
|
|
|
20,402
|
|
4.76
|
|
|
|
1,608,052
|
|
|
|
18,737
|
|
4.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances and Fed funds purchased
|
|
|
8,853
|
|
|
|
75
|
|
3.41
|
|
|
|
21,928
|
|
|
|
297
|
|
5.49
|
|
Debentures and related interest payable
|
|
|
78,712
|
|
|
|
1,567
|
|
8.01
|
|
|
|
88,258
|
|
|
|
1,771
|
|
8.14
|
|
Debenturescapital securities
|
|
|
56,702
|
|
|
|
886
|
|
6.28
|
|
|
|
56,702
|
|
|
|
886
|
|
6.34
|
|
Mortgage note payable
|
|
|
199
|
|
|
|
3
|
|
6.06
|
|
|
|
214
|
|
|
|
4
|
|
7.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowed funds
|
|
|
144,466
|
|
|
|
2,531
|
|
7.05
|
|
|
|
167,102
|
|
|
|
2,958
|
|
7.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
1,867,097
|
|
|
$
|
22,933
|
|
4.94
|
%
|
|
|
1,775,154
|
|
|
$
|
21,695
|
|
4.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
4,353
|
|
|
|
|
|
|
|
|
|
4,356
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities
|
|
|
42,211
|
|
|
|
|
|
|
|
|
|
39,342
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
181,990
|
|
|
|
|
|
|
|
|
|
171,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,095,651
|
|
|
|
|
|
|
|
|
$
|
1,990,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest and dividend income/spread
|
|
|
|
|
|
$
|
8,855
|
|
1.22
|
%
|
|
|
|
|
|
$
|
11,570
|
|
1.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets/margin (3)
|
|
$
|
209,908
|
|
|
|
|
|
1.71
|
%
|
|
$
|
195,248
|
|
|
|
|
|
2.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of total interest-earning assets to total interest-bearing liabilities
|
|
|
1.11
|
|
|
|
|
|
|
|
|
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets (2)
|
|
|
0.44
|
%
|
|
|
|
|
|
|
|
|
1.08
|
%
|
|
|
|
|
|
|
Return on average equity (2)
|
|
|
5.01
|
%
|
|
|
|
|
|
|
|
|
12.45
|
%
|
|
|
|
|
|
|
Noninterest expense to average assets (2)
|
|
|
0.67
|
%
|
|
|
|
|
|
|
|
|
0.56
|
%
|
|
|
|
|
|
|
Efficiency ratio (4)
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
21
|
%
|
|
|
|
|
|
|
Average stockholders equity to average assets
|
|
|
8.68
|
%
|
|
|
|
|
|
|
|
|
8.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes average nonaccrual loans of $95.8 million in the 2008 period and $8.0 million in the 2007 period. Interest not accrued on such loans totaled $2.2 million in the 2008 period
and $0.2 million in the 2007 period.
|
(3)
|
Net interest margin is reported exclusive of income from loan prepayments, which is included as a component of noninterest income. Inclusive of income from loan prepayments, the
margin would compute to 1.74% and 2.64% for the 2008 period and 2007 period, respectively.
|
(4)
|
Defined as noninterest expenses (excluding the provision for loan losses) as a percentage of net interest and dividend income plus noninterest income.
|
25
The following table provides information regarding changes in interest and dividend income and interest expense. For each
category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (change in rate multiplied by prior volume), (2) changes in volume (change in volume multiplied by
prior rate) and (3) changes in rate-volume (change in rate multiplied by change in volume).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended March 31, 2008 vs. 2007
Increase (Decrease) Due To Change In:
|
|
($ in thousands)
|
|
Rate
|
|
|
Volume
|
|
|
Rate/Volume
|
|
|
Total
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
(3,118
|
)
|
|
$
|
1,966
|
|
|
$
|
26
|
|
|
$
|
(1,126
|
)
|
Securities
|
|
|
(245
|
)
|
|
|
(82
|
)
|
|
|
43
|
|
|
|
(284
|
)
|
Other interest-earning assets
|
|
|
(120
|
)
|
|
|
85
|
|
|
|
(32
|
)
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
(3,483
|
)
|
|
|
1,969
|
|
|
|
37
|
|
|
|
(1,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking deposits
|
|
|
(8
|
)
|
|
|
(31
|
)
|
|
|
5
|
|
|
|
(34
|
)
|
Savings deposits
|
|
|
1
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(12
|
)
|
Money market deposits
|
|
|
(166
|
)
|
|
|
340
|
|
|
|
(4
|
)
|
|
|
170
|
|
Certificates of deposit
|
|
|
307
|
|
|
|
1,100
|
|
|
|
134
|
|
|
|
1,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposit accounts
|
|
|
134
|
|
|
|
1,396
|
|
|
|
135
|
|
|
|
1,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances and Fed funds purchased
|
|
|
(114
|
)
|
|
|
(179
|
)
|
|
|
71
|
|
|
|
(222
|
)
|
Debentures and accrued interest payable
|
|
|
(29
|
)
|
|
|
(194
|
)
|
|
|
19
|
|
|
|
(204
|
)
|
Debenturescapital securities
|
|
|
(9
|
)
|
|
|
|
|
|
|
9
|
|
|
|
|
|
Mortgage note payable
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowed funds
|
|
|
(153
|
)
|
|
|
(373
|
)
|
|
|
99
|
|
|
|
(427
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
(19
|
)
|
|
|
1,023
|
|
|
|
234
|
|
|
|
1,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in interest and dividend income
|
|
$
|
(3,464
|
)
|
|
$
|
946
|
|
|
$
|
(197
|
)
|
|
$
|
(2,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses
The provision for loan losses increased by $1.4 million to $2.3 million in Q1-08, from $0.9 million in Q1-07. The increase was the result of credit downgrades on various nonaccrual loans. Total loans outstanding grew
by $63 million in Q1-08, compared to $59 million in Q1-07.
Noninterest Income
Noninterest income decreased by $0.7 million to $0.9 million in Q1-08, from $1.6 million in Q1-07. The decrease was primarily due to a $1.1 million decrease in income from loan prepayments, partially offset by a $0.4
million increase in gains (which consists of the recognition of any unamortized premium or discount at time of call) from the early call of investment securities.
The sharp decline in market interest rates in Q1-08 resulted in a higher level of securities being called by the issuers. The Company believes that its loan prepayments and prepayment income derived there from has decreased due to
longer-term, fixed rate loans that have been originated by the Company since the beginning of 2007 as well as the effects of the crisis in the credit markets in general that was experienced in the first quarter of 2008 as widely reported by the
media. The credit crisis severely reduced funds available in the general marketplace for real estate lending.
Noninterest Expenses
Noninterest expenses increased by $0.7 million to $3.5 million in Q1-08, from $2.8 million in Q1-07. The increase was due to a $0.3 million
increase in expenses associated with nonaccrual loans/foreclosed real estate and a $0.4 million increase in FDIC insurance premiums.
The Companys
efficiency ratio, which is a measure of its ability to control expenses as a percentage of its revenues, was 36% in Q1-08, compared to 21% in Q1-07. The efficiency ratio was negatively affected largely by nonaccrual loans and higher FDIC insurance
premiums. The Company had 71 employees at March 31, 2008, compared to 73 at March 31, 2007.
Provision for Income Taxes
The provision for income taxes decreased by $2.5 million to $1.7 million in Q1-08, from $4.2 million in Q1-07 due to a decrease in pre-tax income. The Companys
effective tax rate (inclusive of state and local taxes) amounted to 43.2% in Q1-08 and 43.9% in Q1-07.
26
Off-Balance Sheet and Other Financing Arrangements
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. For a further
discussion of these financial instruments, see note 11 to the condensed consolidated financial statements included in this report.
Liquidity and Capital Resources
General
. The Company manages its liquidity position on a daily basis to assure that
funds are available to meet its operating requirements, loan and investment commitments, deposit withdrawals and debt service obligations. Primary sources of funds consist of the following: retail deposits obtained through the Banks branch
offices and the mail; principal repayments of loans; maturities and calls of securities; issuance of debentures; borrowings from the federal funds market and through FHLB advances; and cash flow provided by operating activities. For additional
detail concerning the Companys cash flows, see the consolidated statements of cash flows included in this report.
Intervest National Bank.
The Banks lending business is dependent on its ability to generate a positive interest rate spread between the yields earned on its loans and the rates offered on its deposits. The Bank needs to pay competitive interest rates to
attract and retain deposits to fund its loan originations.
The Bank relies heavily on certificates of deposit (time deposits) as its main source of funds.
Consolidated deposits amounted to $1.78 billion at March 31, 2008 and time deposits represented 83% or $1.48 billion of those deposits, down from 85% at December 31, 2007. Additionally, time deposits of $100,000 or more at March 31,
2008 totaled $623 million, compared to $586 million at December 31, 2007, and included $166 million of brokered deposits at each date. The Banks brokered deposits are sold by investment firms, which are paid a fee by the Bank for placing
the deposit. The Bank must maintain its status as a well-capitalized insured depository institution in order to solicit and accept, renew or roll over any brokered deposit without restriction. Time deposits are the only deposit accounts offered by
the Bank that have stated maturity dates. These deposits are generally considered to be rate sensitive and have a higher cost than deposits with no stated maturities, such as checking, savings and money market accounts. At March 31, 2008, $555
million of time deposits mature by March 31, 2009. Based on past experience, the Bank expects that a substantial portion of these deposits will be renewed and remain with the Bank.
The Bank borrows funds on an overnight or short-term basis to manage its liquidity needs. At March 31, 2008, the Bank had agreements with correspondent banks whereby it could borrow up to $28 million on an
unsecured basis. As a member of the FHLB of New York and FRB of New York, the Bank can also borrow from these institutions on a secured basis. The Banks average outstanding short-term borrowings totaled $9 million in the first quarter of 2008.
At March 31, 2008, there were $22.5 million of borrowings outstanding, compared to none at December 31, 2007. At March 31, 2008, the Bank had available collateral consisting of investment securities to support additional total
borrowings of $363 million from the FHLB and FRB.
The Bank invests in U.S. government agency debt obligations to emphasize safety and liquidity. All of
the Banks security investments are classified as held to maturity, and nearly all of the securities have fixed rates of interest or have predetermined scheduled rate increases, and many have call features that allow the issuer to call the
security at par before its stated maturity without penalty. At March 31, 2008, the entire portfolio had a weighted-average remaining maturity of 5.1 years, and $30 million of the securities mature by March 31, 2009. The Bank expects to
reinvest the proceeds from these maturities into new securities. The Banks loan-to-deposit ratio was 86% at March 31, 2008, compared to 88% at December 31, 2007. The Banks goal is to target its loan-to-deposit ratio at
approximately 85%.
The Bank had cash and short-term investments of $31 million at March 31, 2008 and $319 million of its loan portfolio (excluding
nonaccrual loans) matures by March 31, 2009. The Bank expects to extend or refinance a portion of these maturing loans. At March 31, 2008, the Bank had commitments to lend of $123 million, most of which are anticipated to be funded over
the next 12 months from the sources of funds described above. The Bank continues to experience competitive market conditions and lower pricing in originating loans, which encompass both interest rates and fees charged on new loans.
The Bank has in the past received capital contributions from the Holding Company to increase its capital to support its asset growth. No cash contributions have been
made to the Bank since 2005. At March 31, 2008, the Bank had excess regulatory capital to support an additional $507 million of asset growth and still maintain a well-capitalized designation.
27
Intervest Mortgage Corporation.
Intervest Mortgage Corporations lending business is dependent on its
ability to generate a positive interest rate spread between the yields earned on its mortgage loans and the rates paid on its debentures. Intervest Mortgage Corporation relies on the issuance of its subordinated debentures in registered, best
efforts offerings to the public as its primary source of funds to support its loan originations. Intervest Mortgage Corporation needs to pay competitive interest rates to sell its debentures and also incurs underwriting commissions and other fees
when debentures are sold, which reduce the net proceeds realized. In addition to funds from sales of debentures, as the Banks mortgage loan portfolio has grown, service fee income received by Intervest Mortgage Corporation from the Bank has
comprised a larger percentage of Intervest Mortgage Corporations earnings and resulting cash inflows. The Bank has a servicing agreement with Intervest Mortgage Corporation that is described on page 9 under the caption Loan Solicitation
and Processing in the Companys Annual Report on Form 10-K for the year ended December 31, 2007. The Bank paid $0.7 million in the first quarter of 2008 to Intervest Mortgage Corporation pursuant to the agreement. From time to time,
Intervest Mortgage Corporation has also received cash capital contributions from the Holding Company. No contributions have been made since 2002.
Intervest Mortgage Corporation, as of March 31, 2008, had $76.3 million of debentures outstanding with fixed interest rates that range from 6.25% to 7.75% and maturities that range from July 1, 2008 to July 1, 2014. In the
first quarter of 2008, Intervest Mortgage Corporation did not issue any new debentures nor repay existing ones. At March 31, 2008, $6.0 million of debentures and $1.5 million of accrued interest payable mature by March 31, 2009. On
April 1, 2008, Intervest Mortgage Corporation repaid from cash on hand $8.3 million of its debentures prior to their stated maturity, including $0.5 million of related accrued interest payable.
Intervest Mortgage Corporation, as of March 31, 2008, had $16.6 million in cash and short-term investments, compared to $0.5 million of commitments to lend. In
addition, $30.2 million of its mortgage loans (excluding nonaccrual loans) are scheduled to mature by March 31, 2009, although some portion is expected to be extended or refinanced by Intervest Mortgage Corporation. As a result, cash and
short-term investments (less $8.8 million used to repay the debentures on April 1, 2008 as noted above) as well as the proceeds from the repayment of maturing mortgages will be available for investment in new mortgage loans. Competitive market
conditions and lower pricing for new loans has also made it more difficult for Intervest Mortgage Corporation to identify suitable mortgage investment opportunities. Intervest Mortgage Corporations loan originations have decreased
significantly from its historical levels and amounted to $1.2 million in the first quarter of 2008. The level of future loan originations will fluctuate with market conditions and is unpredictable.
Intervest Mortgage Corporation experienced a significant increase in nonaccrual loans in the third quarter of 2007. As of March 31, 2008, 31% of its mortgage loan
portfolio ($28.4 million) was on nonaccrual status, which has adversely affected its net interest income and cash flows derived therefrom, and has placed an even greater reliance on fee income and cash flows generated from Intervest Mortgage
Corporations intercompany services provided to the Bank. If this level of nonaccrual loans were to increase or continue for an extended period, Intervest Mortgage Corporations ability to issue new debentures to the public, originate new
loans and meet its debt service and operating cash flow requirements could be adversely affected. In the first quarter of 2008, Intervest Mortgage Corporations interest income from its accruing loan portfolio exceeded the interest expense from
its outstanding debentures by only $11,000. As noted above, various debentures were repaid on April 1, 2008 prior to their stated maturities, which will result in approximately $39,000 of incremental net interest income per month going forward.
A loss of $117,000 from the early extinguishment was recorded in April 2008, which represents the expensing of remaining related unamortized issuance costs. The collection of nonaccrual loans is also aggressively being pursued through foreclosure
actions. There can be no assurance that additional loan loss provisions, loan chargeoffs or significant expenses will not be incurred with respect to the ultimate collection of the nonaccrual loans, which collection is anticipated to be from the
eventual sale of the collateral properties in most cases.
Holding Company.
The Holding Companys sources of funds and capital have been
derived from the following: interest income from a limited portfolio of mortgage loans (including purchased participations in loans originated by the Bank) and short-term investments; monthly dividends from the Bank to service interest expense on
trust preferred securities; monthly management fees from Intervest Mortgage Corporation and the Bank for providing these subsidiaries with certain administrative services; the issuance of its common stock through public offerings, exercise of common
stock warrants and conversion of debentures; the issuance of trust preferred securities through its wholly owned business trusts; and the direct issuance of other subordinated debentures to the public. At March 31, 2008, the Holding Company had
no debentures outstanding and $3.1 million in cash and short-term investments.
28
The Holding Company, through its wholly owned business trusts, has issued at various times since 2001 approximately $72
million of trust preferred securities, of which $56.7 million were outstanding as of March 31, 2008. The outstanding securities have fixed rates of interest for a five-year period and thereafter variable rates and contractually mature at
various time through 2036. The resulting proceeds have been invested in the Bank at various times through capital contributions. The Holding Company is required to make interest payments that currently total $3.5 million annually on the outstanding
trust preferred securities.
The Bank provides the funds for this debt service in the form of dividends to the Holding Company. At March 31, 2008 and
December 31, 2007, $55 million of the trust preferred securities (representing outstanding debentures net of the Holding Companys common stock investments in the trusts) qualified for and was included as regulatory Tier 1 capital. If the
Bank is unable to pay dividends to the Holding Company, the Holding Company may not be able to service its debt, pay its other obligations, or pay dividends on its common stock. On April 23, 2008, the Holding Companys board of directors
approved the payment of a cash dividend of $0.25 per share on the Holding Companys outstanding Class A and Class B common stock. The dividend is payable June 16, 2008 to shareholders of record on the close of business June 2,
2008.
Other.
Additional information concerning securities held to maturity, short-term borrowings, outstanding time deposits and debentures,
including interest rates and maturity dates, can be found in notes 3, 6, 7 and 8 of the notes to the condensed consolidated financial statements included in this report. Additional information regarding trust preferred securities can be found in
note 9 to the consolidated financial statements included in the Companys annual report on Form 10-K for the year ended December 31, 2007. The Holding Company, the Bank and Intervest Mortgage Corporation each consider their current
liquidity and sources of funds sufficient to satisfy their outstanding lending commitments and maturing liabilities. Management is not aware of any trends, known demand, commitments or uncertainties other than those discussed above that are expected
to have a material impact on future operating results, liquidity or capital resources of each entity. However, there can be no assurances that adverse conditions may not arise in credit markets that would adversely impact the Companys ability
to raise funds (either through attracting deposits, from borrowings or sales of assets) to meet its operations and satisfy its outstanding lending commitments and maturing liabilities.
Regulatory Capital
The Bank is subject to various regulatory capital requirements. As
discussed on page 20 of the Companys annual report on Form 10-K for the year ended December 31, 2007, the Federal Deposit Insurance Corporation (FDIC) and other bank regulatory agencies use five capital categories ranging from well
capitalized to critically undercapitalized to determine various matters, including prompt corrective action and each institutions FDIC deposit insurance premiums. These categories involve quantitative measures of a banks assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other
factors. Failure to meet minimum capital requirements can result in certain mandatory and discretionary actions by the regulators that, if undertaken, could have a direct material effect on the Banks and the Companys financial
statements.
The Bank is required to maintain regulatory defined minimum Tier 1 leverage and Tier 1 and total risk-based capital ratio levels of at least
4%, 4% and 8%, respectively. At March 31, 2008 and December 31, 2007, management believes the Bank met its capital adequacy requirements and is a well-capitalized institution as defined in the regulations, which require minimum Tier 1
leverage and Tier 1 and total risk-based ratios of 5%, 6% and 10%, respectively. Management is not aware of any conditions or events that would change the Banks designation as a well-capitalized institution.
Information regarding the Banks regulatory capital and related ratios is summarized as follows:
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
At March 31,
2008
|
|
|
At December 31,
2007
|
|
Tier 1 Capital
|
|
$
|
200,307
|
|
|
$
|
198,090
|
|
Tier 2 Capital
|
|
|
21,387
|
|
|
|
20,268
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital
|
|
$
|
221,694
|
|
|
$
|
218,358
|
|
|
|
|
|
|
|
|
|
|
Net risk-weighted assets
|
|
$
|
1,709,867
|
|
|
$
|
1,627,053
|
|
Average assets for regulatory purposes
|
|
$
|
1,986,631
|
|
|
$
|
1,914,469
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital to average assets
|
|
|
10.08
|
%
|
|
|
10.35
|
%
|
Tier 1 capital to risk-weighted assets
|
|
|
11.71
|
%
|
|
|
12.17
|
%
|
Total capital to risk-weighted assets
|
|
|
12.97
|
%
|
|
|
13.42
|
%
|
|
|
|
|
|
|
|
|
|
29
The Company on a consolidated basis is subject to minimum regulatory capital requirements administered by the FRB. These
guidelines require a ratio of Tier 1 or Core Capital, as defined in the guidelines, to total risk-weighted assets of at least 4% and a ratio of total capital to risk-weighted assets of at least 8%. The guidelines also require a ratio of Tier 1
capital to adjusted total average assets of not less than 3%. At March 31, 2008 and December 31, 2007 management believes that the Company met its capital adequacy requirements.
Information regarding consolidated regulatory capital and related ratios is summarized below:
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
At March 31,
2008
|
|
|
At December 31,
2007
|
|
Tier 1 Capital (1)
|
|
$
|
238,703
|
|
|
$
|
234,561
|
|
Tier 2 Capital (1)
|
|
|
22,700
|
|
|
|
21,593
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital
|
|
$
|
261,403
|
|
|
$
|
256,154
|
|
|
|
|
|
|
|
|
|
|
Net risk-weighted assets
|
|
$
|
1,814,811
|
|
|
$
|
1,733,124
|
|
Average assets for regulatory purposes
|
|
$
|
2,095,651
|
|
|
$
|
2,023,606
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital to average assets
|
|
|
11.39
|
%
|
|
|
11.59
|
%
|
Tier 1 capital to risk-weighted assets
|
|
|
13.15
|
%
|
|
|
13.53
|
%
|
Total capital to risk-weighted assets
|
|
|
14.40
|
%
|
|
|
14.78
|
%
|
|
|
|
|
|
|
|
|
|
(1)
|
At March 31, 2008 and December 31, 2007, there were $55 million of qualifying capital securities outstanding, respectively, representing the total outstanding debentures
issued to Statutory Trust II, III, IV and V by the Holding Company, net of the Holding Companys investments in those trusts. The entire $55 million is included in Tier I capital. The inclusion of these securities in Tier 1 capital is currently
limited to 25% of core capital elements, as defined in the FDIC regulations.
|
Beginning March 31, 2009, the use of trust preferred
securities in the Tier 1 capital of bank holding companies will become subject to stricter limitations. For a further discussion of these restrictions, see pages 54 and 55 of the Companys annual report on Form 10-K for the year ended
December 31, 2007. As of March 31, 2008 and December 31, 2007, assuming the Holding Company had excluded all of its eligible trust preferred securities from Tier 1 Capital and included such amount in Tier 2 capital, the Company would
still have exceeded its minimum capital requirement threshold under the regulatory framework for prompt corrective action.
Asset and
Liability Management
Interest rate risk arises from differences in the repricing of assets and liabilities within a given time period. The primary
objective of the Companys asset/liability management strategy is to limit, within established guidelines, the adverse effect of changes in interest rates on its net interest income and capital. The Company does not engage in trading or hedging
activities, nor does it invest in interest rate derivatives or enter into interest rate swaps.
The Company uses gap analysis, which measures
the difference between interest-earning assets and interest-bearing liabilities that mature or reprice within a given time period, to monitor its interest rate sensitivity. For a further discussion of gap analysis, including the factors that affect
its computation and results, see pages 55 to 57 of the Companys annual report on Form 10-K for the year ended December 31, 2007.
The
Companys one-year interest rate sensitivity gap amounted to a negative $303 million, or (14.0)% of total assets, at March 31, 2008, compared to a negative gap of $99 million, or (4.9)% of total assets at December 31, 2007. The change
in the gap is a function of the following: the continued runoff of loans with a repricing or remaining maturity of less than one year being replaced with new fixed rate loans with maturities of greater than one year; purchases of security
investments with longer-term maturities; an increase in money market accounts and time deposit with maturities of one year or less; and an increase in borrowings maturing or repricing within the one year time frame. The Company is currently
liability-sensitive, indicating that its interest-bearing liabilities would generally reprice with changes in interest rates more rapidly than its interest earning assets.
For purposes of computing the gap, all deposits with no stated maturities are treated as readily accessible accounts. However, if such deposits were treated differently, the one-year gap would then change. Depositors
may not necessarily immediately withdraw funds in the event deposit rates offered by the Bank did not change as quickly and uniformly as changes in general market rates. For example, if only 25% of deposits with no stated maturity were assumed to be
readily accessible, the one-year gap would have been a negative 4% at March 31, 2008, compared to a positive 4% at December 31, 2007.
30
The table that follows summarizes interest-earning assets and interest-bearing liabilities as of March 31, 2008,
that are scheduled to mature or reprice within the periods shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
0-3
Months
|
|
|
4-12
Months
|
|
|
Over 1-4
Years
|
|
|
Over 4
Years
|
|
|
Total
|
|
Loans (1)
|
|
$
|
216,962
|
|
|
$
|
310,789
|
|
|
$
|
692,515
|
|
|
$
|
369,049
|
|
|
$
|
1,589,315
|
|
Securities held to maturity (2)
|
|
|
15,284
|
|
|
|
36,311
|
|
|
|
147,648
|
|
|
|
207,484
|
|
|
|
406,727
|
|
Short-term investments
|
|
|
29,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,449
|
|
FRB and FHLB stock
|
|
|
3,737
|
|
|
|
|
|
|
|
|
|
|
|
3,631
|
|
|
|
7,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rate-sensitive assets
|
|
$
|
265,432
|
|
|
$
|
347,100
|
|
|
$
|
840,163
|
|
|
$
|
580,164
|
|
|
$
|
2,032,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit accounts (3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking deposits
|
|
$
|
5,550
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,550
|
|
Savings deposits
|
|
|
8,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,058
|
|
Money market deposits
|
|
|
280,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280,114
|
|
Certificates of deposit
|
|
|
103,390
|
|
|
|
451,825
|
|
|
|
689,974
|
|
|
|
231,259
|
|
|
|
1,476,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
397,112
|
|
|
|
451,825
|
|
|
|
689,974
|
|
|
|
231,259
|
|
|
|
1,770,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
22,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,500
|
|
Debentures and mortgage note payable (1)
|
|
|
8,250
|
|
|
|
33,928
|
|
|
|
64,274
|
|
|
|
26,696
|
|
|
|
133,148
|
|
Accrued interest on all borrowed funds (1)
|
|
|
1,698
|
|
|
|
|
|
|
|
1,269
|
|
|
|
574
|
|
|
|
3,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowed funds
|
|
|
32,448
|
|
|
|
33,928
|
|
|
|
65,543
|
|
|
|
27,270
|
|
|
|
159,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rate-sensitive liabilities
|
|
$
|
429,560
|
|
|
$
|
485,753
|
|
|
$
|
755,517
|
|
|
$
|
258,529
|
|
|
$
|
1,929,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAP (repricing differences)
|
|
$
|
(164,128
|
)
|
|
$
|
(138,653
|
)
|
|
$
|
84,646
|
|
|
$
|
321,635
|
|
|
$
|
103,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative GAP
|
|
$
|
(164,128
|
)
|
|
$
|
(302,781
|
)
|
|
$
|
(218,135
|
)
|
|
$
|
103,500
|
|
|
$
|
103,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative GAP to total assets
|
|
|
(7.6
|
)%
|
|
|
(14.0
|
)%
|
|
|
(10.1
|
)%
|
|
|
4.8
|
%
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant assumptions used in preparing the gap table above follow:
(1)
|
Floating-rate loans and debentures payable are included in the period in which their interest rates are next scheduled to adjust rather than in the period in which they mature.
Fixed-rate loans and debentures payable are scheduled, including repayments, according to their contractual maturities. Deferred loan fees and the effect of possible loan prepayments are excluded from the analysis. Nonaccrual loans of $97.7 million
are also excluded from the table although some portion may to return to an accrual status.
|
(2)
|
Securities are scheduled according to the earlier of their contractual maturity or the date in which the interest rate is scheduled to increase. The effects of possible prepayments
that may result from the issuers right to call a security before its contractual maturity date are not considered.
|
(3)
|
Interest checking, savings and money market deposits are regarded as readily accessible withdrawable accounts; and certificates of deposit are scheduled according to their
contractual maturity dates.
|
Recent Accounting Pronouncements
See note 14 to the condensed consolidated financial statements included in this report for a discussion of this topic.
ITEM 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
Market
risk is the risk of loss from adverse changes in market prices and interest rates. The Companys market risk arises primarily from interest rate risk inherent in its lending and deposit-taking activities, and the issuance of its debentures. The
Company has not engaged in and accordingly has no risk related to trading accounts, commodities, interest rate hedges or foreign exchange.
The measurement
of market risk associated with financial instruments is meaningful only when all related and offsetting on-and off-balance sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about the fair value of
financial instruments as of December 31, 2007, which reflect changes in market prices and rates, can be found in note 21 to the consolidated financial statements included in the Companys annual report on Form 10-K for the year ended
December 31, 2007. Management believes that there have been no significant changes in the Companys market risk exposure since December 31, 2007.
Management actively monitors and manages the Companys interest rate risk exposure. The primary objective in managing interest rate risk is to limit, within established guidelines, the adverse impact of changes in interest rates on the
Companys net interest income and capital. In this regard, the Bank does internal analyses by preparing interest rate shock scenarios (representing the effects of specific assumed interest rate changes on net interest income) to its basic
one-year gap model as a quantitative tool to measure the amount of interest rate risk associated with changing market interest rates.
31
The Bank also engages an outside consultant to prepare quarterly reports using an earnings simulation model to quantify
the effects of various interest rate scenarios on projected net interest income and net income over projected periods. These computations rely on various assumptions regarding balance sheet growth and composition, and the pricing and repricing and
maturity characteristics of the Companys balance sheet. For a further discussion of GAP analysis, see the section entitled Asset and Liability Management of this report.
ITEM 4.
|
Controls and Procedures
|
The Companys management evaluated,
with the participation of its Principal Executive and Financial Officers, the effectiveness of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of the end
of the period covered by this report. Based on such evaluation, the Principal Executive and Financial Officers have concluded that the Companys disclosure controls and procedures are designed to ensure that information required to be disclosed
in the reports the Company files or furnishes under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SECs rules and regulations, and are operating in an effective
manner.
There has been no change in the Companys internal control over financial reporting that occurred during the Companys most recent
fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1.
|
Legal Proceedings
|
Not Applicable
This Item 1A requires disclosure of any material
changes from risk factors previously disclosed in the Companys most recent annual report on Form 10-K. There have been no material changes to the Companys risk factors disclosed in the Risk Factors section of the
Companys annual report on Form 10-K for the year ended December 31, 2007, where such factors are discussed on pages 24 through 29.
ITEM 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Not Applicable
ITEM 3.
|
Defaults Upon Senior Securities
|
Not Applicable
ITEM 4.
|
Submission of Matters to a Vote of Security Holders
|
(a) Not
Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
ITEM 5.
|
Other Information
|
Not Applicable
The following exhibits are filed as part of this report.
|
|
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31.0
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Certification of the principal executive officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
|
|
|
31.1
|
|
Certification of the principal financial officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
|
|
|
32.0
|
|
Certification of the principal executive and financial officers pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
|
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
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|
|
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INTERVEST BANCSHARES CORPORATION
|
|
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(Registrant)
|
|
|
|
Date: April 24, 2008
|
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By:
|
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/s/ Lowell S. Dansker
|
|
|
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Lowell S. Dansker, Chairman and Executive Vice President
|
|
|
|
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(Principal Executive Officer)
|
|
|
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Date: April 24, 2008
|
|
By:
|
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/s/ John J. Arvonio
|
|
|
|
|
John J. Arvonio, Chief Financial and Accounting Officer
|
|
|
|
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(Principal Financial Officer)
|
33
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