Intervest Bancshares Corporation (NASDAQ-GS: IBCA), parent company of Intervest National Bank (INB), announced that its net earnings for the second quarter of 2013 (Q2-13) increased 39% to $3.2 million, or $0.14 per share, from $2.3 million, or $0.11 per share, for the second quarter of 2012 (Q2-12). For the first half of 2013 (6mths-13), net earnings increased 30% to $6.6 million, or $0.30 per share, from $5.1 million, or $0.24 per share, for the first half of 2012 (6mths-12).
Since 1993, Intervest has been primarily engaged in commercial and multifamily real estate mortgage lending with an emphasis on cash flowing properties located on the East Coast of the U.S. Its lending operation is highly personalized and targeted to provide customized financing solutions for real estate acquisitions and operations. Intervest does not make construction or land development loans or single family home loans.
The increase in net earnings for both 2013 periods was primarily driven by a credit for loan losses, a lower provision for real estate losses and a decrease in net real estate expenses, partially offset by decreases in both net interest income and noninterest income and higher income tax expense as discussed below.
Financial Operating Highlights
Financial Condition Highlights
- A credit for loan losses of $0.8 million and $1.8 million was recorded in Q2-13 and 6mths-13, respectively, compared to no credits or provisions for loan losses in the same periods of 2012. The credits were a function of partial cash recoveries of prior loan charge offs, fewer substandard loans outstanding and an overall decrease in the loan portfolio.
- The provision for real estate losses decreased to $0.1 million in Q2-13 from $1.4 million in Q2-12, and to $0.7 million in 6mths-13 from $1.9 million in 6mths-12, reflecting fewer write-downs in the carrying value of real estate owned through foreclosure (REO).
- Real estate expenses, net of rental and other income, totaled $0.5 million in Q2-12 and $0.9 million in 6mths-12. For 2013, REO activities produced net income of $0.3 million in Q2-13 and $1.3 million in 6mths-13, due to a $0.7 million gain from the sale of one property in Q2-13 and a total of $1.6 million ($1.5 million in Q1-13 and $0.1 million in Q2-13) of cash recoveries of expenses associated with previously owned properties. Exclusive of these income items, net real estate expenses would have been $0.5 million in Q2-13 and $1.0 million in 6mths-13.
- Net interest and dividend income decreased to $8.6 million in Q2-13, from $9.7 million in Q2-12, and to $17.6 million in 6mths-13 from $19.7 million in 6mths-12. The net interest margin (exclusive of loan prepayment income) improved to 2.30% in Q2-13, from 2.23% in Q2-12 and to 2.33% in 6mths-13, from 2.19% in 6mths-12.
- Noninterest income decreased to $0.7 million in Q2-13 from $1.4 million in Q2-12, and to $1.4 million in 6mths-13 from $2.5 million in 6mths-12. The decreases in both periods were due to less income from loan prepayments and a higher level of security impairment charges.
- Operating expenses decreased to $4.0 million in Q2-13 from $4.2 million in Q2-12, and to $8.1 million in 6mths-13 from $8.3 million in 6mths-12, primarily due to a decrease in FDIC insurance expense. The Company's efficiency ratio (which measures its ability to control expenses as a percentage of revenues) continued to be favorable but increased to 43% in Q2-13, from 37% in Q2-12, due to lower revenues.
- Income tax expense increased to $2.8 million in Q2-13, from $2.3 million in Q2-12, and to $5.9 million in 6mths-13, from $5.0 million in 6mths-12, due to higher pre-tax income.
- Total assets at June 30, 2013 decreased to $1.60 billion from $1.67 billion at December 31, 2012, primarily reflecting decreases of $51 million in loans and $33 million in security investments, partially offset by a $27 million increase in cash and short-term investments.
- Total loans decreased to $1.06 billion at June 30, 2013, from $1.11 billion at December 31, 2012. New loan originations for 6mths-13 increased to $124 million, from $97 million for 6mths-12. Total loan repayments increased to $172 million in 6mths-13, from $121 million in 6mths-12.
- The allowance for loan losses at June 30, 2013 was $26.5 million, representing 2.50% of total net loans, compared to $28.1 million, or 2.54%, at December 31, 2012. The allowance included specific reserves for impaired loans (comprised of all nonaccrual loans as well as accruing restructured loans or TDRs) at each date totaling $4.7 million and $5.9 million, respectively.
- Total securities held to maturity decreased to $411 million at June 30, 2013 from $444 million at December 31, 2012.
- Total deposits at June 30, 2013 decreased to $1.29 billion from $1.36 billion at December 31, 2012.
- Borrowed funds and related interest payable at June 30, 2013 decreased to $56.7 million, from $62.9 million at December 31, 2012, due to the payment in June of accrued interest payable on outstanding debentures.
- Nonaccrual loans decreased to $39 million at June 30, 2013, from $46 million at December 31, 2012. Nonaccrual loans include certain TDRs that are current as to payments and performing in accordance with their renegotiated terms. At June 30, 2013, such loans totaled $35.8 million compared to $36.3 million at December 31, 2012. These loans were yielding 4.57% at June 30, 2013.
- REO decreased to $14.8 million at June 30, 2013, from $15.9 million at December 31, 2012. The decrease reflected the sale of one property ($3.4 million) and $0.7 million of write-downs in the carrying value of various properties, partially offset by one new property ($3.0 million).
- Total stockholders' equity increased slightly to $212 million at June 30, 2013, from $211 million at December 31, 2012. Book value per common share (after subtracting preferred dividends in arrears) increased to $8.64 at June 30, 2013 from $8.44 at December 31, 2012.
- INB's regulatory capital ratios at June 30, 2013 were as follows: Tier One Leverage - 15.45%; Tier One Risk-Based - 20.99%; and Total Risk-Based Capital - 22.25%, well above the minimum requirements to be considered a well-capitalized institution.
The decrease in net interest and dividend income, the Company's primary source of earnings, of $1.1 million in Q2-13 and $2.1 million in 6mths-13 was primarily due to INB's smaller balance sheet, partially offset by a higher net interest margin. In Q2-13, total average interest-earning assets decreased by $260 million from Q2-12, reflecting decreases of $98 million in loans and $162 million in total securities and overnight investments. At the same time, average deposits and borrowed funds decreased by $274 million and $10 million, respectively, while average stockholders' equity increased by $14 million. The net interest margin increased slightly by 7 basis points to 2.30% in Q2-13, reflecting a 5 basis point improvement in the interest rate spread and a higher ratio of interest-earning assets to interest-bearing liabilities, or a $24 million increase in net interest-earning assets. The higher spread was due to lower rates paid on deposits and the run-off of higher-cost CDs and borrowings, largely offset by payoffs of higher yielding loans and calls of security investments, coupled with the re-investment of a large portion of these cash inflows into new loans and securities at significantly lower market interest rates. Overall, the average cost of funds decreased by 37 basis points to 2.09% in Q2-13, from 2.46% in Q2-12, while the average yield on earning assets decreased at a slower pace or by 32 basis points to 4.20% in Q2-13, from 4.52% in Q2-12. For the 6mths-13 period, total average interest-earning assets decreased by $284 million from 6mths-12, reflecting decreases of $83 million in loans and $201 million in total securities and overnight investments. At the same time, average deposits and borrowed funds decreased by $290 million and $12 million, respectively, while average stockholders' equity increased by $14 million. The net interest margin increased by 14 basis points to 2.33% in 6mths-13. The average cost of funds decreased by 39 basis points to 2.11% in 6mths-13, from 2.50% in 6mths-12, while the average yield on earning assets decreased by 28 basis points to 4.23% in 6mths-13, from 4.51% in 6mths-12. The reasons for the six-month changes were the same as the quarterly variances.