Intervest Bancshares Corporation (IBC) (NASDAQ-GS: IBCA), parent company of Intervest National Bank (INB), today announced that its net earnings for the third quarter of 2013 (Q3-13) increased 16% to $2.6 million, or $0.12 per share, from $2.2 million, or $0.10 per share, for the third quarter of 2012 (Q3-12). For the first nine months of 2013 (9mths-13), net earnings increased 26% to $9.2 million, or $0.42 per share, from $7.3 million, or $0.34 per share, for the first nine months of 2012 (9mths-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.
As discussed below, the increase in quarterly earnings was driven primarily by 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. The increase in year-to-date earnings was a function of the same quarterly factors as well as a credit for loan losses.
Financial Operating Highlights
Financial Condition Highlights
- The provision for real estate losses decreased to $0.2 million in Q3-13 from $1.0 million in Q3-12, and to $0.9 million in 9mths-13 from $2.9 million in 9mths-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, decreased to $0.2 million in Q3-13 from $0.9 million in Q3-12, reflecting a lower level of REO. For 9mths-13, REO activities produced net income of $1.1 million, compared to $1.8 million of net expenses in 9mths-12, largely due to $0.8 million of gains from the sale of three properties and $1.6 million of cash recoveries of expenses associated with previously owned properties. Exclusive of these income items, net real estate expenses would have been $1.3 million in 9mths-13.
- The provision for loan losses was $0.3 million in Q3-13 compared to no provision in Q3-12. The increase was driven primarily by growth in the loan portfolio. For 9mths-13, a net credit for loan losses of $1.5 million was recorded compared to no provisions or credits for loan losses in 9mths-12. The credit was largely a function of partial cash recoveries of prior loan charge offs during the first and second quarters of 2013.
- Net interest and dividend income decreased to $8.8 million in Q3-13, from $9.8 million in Q3-12, and to $26.4 million in 9mths-13 from $29.5 million in 9mths-12. The net interest margin was 2.32% in Q3-13 and Q3-12, and 2.33% in 9mths-13 and 2.23% in 9mths-12.
- Noninterest income decreased to $0.9 million in Q3-13 from $1.2 million in Q3-12, and to $2.3 million in 9mths-13 from $3.7 million in 9mths-12. The decreases for both periods were due to less income from loan prepayments and a higher level of security impairment charges.
- Operating expenses decreased to $3.9 million in Q3-13 from $4.2 million in Q3-12, and to $12.0 million in 9mths-13 from $12.5 million in 9mths-12, primarily due to a decrease in FDIC insurance expense resulting from a smaller balance sheet and improved risk assessment rating.
- Our efficiency ratio (which measures our ability to control expenses as a percentage of revenues) continued to be favorable but increased slightly to 40% in Q3-13, from 38% in Q3-12, due to lower revenues.
- Income tax expense amounted to $2.3 million in both Q3-13 and Q3-12. For 9mths-13, income tax expense increased to $8.2 million from $7.3 million in 9mths-12 due to higher pre-tax income.
- Assets at September 30, 2013 totaled $1.58 billion compared to $1.67 billion at December 31, 2012, primarily reflecting decreases of $27 million in security investments and $30 million in cash and short-term investments.
- Loans outstanding increased by $44 million during Q3-13 and totaled $1.10 billion at September 30, 2013, compared to $1.11 billion at December 31, 2012. New loan originations for 9mths-13 increased to $221 million, from $159 million for 9mths-12, while loan repayments also increased to $225 million in 9mths-13, from $165 million in 9mths-12.
- Nonaccrual loans decreased to $39.5 million at September 30, 2013, from $45.9 million at December 31, 2012. Nonaccrual loans included restructured loans (TDRs) of $35.8 million at September 30 and $36.3 million at December 31 that were current and have performed in accordance with their renegotiated terms. At September 30, 2013, such loans had a weighted-average yield of 4.57%.
- The allowance for loan losses at September 30, 2013 was $26.8 million, or 2.43% of total 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 and TDRs) at each date totaling $4.8 million and $5.9 million, respectively.
- Securities held to maturity decreased to $416 million at September 30, 2013 from $444 million at December 31, 2012.
- Deposits at September 30, 2013 decreased to $1.30 billion from $1.36 billion at December 31, 2012.
- Borrowed funds and related interest payable at September 30, 2013 decreased to $57.2 million, from $62.9 million at December 31, 2012, reflecting the payment in Q2-13 of accrued interest payable on outstanding debentures.
- REO decreased to $12.0 million at September 30, 2013, from $15.9 million at December 31, 2012. The decrease reflected $6.0 million of sales and $0.9 million of write-downs in carrying value, partially offset by the addition of one property in the amount of $3.0 million.
- Stockholders' equity decreased to $192 million at September 30, 2013, from $211 million at December 31, 2012, reflecting the redemption of $25 million of preferred stock and the payment of $5.1 million of preferred dividends in arrears, partially offset by $10 million of earnings.
- INB's regulatory capital ratios at September 30, 2013 were well above the minimum requirements to be considered a well-capitalized institution and were as follows: Tier One Leverage - 14.97%; Tier One Risk-Based - 19.21%; and Total Risk-Based Capital - 20.48%.
- Book value per common share was $8.77 at September 30, 2013.
The $1.0 million decrease in net interest and dividend income (our primary source of earnings) in Q3-13 compared to Q3-12 was due to a smaller balance sheet. In Q3-13, total average interest-earning assets decreased by $183 million from Q3-12, reflecting decreases of $84 million in loans and $99 million in total securities and overnight investments. At the same time, average deposits and borrowed funds decreased by $215 million and $10 million, respectively, while average stockholders' equity decreased by $4 million. The net interest margin was 2.32% in Q3-13, unchanged from Q3-12, as the benefit of a higher ratio of interest-earning assets to interest-bearing liabilities (or a $42 million increase in net interest-earning assets) was offset by a 5 basis point decrease in our interest rate spread. The lower spread was due to 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, largely offset by lower rates paid on deposits and the run-off of higher-cost CDs and borrowings. Overall, the average yield on earning assets decreased by 38 basis points to 4.10% in Q3-13, from 4.48% in Q3-12, while the average cost of funds decreased by 33 basis points to 2.02% in Q3-13, from 2.35% in Q3-12.