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Intervest Bancshares Corporation (IBC) (NASDAQ-GS:IBCA), parent company of Intervest National Bank (INB), today announced that its earnings for the fourth quarter of 2013 (Q4-13) increased 37% to $4.2 million, or $0.19 per share, from $3.1 million, or $0.14 per share, for the fourth quarter of 2012 (Q4-12). Net earnings for the full year 2013 increased 29% to $13.4 million, or $0.61 per share, from $10.4 million, or $0.48 per share, for 2012.
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.
Financial Operating Highlights
Net interest income increased to $10.1 million in Q4-13, from $9.7 million in Q4-12, reflecting a higher net interest margin. For 2013, net interest income decreased to $36.5 million from $39.2 million in 2012, reflecting a smaller average balance sheet. The net interest margin improved to 2.57% in Q4-13 from 2.47% in Q4-12, and to 2.39% for 2013 from 2.29% for 2012.
The provision for loan losses increased to $1.0 million in Q4-13 from no provision in Q4-12, reflecting primarily the impact of $27 million of net loan growth and the downgrade of one performing loan (of $7.8 million) to substandard in Q4-13. For 2013, a net credit of $0.5 million was recorded compared to no provision in 2012. The credit was primarily a function of $2.2 million of cash recoveries of prior charge offs exceeding current chargeoffs of $1.9 million and an improvement in the qualitative factors used in the determination of the allowance for loan losses.
Noninterest income increased to $2.6 million in Q4-13 from $2.5 million in Q4-12 due to a $1.5 million gain from the sale of impaired investment securities (TRUPs) and a $0.4 million decrease in security impairment charges, mostly offset by a $1.7 million decrease in loan prepayment income. For 2013, noninterest income decreased to $4.9 million from $6.2 million in 2012, primarily due to $2.5 million of lower prepayment income, partially offset by the gain from the sale of TRUPs.
The provision for real estate losses decreased to $0.1 million in Q4-13 from $1.1 million in Q4-12, and to $1.1 million in 2013 from $4.1 million in 2012, 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 $0.3 million in Q4-13, unchanged from Q4-12. For 2013, REO activities produced net income of $0.8 million compared to $2.1 million of net expenses in 2012, largely due to $0.9 million of net gains from sales of REO and $1.6 million of cash recoveries of expenses associated with previously owned properties.
Operating expenses decreased to $3.6 million in Q4-13 from $4.2 million in Q4-12, and to $15.6 million in 2013 from $16.7 million in 2012, primarily due to decreases in FDIC insurance expense, professional fees and stock compensation expense.
Our efficiency ratio (which measures our ability to control expenses as a percentage of revenues) improved to 29% in Q4-13 from 35% in Q4-12.
Income tax expense increased to $3.5 million in Q4-13 from $3.0 million in Q4-12, and to $11.7 million in 2013 from $10.3 million in 2012, reflecting higher pre-tax income.
Preferred dividend requirements decreased to none in Q4-13 from $0.5 million in Q4-12, and to $1.1 million in 2013 from $1.8 million in 2012, reflecting the repurchase of TARP preferred stock during June and August of 2013.
Financial Condition Highlights
Assets totaled $1.57 billion at December 31, 2013 compared to $1.67 billion at December 31, 2012, reflecting decreases of $60 million in security investments and $36 million in cash and short-term investments.
Loans outstanding increased by $20 million and totaled $1.13 billion at December 31, 2013, compared to $1.11 billion at December 31, 2012. Loan originations increased to $303 million in 2013 from $242 million in 2012. Loan repayments increased to $279 million in 2013 from $249 million in 2012.
Nonaccrual loans decreased to $35.9 million at December 31, 2013 from $45.9 million at December 31, 2012, and included restructured loans (TDRs) of $33.2 million and $36.3 million, respectively. All the TDRs were current and have performed in accordance with their restructured terms. The TDRs had a weighted-average yield of 4.56% at December 31, 2013.
The allowance for loan losses was $27.8 million, or 2.47% of total loans, at December 31, 2013, compared to $28.1 million, or 2.54%, at December 31, 2012. The allowance included specific reserves for impaired loans at each date (totaling $6.1 million and $5.9 million, respectively). Impaired loans (which include all nonaccrual loans and TDRs) totaled $57.2 million at December 31, 2013, compared to $66.0 million at December 31, 2012.
Securities held to maturity decreased to $384 million at December 31, 2013 from $444 million at December 31, 2012, due to calls exceeding new purchases.
REO decreased to $10.6 million at December 31, 2013 from $15.9 million at December 31, 2012, reflecting $7.2 million of sales and $1.1 million of write-downs in carrying value, partially offset by the addition of one property for $3.0 million.
Deposits decreased to $1.28 billion at December 31, 2013 from $1.36 billion at December 31, 2012, reflecting net deposit outflow for the year.
Borrowed funds and related accrued interest payable decreased to a total of $57.6 million at December 31, 2013 from $62.9 million at December 31, 2012, reflecting the payment of accrued interest on outstanding debentures.
Stockholders' equity decreased to $197 million at December 31, 2013 from $211 million at December 31, 2012, reflecting primarily the repurchase of $25 million of TARP preferred stock and payment of $5.1 million of accumulated preferred dividends, partially offset by earnings (before preferred dividend requirements) of $14.5 million.
INB was well-capitalized at December 31, 2013 with regulatory capital ratios as follows: Tier One Leverage - 15.23%; Tier One Risk-Based - 19.65%; and Total Risk-Based Capital - 20.91%.
Book value per common share increased to $8.99 at December 31, 2013 from $8.44 at December 31, 2012.
The $0.4 million increase in quarterly net interest income was due to an improved net interest margin. The margin increased to 2.57% in Q4-13 from 2.47% in Q4-12, primarily due to a $98 million increase in net interest-earning assets (primarily from the deployment of cash on hand into new loans) and a 2 basis point increase in our interest rate spread. The higher spread reflected 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. Total average interest-earning assets in Q4-13 decreased slightly or by $0.8 million from Q4-12, reflecting a $21.5 million decrease in total securities and overnight investments, mostly offset by a $20.7 million increase in loans. At the same time, average deposits and borrowed funds decreased by $97 million and $2 million, respectively, while average stockholders' equity decreased by $16 million (due to the repurchase of preferred stock). Overall, our average cost of funds decreased by 46 basis points to 1.76% in Q4-13 from 2.22% in Q4-12, while our average yield on earning assets decreased by 44 basis points to 4.10% in Q4-13 from 4.54% in Q4-12.