Intervest Bancshares Corporation (IBC) (NASDAQ-GS: IBCA), parent company of Intervest National Bank (INB), today announced that its net earnings for the first quarter of 2014 (Q1-14) increased 12% to $3.8 million, or $0.17 per share, from $3.4 million, or $0.16 per share, for the first quarter of 2013 (Q1-13).
Since 1993, Intervest has been engaged in commercial and multifamily real estate mortgage lending with an emphasis on cash flowing properties located mostly on the East Coast of the U.S. Most recently, Intervest has also expanded its lending market to include some Midwest and Western states, primarily in loans on single tenant credit and non-credit (triple-net leased) retail properties. Intervest's 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.
Balance Sheet Summary
- There were no preferred dividend requirements in Q1-14, compared to $0.5 million in Q1-13, due to the repurchase and retirement of IBC's preferred stock (TARP) during June and August 2013.
- Net interest and dividend income increased 13% to $10.2 million in Q1-14, from $9.0 million in Q1-13, reflecting a higher net interest margin. The margin (exclusive of loan prepayment income) benefitted from lower deposit costs and increased to 2.73% in Q1-14 from 2.37% in Q1-13.
- A credit for loan losses of $0.5 million was recorded in Q1-14, compared to a $1.0 million credit in Q1-13. The amount for Q1-14 reflected the upgrade of one performing TDR loan due to an increase in the loan's collateral value. The Q1-13 credit was primarily the result of $1.1 million of cash recoveries of prior charge offs from settlements of litigation relating to foreclosure actions.
- No provision for real estate losses was recorded in Q1-14, compared to $0.6 million in Q1-13. The amount for Q1-13 reflected decreases in the estimated fair value of a number of properties owned through foreclosure (REO).
- Noninterest income (inclusive of loan prepayment income) remained relatively unchanged at $0.8 million in Q1-14, compared to $0.7 million in Q1-13, as a lower level of loan prepayment income was offset by a decrease in security impairment charges.
- Real estate expenses, net of rental and other income, amounted to $0.2 million in Q1-14, compared to net income of $0.9 million in Q1-13. The income for Q1-13 reflected $1.5 million of cash recoveries of expenses from litigation settlements. Excluding the recoveries, real estate expenses would have amounted to $0.6 million Q1-13.
- Operating expenses increased to $4.6 million in Q1-14, from $4.2 million in Q1-13, primarily due to normal salary increases, awards of bonuses to employees and higher stock compensation expense, partially offset by a decrease in FDIC insurance expense.
- Our efficiency ratio, which measures our ability to control expenses as a percentage of revenues, continued to be favorable and was 41% in Q1-14, compared to 42% in Q1-13.
Asset Quality Summary
- Assets increased to $1.60 billion at March 31, 2014, from $1.57 billion at December 31, 2013, reflecting increases of $54 million in cash and short-term investments and $15 million in loans, partially offset by a $38 million decrease in security investments.
- Loans outstanding increased to $1.15 billion at March 31, 2014, from $1.13 billion at December 31, 2013.
- Loan originations increased to $67 million in Q1-14, from $62 million in Q1-13. Loan repayments decreased to $52 million in Q1-14 from $86 million in Q1-13.
- Deposits increased to $1.30 billion at March 31, 2014, from $1.28 billion at December 31, 2013.
- Stockholders' equity increased to $202 million at March 31, 2014, from $197 million at December 31, 2013, reflecting primarily an increase in retained earnings of $3.8 million.
- INB was well-capitalized at March 31, 2014 with regulatory capital ratios as follows: Tier One Leverage - 15.55%; Tier One Risk-Based Capital - 19.84%; and Total Risk-Based Capital - 21.10%.
- Book value per common share increased to $9.16 at March 31, 2014, from $8.99 at December 31, 2013.
Net Interest and Dividend Income
- Nonaccrual loans totaled $38.7 million at March 31, 2014, compared to $35.9 million at December 31, 2013, and included certain restructured loans (TDRs) at each period of $32.6 million and $33.2 million, respectively. The TDRs were current, have performed in accordance with their restructured terms and had a weighted-average interest rate of approximately 4.6% at each date.
- Accruing TDR loans amounted to approximately $13 million at March 31, 2014 and December 31, 2013. These loans had a weighted-average interest rate of approximately 5% at each date.
- The allowance for loan losses was $27.4 million, or 2.40% of total loans, at March 31, 2014, compared to $27.8 million, or 2.47%, at December 31, 2013. The allowance included specific reserves allocated to impaired loans at each date (totaling $5.7 million and $6.1 million, respectively). Impaired loans (comprised of nonaccrual loans, accruing TDRs and one other accruing and performing loan) totaled $59.9 million at March 31, 2014, compared to $57.2 million at December 31, 2013.
- REO decreased to $9.3 million at March 31, 2014 from $10.6 million at December 31, 2013, reflecting the sale of one property.
The $1.2 million increase in net interest and dividend income was due to a higher net interest margin. The margin improved to 2.73% in Q1-14 from 2.37% in Q1-13, primarily due to a 41 basis point increase in the interest rate spread and a $14 million increase in net interest-earning assets. The higher spread reflected lower rates paid on new deposits and run-off of higher-cost legacy CDs, partially offset by payoffs of older, higher yielding loans coupled with new loan originations at lower market interest rates. Overall, our average cost of funds decreased by 54 basis points to 1.59% in Q1-14 from 2.13% in Q1-13, while our average yield on earning assets decreased by 13 basis points to 4.14% in Q1-14 from 4.27% in Q1-13. Total average interest-earning assets decreased by $24 million in Q1-14 from Q1-13, reflecting a $59 million decrease in total securities and overnight investments, partially offset by a $35 million increase in loans. At the same time, average deposits and borrowed funds decreased by $38 million, while average total stockholders' equity decreased by $14 million (due to the repurchase of preferred stock during 2013, partially offset by an increase in average common equity).