IBCA (MM)

Intervest Bancshares Corporation (NASDAQ-GS:IBCA), parent company of Intervest National Bank, today reported net earnings for the second quarter of 2012 ("Q2-12") of $2.3 million, or $0.11 per diluted common share, compared to $2.5 million, or $0.12 per share, for the second quarter of 2011 ("Q2-11"). For the first half of 2012 (6mths-12), net earnings were $5.1 million, or $0.24 per share, compared to $4.2 million, or $0.20 per share, for the first half of 2011 (6mths-11).

Key Points Follow:

• Intervest National Bank's regulatory capital ratios continued to increase through the retention of earnings and a gradual reduction in the size of its balance sheet. The Bank's ratios at June 30, 2012 were as follows: Tier One Leverage - 12.40%; Tier One Risk-Based - 17.79%; and Total Risk-Based Capital - 19.05%; well above its minimum requirements of 9%, 10% and 12%, respectively. Tier 1 capital amounted to $230 million and was $63 million in excess of the required minimum for the Tier One Leverage ratio.
• New loan originations increased to $97 million in the 6mths-12 period from $28 million in the 6mths-11 period.
• Nonaccrual loans decreased to $51 million at June 30, 2012, from $57 million at December 31, 2011. Nonaccrual loans include certain restructured loans (TDRs) that are current as to payments and performing in accordance with their renegotiated terms, but are required to be classified nonaccrual based on regulatory guidance. At June 30, 2012, such loans totaled $39 million compared to $46 million at December 31, 2011. These loans were yielding approximately 5%.
• Real estate owned through foreclosure (REO) decreased to $26.4 million at June 30, 2012, from $28.3 million at December 31, 2011, reflecting $1.9 million of writedowns since year end. The bulk of the writedowns, or $1.3 million, is associated with two properties in Florida that were in the process of being sold as of June 30, 2012, with closings expected early in the third quarter. The net carrying value of these properties totaled $3.3 million at June 30, 2012, which approximated their contractual net selling prices.
• Provisions for loan and real estate losses decreased to $1.4 million in Q2-12 from $2.0 million in Q2-11, and to $1.9 million in 6mths-12 from $4.1 million in 6mths-11.
• Operating expenses for Q2-12 were $4.1 million, unchanged from Q2-11, and $8.3 million in 6mths-12, down from $8.5 million in 6mths-11. The Company's efficiency ratio (which measures its ability to control expenses as a percentage of revenues) continued to be favorable and was 37% for Q2-12 and 6mths-12.
• Net interest and dividend income, which was affected by a smaller balance sheet, amounted to $9.7 million in Q2-12, compared to $10.9 million in Q2-11, and $19.7 million in 6mths-12 compared to $21.2 million in 6mhs-11. The net interest margin was 2.23% in Q2-12 and 2.19% in 6mths-12, compared to 2.24% and 2.19%, respectively, for the same periods of 2011.
• Book value per common share increased to $8.16 at June 30, 2012, from $8.07 at December 31, 2011.

Net earnings for Q2-12 decreased by $0.2 million from Q2-11 due to a $1.2 million decrease in net interest and dividend income (as detailed below), largely offset by a $0.6 million decrease in the total provision for loan and real estate losses (resulting primarily from fewer loans outstanding and fewer credit rating downgrades) and a $0.4 million increase in noninterest income (due to higher income from loan prepayments). Operating expenses for Q2-12 were unchanged from Q2-11 as a $0.4 million decrease in FDIC premiums was offset by a $0.4 million aggregate increase in salaries, benefits and stock compensation expense, including the impact of several new officer positions during 2012. The effective income tax rate was 46% in Q2-12 and 45% in Q2-11.

The decrease in net interest and dividend income was largely due to a planned reduction in the size of the Bank's balance sheet. In Q2-12, total average interest-earning assets decreased by $191 million from Q2-11, reflecting a $128 million decrease in average loans and a $63 million decrease in average securities and overnight investments. At the same time, average deposits and borrowed funds decreased by $142 million and $12 million, respectively, while average stockholders' equity increased by $13 million. The net interest margin was nearly unchanged as a $37 million decrease in net average interest-earning assets (due to a higher level of cash on hand) was offset by a slight increase in the interest rate spread. The spread improved by 4 basis points due to the steady reduction in rates paid on deposits and 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 in new loans and securities at lower market interest rates. Overall, the average cost of funds decreased by 46 basis points to 2.46% in Q2-12, from 2.92% in Q2-11, while the average yield on earning assets decreased at a slower pace by 42 basis points to 4.52% in Q2-12, from 4.94% in Q2-11.

Net earnings for 6mths-12 increased by $0.9 million over 6mths-11 due to the following: a $2.1 million decrease in the total provision for loan and real estate losses; a $1.2 million increase in noninterest income; and a $0.2 million decrease in operating expenses, partially offset by a $1.6 million decrease in net interest and dividend income and a $1.0 million increase in income tax expense. The reasons for these changes were essentially the same as the factors that caused the quarterly variances.

Total assets at June 30, 2012 decreased to $1.86 billion from $1.97 billion at December 31, 2011, primarily reflecting a $165 million decrease in security investments and a $26 million decrease in loans, partially offset by a $92 million increase in cash and short-term investments. The Bank expects to utilize a large portion of the increase in cash to fund new loans. At June 30, 2012, the Bank had $77 million of potential new real estate loans in its origination pipeline.

Securities held to maturity decreased to $535 million at June 30, 2012 from $700 million at December 31, 2011, reflecting calls of securities exceeding new purchases. A portion of the resulting proceeds was used to fund planned deposit outflow and a portion was being held temporarily in cash and short-term investments as denoted above. At June 30, 2012, the securities portfolio, which represented 29% of total assets and was comprised mostly of U.S. government agency debt ($434 million) and residential mortgage-backed pass through securities ($96 million), had a weighted-average expected yield, remaining life and remaining contractual maturity of 1.37%, 1.4 years and 7.1 years, respectively.

Loans totaled $1.14 billion at June 30, 2012, compared to $1.16 billion at December 31, 2011. The decrease reflected $97 million of payoffs, $24 million of amortization and $1.9 million of chargeoffs, partially offset by $97 million of new loans. Loans paid off had a weighted-average yield of 6.21%. New loans, nearly all with fixed interest rates, had a weighted-average yield, term and loan-to-value ratio of 4.85%, 5.4 years and 58%, respectively.

Nonaccrual loans and REO aggregated to $77 million, or 4.1% of total assets, at June 30, 2012, compared to $86 million, or 4.3%, at December 31, 2011. Nonaccrual loans totaled $51 million at June 30, 2012 and $57 million at December 31, 2011, and included $39 million (12 loans) and $46 million (12 loans) of TDRs that were current at each date, respectively. One loan ($5.5 million) was upgraded and classified as an accruing TDR in Q2-12. All the TDRs classified as nonaccrual have performed as agreed under their renegotiated terms and interest income is being recorded on a cash basis. Based on annual updated appraisals received on the underlying collateral properties, a portion of three TDRs (or $1.4 million of aggregate principal) was charged off for financial statement purposes in Q1-12. The borrowers remain obligated to pay all contractual principal due on the TDRs.

The allowance for loan losses at June 30, 2012 was $28.8 million, representing 2.54% of total net loans, compared to $30.4 million, or 2.61%, at December 31, 2011. The allowance included specific reserves for impaired loans (comprised of all nonaccrual loans as well as accruing TDRs) at each date totaling $6 million and $8 million, respectively.

At June 30, 2012, the Company had a deferred tax asset totaling $34.1 million, which included remaining unused NOL and AMT credit carryforwards totaling $25 million for Federal tax purposes and $56 million for State and Local tax purposes. These carryforwards are available to reduce taxes payable on the Company's future taxable income.

Deposits at June 30, 2012 decreased to $1.55 billion from $1.66 billion at December 31, 2011, primarily reflecting a $102 million decrease in CD accounts, of which $16.5 million were brokered. At June 30, 2012, there were $33 million of scheduled maturities of brokered CDs through December 31, 2012, which the Bank expects to repay as they mature.

Borrowed funds and related interest payable at June 30, 2012 decreased to $72.5 million, from $78.6 million at December 31, 2011, due to the maturity and repayment of $7 million of FHLB borrowings, partially offset by a $0.9 million increase in accrued interest payable on trust preferred securities (TRUPs). Since February 2010, as required by its regulator and as permitted by the underlying documents, the Company has suspended the payment of interest on $55 million of its debt in the form of TRUPs as well as the declaration and payment of dividends on $25 million of TARP preferred stock held by the U.S.Treasury.

Stockholders' equity increased to $204 million at June 30, 2012 from $198 million at December 31, 2011, primarily due to $6 million of net earnings before preferred dividend requirements.

Intervest Bancshares Corporation (IBC) is a bank holding company. Its operating subsidiary is Intervest National Bank (INB), a nationally chartered commercial bank that has its headquarters and full-service banking office at One Rockefeller Plaza, in New York City, and a total of six full-service banking offices in Clearwater and Gulfport, Florida. IBC's Common Stock is listed on the NASDAQ Global Select Market: Trading Symbol IBCA. This release may contain forward-looking information. Words such as "may," "will," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," "project," "assume," "indicate," "continue," "target," "goal," and similar words or expressions of the future are intended to identify forward-looking statements. Except for historical information, the matters discussed herein are subject to certain risks and uncertainties that may adversely affect our business, financial condition and results of operations. The following factors, among others, could cause actual results to differ materially from those set forth in forward looking statements: the regulatory agreements to which IBC and INB are currently subject to and any operating restrictions arising therefrom including availability of regulatory approvals or waivers; changes in economic conditions and real estate values both nationally and in our market areas; changes in our borrowing facilities, volume of loan originations and deposit flows; changes in the levels of our non-interest income and provisions for loan and real estate losses; changes in the composition and credit quality of our loan portfolio; legislative or regulatory changes, including increased expenses arising therefrom; changes in interest rates which may reduce our net interest margin and net interest income; increases in competition; technological changes which we may not be able to implement; changes in accounting or regulatory principles, policies or guidelines; changes in tax laws and our ability to utilize our deferred tax asset, including NOL and AMT carryforwards; and our ability to attract and retain key members of management. Reference is made to IBC's filings with the SEC for further discussion of risks and uncertainties regarding our business. Historical results are not necessarily indicative of our future prospects.

Selected Consolidated Financial Information Follows.

INTERVEST BANCSHARES CORPORATION

Selected Consolidated Financial Information

  (Dollars in thousands, except per share amounts)   Quarter Ended Six-Months Ended June 30, June 30, Selected Operating Data:   2012   2011   2012   2011   Interest and dividend income $19,706 $23,917 $40,404 $47,511 Interest expense 10,001   13,044   20,741   26,287   Net interest and dividend income 9,705 10,873 19,663 21,224 Provision for loan losses - 742 - 2,787 Noninterest income 1,406 1,007 2,531 1,330 Noninterest expenses: Provision for real estate losses 1,397 1,278 1,908 1,278 Real estate expenses 479 554 939 879 Operating expenses 4,149   4,099   8,313   8,509   Earnings before income taxes 5,086 5,207 11,034 9,101 Provision for income taxes 2,326   2,321   5,020   4,062   Net earnings before preferred dividend requirements 2,760 2,886 6,014 5,039 Preferred dividend requirements (1) 448   428   892   855   Net earnings available to common stockholders $ 2,312   $ 2,458   $ 5,122   $ 4,184   Basic and diluted earnings per common share   $0.11   $0.12   $0.24   $0.20   Average shares used for basic earnings per share (2) 21,590,689 21,126,489 21,542,103 21,126,489 Average shares used for diluted earnings per share (2) 21,591,648 21,126,489 21,542,103 21,126,489 Common shares outstanding at end of period 21,590,689 21,126,489 21,590,689 21,126,489 Common stock options/warrants outstanding at end of period   1,082,322   1,045,422   1,082,322   1,045,422   Yield on interest-earning assets 4.52 % 4.94 % 4.51 % 4.91 % Cost of funds 2.46 % 2.92 % 2.50 % 2.94 % Net interest margin   2.23 % 2.24 % 2.19 % 2.19 % Return on average assets (annualized) 0.58 % 0.57 % 0.63 % 0.49 % Return on average common equity (annualized) 6.22 % 7.00 % 6.83 % 6.15 % Effective income tax rate 46 % 45 % 46 % 45 % Efficiency ratio (3)   37 % 35 % 37 % 38 % Average loans outstanding $1,159,305 $1,287,029 $1,162,318 $1,308,104 Average securities outstanding 586,814 640,194 632,829 627,844 Average short-term investments outstanding 7,071 16,497 7,368 16,774 Average assets outstanding   1,887,668   2,029,339   1,916,410   2,037,623   Average interest-bearing deposits outstanding $1,570,674 $1,712,380 $1,601,169 $1,722,225 Average borrowings outstanding 67,202 79,334 68,779 80,455 Average stockholders' equity   201,873   188,993   200,319   187,914   At Jun 30, At Mar 31, At Dec 31, At Sep 30, At Jun 30, Selected Financial Condition Information: 2012   2012   2011   2011   2011   Total assets $1,862,110 $1,909,052 $1,969,540 $1,991,245 $2,050,379 Cash and short-term investments 122,378 89,839 29,863 36,798 14,461 Securities held to maturity 535,056 590,959 700,444 678,118 691,334 Loans, net of unearned fees 1,137,780 1,155,437 1,163,790 1,199,770 1,252,128 Allowance for loan losses 28,844 29,169 30,415 32,365 31,772 Allowance for loan losses/net loans 2.54 % 2.52 % 2.61 % 2.70 % 2.54 % Deposits 1,554,615 1,599,653 1,662,024 1,678,003 1,735,292 Borrowed funds and accrued interest payable 72,528 72,064 78,606 78,156 82,634 Preferred stockholder's equity 24,431 24,335 24,238 24,141 24,045 Common stockholders' equity 179,690 176,716 173,293 170,164 167,109 Common book value per share (4) 8.16     8.04   8.07   7.94   7.81   Loan chargeoffs for the quarter $498 $1,430 $2,044 $1,667 $ 1,374 Loan recoveries for the quarter 173 184 54 69 4 Real estate chargeoffs for the quarter - - - - - Security impairment writedowns for the quarter -     157   -   96   -   Nonaccrual loans (5) $50,643 $53,208 $57,240 $59,707 $45,352 Real estate owned, net of valuation allowance 26,370 27,767 28,278 27,005 25,786 Investment securities on a cash basis 4,222 4,222 4,379 4,379 4,475

Accruing troubled debt restructured (TDR) loans (6)

14,596 8,980 9,030 5,601 5,619 Loans 90 days past due and still accruing 5,290 2,798 1,925 8,571 4,594 Loans 60-89 days past due and still accruing 1,902 6,303 3,894 939 7,704 Loans 31-59 days past due and still accruing -     11,840   24,876   -   -  

(1) Represents dividend requirements on cumulative preferred stock held by the U.S. Treasury and amortization of related preferred stock discount.

(2) For the 2012 quarterly and six-month periods, outstanding options/warrants to purchase 1,043,322 shares and 1,082,322 shares, respectively, were not dilutive. For both 2011 periods, outstanding options/warrants to purchase 1,045,422 shares were not dilutive.

(3) Represents operating expenses as a percentage of net interest and dividend income plus noninterest income.

(4) Represents common stockholders' equity less preferred dividends in arrears of $3.5 million, $3.1 million, $2.8 million, $2.4 million and $2.1 million, respectively, divided by common shares outstanding.

(5) Include performing TDRs maintained on nonaccrual status of $39 million, $44 million, $46 million, $37 million and $33 million, respectively.

(6) Represent loans whose terms have been modified mostly through the deferral of principal and/or a partial reduction in interest payments, or extension of maturity date. All loans were performing and current as of June 30, 2012 and were yielding approximately 6.1%.

INTERVEST BANCSHARES CORPORATION

Consolidated Financial Highlights

    At or For The Period Ended

 

($ in thousands, except per share amounts)

 

Six-Months

Ended

June 30,

2012

Year

Ended

Dec 31,

2011

Year

Ended

Dec 31,

2010

Year

Ended

Dec 31,

2009

Year

Ended

Dec 31,

2008

Balance Sheet Highlights: Total assets $1,862,110 $1,969,540 $2,070,868 $2,401,204 $2,271,833 Cash and short-term investments 122,378 29,863 23,911 7,977 54,903 Securities held to maturity 535,056 700,444 614,335 634,856 475,581 Loans, net of unearned fees 1,137,780 1,163,790 1,337,326 1,686,164 1,705,711 Allowance for loan losses 28,844 30,415 34,840 32,640 28,524 Allowance for loan losses/net loans 2.54 % 2.61 % 2.61 % 1.94 % 1.67 % Deposits 1,554,615 1,662,024 1,766,083 2,029,984 1,864,135 Borrowed funds and accrued interest payable 72,528 78,606 84,676 118,552 149,566 Preferred stockholder's equity 24,431 24,238 23,852 23,466 23,080 Common stockholders' equity 179,690 173,293 162,108 190,588 188,894 Common book value per share (1) 8.16 8.07 7.61 23.04 22.84 Market price per common share   3.83   2.65   2.93   3.28   3.99   Asset Quality Highlights Nonaccrual loans $50,643 $57,240 $52,923 $123,877 $108,610 Real estate owned, net of valuation allowance 26,370 28,278 27,064 31,866 9,081 Investment securities on a cash basis 4,222 4,379 2,318 1,385 - Accruing troubled debt restructured loans (2) 14,596 9,030 3,632 97,311 - Loans past due 90 days and still accruing 5,290 1,925 7,481 6,800 1,964 Loans past due 31-89 days and still accruing 1,902 28,770 11,364 5,925 18,943 Loan chargeoffs 1,928 9,598 100,146 8,103 4,227 Loan recoveries 357 155 883 1,354 - Real estate chargeoffs - - 15,614 - - Impairment writedowns on security investments   157   201   1,192   2,258   -   Statement of Operations Highlights: Interest and dividend income $40,404 $92,837 $ 107,072 $123,598 $128,497 Interest expense 20,741   50,540   62,692   81,000   90,335   Net interest and dividend income 19,663 42,297 44,380 42,598 38,162 Provision for loan losses - 5,018 101,463 10,865 11,158 Noninterest income 2,531 4,308 2,110 297 5,026 Noninterest expenses: Provision for real estate losses 1,908 3,349 15,509 2,275 518 Real estate expenses 939 1,619 4,105 4,945 4,281 Operating expenses 8,313   15,861   19,069   19,864   14,074   Earnings (loss) before income taxes 11,034 20,758 (93,656 ) 4,946 13,157 Provision (benefit) for income taxes 5,020   9,512   (40,348 ) 1,816   5,891   Net earnings (loss) before preferred dividend requirements 6,014 11,246 (53,308 ) 3,130 7,266 Preferred dividend requirements (3) 892   1,730   1,667   1,632   41   Net earnings (loss) available to common stockholders $ 5,122   $ 9,516   $(54,975 ) $ 1,498   $ 7,225   Basic earnings (loss) per common share $0.24 $0.45 $(4.95 ) $0.18 $0.87 Diluted earnings (loss) per common share $0.24 $0.45 $(4.95 ) $0.18 $0.87 Average common shares used to calculate: Basic earnings (loss) per common share 21,542,103 21,126,187 11,101,196 8,270,812 8,259,091 Diluted earnings (loss) per common share 21,542,103 21,126,187 11,101,196 8,270,812 8,267,781 Common shares outstanding   21,590,689   21,125,289   21,126,489   8,270,812   8,270,812   Other ratios: Net interest margin (4) 2.19 % 2.18 % 2.11 % 1.83 % 1.79 % Return on average assets 0.63 % 0.56 % -2.42 % 0.13 % 0.34 % Return on average common equity 6.83 % 6.74 % -32.20 % 1.65 % 3.94 % Effective income tax rate 46 % 46 % 43 % 37 % 45 % Efficiency ratio (5)   37 % 34 % 41 % 46 % 33 %

(1) Represents common stockholders' equity less preferred dividends in arrears ($3.5 million at June 30, 2012, $2.8 million at December 31, 2011 and $1.4 million at December 31, 2010) divided by common shares outstanding.

(2) Represent loans whose terms have been modified mostly through the deferral of principal and/or a partial reduction in interest payments.

(3) Represents dividend requirements on cumulative preferred stock held by the U.S. Treasury and amortization of related preferred stock discount.

(4) Net interest margin is reported exclusive of income from loan prepayments, which is included as a component of noninterest income. Inclusive of such income, the margin would compute to 2.41%, 2.24%, 2.26%, 1.72% and 1.77%, respectively.

(5) Represents operating expenses as a percentage of net interest and dividend income plus noninterest income.