- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2012

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For The Transition Period From to

Commission file number 000-23377

INTERVEST BANCSHARES CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

13-3699013

(State or other jurisdiction

of incorporation or organization)

(IRS Employer Identification No.)

One Rockefeller Plaza, Suite 400

New York, New York 10020-2002

(Address of principal executive offices) (Zip Code)

(212) 218-2800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

YES XX NO __.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES XX NO __.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer __ Accelerated Filer

Non-Accelerated Filer XX (Do not check if a smaller reporting company) Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

YES __ NO XX .

Indicate number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

As of April 30, 2012, there were 21,590,689 shares of Class A common stock, $1.00 par value per share, outstanding.

INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES

FORM 10-Q

March 31, 2012

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION			Page

Item 1. Financial Statements Financial Statements

Condensed Consolidated Balance Sheets as of March 31, 2012 (Unaudited) and December 31, 2011			3

Condensed Consolidated Statements of Earnings (Unaudited) for the Quarters Ended March 31, 2012 and 2011			4

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Quarters Ended March 31, 2012 and 2011			5

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Quarters Ended March 31, 2012 and 2011			6

Notes to Condensed Consolidated Financial Statements (Unaudited)			7

Review by Independent Registered Public Accounting Firm			24

Report of Independent Registered Public Accounting Firm			25

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26

Item 3. Quantitative and Qualitative Disclosures About Market Risk			41

Item 4. Controls and Procedures			41

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			41

Item 1A. Risk Factors			41

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			41

Item 3. Defaults Upon Senior Securities			41

Item 4. Mine Safety Disclosures			42

Item 5. Other Information			42

Item 6. Exhibits			42

Signatures			42

Certifications			44-46

Private Securities Litigation Reform Act Safe Harbor Statement

We are making this statement in order to satisfy the “Safe Harbor” provision contained in the Private Securities Litigation Reform Act of 1995. The statements contained in this report on Form 10-Q that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties. 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 we 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 our filings with the Securities and Exchange Commission for further discussion of risks and uncertainties regarding our business. Historical results are not necessarily indicative of our future prospects. Our risk factors are disclosed in Item 1A of our Annual Report on Form 10-K and updated as needed in Item 1A of Part II of our reports on Form 10-Q.

PART 1. FINANCIAL INFORMATION - ITEM 1. Financial Statements

Intervest Bancshares Corporation and Subsidiaries

Condensed Consolidated Balance Sheets


($ in thousands, except par value)	At March 31, 2012			At December 31, 2011
ASSETS			(Unaudited)			(Audited)
Cash and due from banks		$	81,388		$	22,992
Federal funds sold and other short-term investments			8,451			6,871

Total cash and cash equivalents			89,839			29,863

Time deposits with banks			1,470			1,470
Securities held to maturity, net (estimated fair value of $588,691 and $698,804, respectively)			590,959			700,444
Federal Reserve Bank and Federal Home Loan Bank stock, at cost			8,937			9,249
Loans receivable (net of allowance for loan losses of $29,169 and $30,415, respectively)			1,126,268			1,133,375
Accrued interest receivable			7,067			7,216
Loan fees receivable			3,916			4,188
Premises and equipment, net			4,026			4,104
Foreclosed real estate (net of valuation allowance of $6,548 and $6,037, respectively)			27,767			28,278
Deferred income tax asset			36,300			38,836
Other assets			12,503			12,517

Total assets		$	1,909,052		$	1,969,540

LIABILITIES
Deposits:
Noninterest-bearing demand deposit accounts		$	4,828		$	4,702
Interest-bearing deposit accounts:
Checking (NOW) accounts			13,557			9,915
Savings accounts			9,443			9,505
Money market accounts			432,658			438,731
Certificate of deposit accounts			1,139,167			1,199,171

Total deposit accounts			1,599,653			1,662,024

Borrowed funds:
Federal Home Loan Bank advances			10,500			17,500
Subordinated debentures—capital securities			56,702			56,702
Accrued interest payable on all borrowed funds			4,862			4,404

Total borrowed funds			72,064			78,606

Accrued interest payable on deposits			2,372			3,676
Mortgage escrow funds payable			26,081			19,670
Other liabilities			7,831			8,033

Total liabilities			1,708,001			1,772,009

STOCKHOLDERS’ EQUITY
Preferred stock ($1.00 par value; 300,000 shares authorized; 25,000 issued and outstanding)			25			25
Additional paid-in-capital, preferred			24,975			24,975
Preferred stock discount			(665)			(762)
Class A common stock ($1.00 par value; 62,000,000 shares authorized; 21,590,689 and 21,125,289 issued and outstanding, respectively)			21,591			21,125
Additional paid-in-capital, common			85,670			84,765
Unearned compensation on restricted common stock awards			(1,588)			(483)
Retained earnings			71,043			67,886

Total stockholders’ equity			201,051			197,531

Total liabilities and stockholders’ equity		$	1,909,052		$	1,969,540

See accompanying notes to condensed consolidated financial statements.

Intervest Bancshares Corporation and Subsidiaries

Condensed Consolidated Statements of Earnings

(Unaudited)


	Quarter Ended March 31,
($ in thousands, except per share data)		2012	2011

INTEREST AND DIVIDEND INCOME
Loans receivable		$18,258	$20,970
Securities		2,431	2,618
Other interest-earning assets		9	6

Total interest and dividend income		20,698	23,594


INTEREST EXPENSE
Deposits		10,130	12,450
Subordinated debentures—capital securities		467	542
FHLB advances and all other borrowed funds		143	251

Total interest expense		10,740	13,243

Net interest and dividend income		9,958	10,351
Provision for loan losses		–	2,045

Net interest and dividend income after provision for loan losses		9,958	8,306


NONINTEREST INCOME
Income from the early repayment of mortgage loans		955	9
Income from mortgage lending activities		207	256
Customer service fees		120	118
Impairment writedowns on investment securities		(157)	(105)
All other		–	45

Total noninterest income		1,125	323


NONINTEREST EXPENSES
Salaries and employee benefits		2,057	1,780
Occupancy and equipment, net		521	415
Data processing		103	93
Professional fees and services		375	498
Stationery, printing, supplies, postage and delivery		62	69
FDIC insurance		631	1,122
General insurance		145	140
Director and committee fees		107	106
Advertising and promotion		3	7
Real estate activities expense		460	325
Provision for real estate losses		511	–
All other		160	180

Total noninterest expenses		5,135	4,735


Earnings before income taxes		5,948	3,894
Provision for income taxes		2,694	1,741

Net earnings		3,254	2,153
Preferred stock dividend requirements and discount amortization		(444)	(427)

Net earnings available to common stockholders		$ 2,810	$ 1,726

Basic earnings per common share		$ 0.13	$ 0.08
Diluted earnings per common share		$ 0.13	$ 0.08
Cash dividends per common share		$ –	$ –

See accompanying notes to condensed consolidated financial statements .

Intervest Bancshares Corporation and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


	Quarter Ended March 31,
	2012				2011
($ in thousands)		Shares		Amount		Shares		Amount

PREFERRED STOCK

Balance at beginning and end of period		25,000	$	25		25,000	$	25


ADDITIONAL PAID-IN-CAPITAL, PREFERRED

Balance at beginning and end of period				24,975				24,975


PREFERRED STOCK DISCOUNT
Balance at beginning of period				(762)				(1,148)
Amortization of preferred stock discount				97				96

Balance at end of period				(665)				(1,052)


CLASS A COMMON STOCK
Balance at beginning of period		21,125,289		21,125		21,126,489		21,126
Issuance of 465,400 shares of restricted stock to employees/directors		465,400		466		-		-

Balance at end of period		21,590,689		21,591		21,126,489		21,126


ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of period				84,765				84,705
Issuance of 465,400 shares of restricted stock to employees/directors				884				-
Compensation expense related to grants of stock options				21				15

Balance at end of period				85,670				84,720


UNEARNED COMPENSATION—RESTRICTED STOCK
Balance at beginning of period				(483)				(749)
Issuance of 465,400 shares of restricted Class A common stock to employees/directors				(1,350)				-
Amortization of unearned compensation to compensation expense				245				63

Balance at end of period				(1,588)				(686)


RETAINED EARNINGS
Balance at beginning of period				67,886				57,026
Net earnings				3,254				2,153
Preferred stock discount amortization				(97)				(96)

Balance at end of period				71,043				59,083

Total stockholders’ equity at end of period		21,615,689	$	201,051		21,151,489	$	188,191


Preferred stockholder’s equity		25,000	$	24,335		25,000	$	23,948
Common stockholders’ equity		21,590,689		176,716		21,126,489		164,243

Total stockholders’ equity at end of period		21,615,689	$	201,051		21,151,489	$	188,191

See accompanying notes to condensed consolidated financial statements.

Intervest Bancshares Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Quarter Ended March 31,
($ in thousands)		2012		2011

OPERATING ACTIVITIES
Net earnings before preferred dividend requirements and discount amortization	$	3,254	$	2,153
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		84		84
Provisions for loan and real estate losses		511		2,045
Deferred income tax expense		2,536		1,740
Compensation expense related to grants of common stock and options		266		78
Amortization of deferred debenture offering costs		9		9
Amortization of premiums (accretion) of discounts and deferred loan fees, net		(30)		(228)
Net gain from sale of premises		—		(44)
Impairment writedowns on investment securities		157		105
Net increase in accrued interest payable on debentures		471		550
Net increase (decrease) in official checks outstanding		127		(3,568)
Net decrease in loan fees receivable		272		245
Net change in all other assets and liabilities		(1,199)		334

Net cash provided by operating activities		6,458		3,503


INVESTING ACTIVITIES
Maturities and calls of securities held to maturity		168,929		77,030
Purchases of securities held to maturity		(60,141)		(53,381)
Redemptions (purchases) of FRB and FHLB stock, net		312		(450)
Repayments of loans receivable, net		7,384		32,962
Proceeds from sales of premises		—		379
Purchases of premises and equipment		(6)		(75)

Net cash provided by investing activities		116,478		56,465


FINANCING ACTIVITIES
Net decrease in deposits		(62,371)		(59,453)
Net increase in mortgage escrow funds payable		6,411		7,801
Net decrease in FHLB advances—original terms of more than 3 months		(7,000)		(3,000)
Principal repayments of mortgage note payable		—		(148)

Net cash used in financing activities		(62,960)		(54,800)


Net increase in cash and cash equivalents		59,976		5,168
Cash and cash equivalents at beginning of period		29,863		23,911

Cash and cash equivalents at end of period	$	89,839	$	29,079


SUPPLEMENTAL DISCLOSURES
Cash paid for interest	$	11,577	$	14,146
Cash paid for income taxes, net		350		141
Preferred stock dividend requirements and amortization of related discount		444		427

See accompanying notes to condensed consolidated financial statements.

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 - Principles of Consolidation, Basis of Presentation, Use of Estimates and Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The condensed consolidated financial statements (the “financial statements”) in this report on Form 10-Q have not been audited except for information derived from our audited 2011 consolidated financial statements and notes thereto and should be read in conjunction with our 2011 Annual Report on Form 10-K (“2011 10-K”). Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted in this report on Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission.

Our accounting and reporting policies conform to GAAP and general practices within the banking industry and are consistent with those described in note 1 to the financial statements included in our 2011 10-K, as updated by the information contained in this Form 10-Q.

Use of Estimates

In preparing our financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent liabilities as of the date of the financial statements, and revenues and expenses during the reporting periods. Actual results could differ from those estimates. Estimates that are particularly susceptible to significant change currently relate to the determination of our allowance for loan losses, valuation allowance for real estate losses, other than temporary impairment assessments of our security investments and the need for and amount of a valuation allowance for our deferred tax asset. These estimates involve a higher degree of complexity and subjectivity and may require assumptions about highly uncertain matters. Current market conditions increase the risk and complexity of the judgments in these estimates.

In our opinion, all material adjustments necessary for a fair presentation of our financial condition and results of operations for the interim periods presented in this report have been made. These adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation. Our results of operations for the interim periods are not necessarily indicative of results that may be expected for the entire year or any other interim period.

Note 2 - Description of Business

Intervest Bancshares Corporation (IBC) is the parent company of Intervest National Bank (INB) and IBC owns 100% of INB’s capital stock. INB is a nationally chartered commercial bank that opened on April 1, 1999. References to “we,” “us” and “our” in these footnotes refer to IBC and INB on a consolidated basis, unless otherwise specified.

For a description of our business, see note 1 to the financial statements included in our 2011 10-K.

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 3 - Securities Held to Maturity

The carrying value (amortized cost) and estimated fair value of securities held to maturity are as follows:


($ in thousands)	Number of Securities		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Wtd-Avg Yield			Wtd-Avg Expected Life		Wtd-Avg Remaining Maturity
At March 31, 2012
U.S. government agencies (1)		275		$583,532		$1,800		$ 286		$585,046		1.35	%		1.1 Yrs		4.7 Yrs
Residential mortgage-backed (2)		4		3,206		-		17		3,189		1.70	%		3.6 Yrs		17.6 Yrs
Corporate (3)		8		4,221		-		3,765		456		2.27	%		21.7 Yrs		21.7 Yrs
		287		$590,959		$1,800		$4,068		$588,691		1.36	%		1.2 Yrs		4.8 Yrs
At December 31, 2011
U.S. government agencies (1)		345		$696,066		$2,381		$ 153		$698,294		1.38	%		1.2 Yrs		4.8 Yrs
Corporate (3)		8		4,378		-		3,868		510		2.09	%		21.9 Yrs		21.9 Yrs
		353		$700,444		$2,381		$4,021		$698,804		1.39	%		1.2 Yrs		5.0 Yrs

(1) Consist of debt obligations of U.S. government sponsored agencies (GSEs)—FHLB, FNMA, FHLMC or FFCB. GSEs are federally chartered corporations privately owned by shareholders. GSE securities carry no explicit U.S. government guarantee of creditworthiness. Neither principal nor interest payments is guaranteed by the U.S. government and they do not constitute a debt or obligation of the U.S. government or any of its agencies or instrumentalities other than the applicable GSE. In September 2008, FNMA and FHLMC were placed under U.S. government conservatorship.

(2) Consist of $1.0 million of Government National Mortgage Association (GNMA) pass-through certificates and $2.2 million of Federal National Mortgage Association (FNMA) participation certificates. The GNMA pass-through certificates are guaranteed as to the payment of principal and interest by the full faith and credit of the U.S. government while the FNMA certificates have an implied guarantee by such agency as to principal and interest payments.

(3) Consist of variable-rate pooled trust preferred securities backed by obligations of companies in the banking industry. Amortized cost at March 31, 2012 and December 31, 2011 is reported net of other than temporary impairment charges of $3.8 million and $3.7 million, respectively.

The estimated fair values of securities with gross unrealized losses segregated between securities that have been in a continuous unrealized loss position for less than twelve months at the respective dates and those that have been in a continuous unrealized loss position for twelve months or longer are summarized as follows:


($ in thousands)	Number of Securities		Less Than Twelve Months				Twelve Months or Longer				Total
($ in thousands)	Number of Securities		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
At March 31, 2012
U.S. government agencies		58		$131,632		$286		$ -		$ -		$131,632		$ 286
Residential mortgage-backed		3		2,101		17		-		-		2,101		17
Corporate		8		-		-		456		3,765		456		3,765
		69		$133,733		$303		$ 456		$3,765		$134,189		$4,068
At December 31, 2011
U.S. government agencies		49		$100,058		$153		$ -		$ -		$100,058		$ 153
Corporate		8		-		-		510		3,868		510		3,868
		57		$100,058		$153		$ 510		$3,868		$100,568		$4,021

Nearly all of the securities in the agency and mortgaged-backed securities portfolio have either fixed interest rates or have predetermined scheduled interest rate increases and nearly all have call features that allow the issuer to call the security at par before its stated maturity without penalty. In general, as interest rates rise, the estimated fair value of fixed-rate securities will decrease; as interest rates fall, their value will increase. We generally view changes in fair value caused by changes in interest rates as temporary, which is consistent with our experience. INB, which holds the portfolio, has the ability and intent to hold all of these investments for a period of time sufficient for the estimated fair value of the securities with unrealized losses to recover, which may be at the time of maturity. Historically, INB has always recovered the cost of its investments in U.S. government agency securities upon maturity, and expects to do so with its mortgage backed security investments. We view all the gross unrealized losses related to the agency and mortgaged-backed securities portfolio to be temporary for the reasons noted above. The estimated fair values disclosed in the table above for U.S. government agency and mortgage-backed securities and are obtained from third-party brokers who provide quoted prices derived from active markets for identical or similar securities.

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 3 - Securities Held To Maturity, Continued

INB also owns trust preferred securities that are also classified as held to maturity. The estimated fair values of these securities are depressed due to the weakened economy and financial condition of a large number of the issuing banks, a number of issuing banks that are no longer in business and restrictions that have been or can be placed on the payment of interest by regulatory agencies, all of which have severely reduced the demand for these securities and rendered their trading market inactive. We concluded that an adverse change in the estimated future cash flows from these securities has occurred to such a level that all of these securities have been other than temporarily impaired (OTTI) to varying degrees as denoted below.

The following table provides various information regarding trust preferred securities.


($ in thousands) Cusip # (1)	Credit Rating	Cost Basis		Write Downs (2)		Adj. Cost Basis		Estimated Fair Value (3)		Unrealized Loss		% of Collateral Defaulted		% of Collateral Deferred		# of Banks in Pool	OTTI (4)	Discount Margin (4)
At March 31, 2012
74041PAEO	C	$	999	$	(765)	$	234	$	5	$	(229)		35.36%		16.60%	39	Yes		1.90%
74040XAD6	C+		1,016		(264)		752		137		(615)		14.74%		17.19%	54	Yes		1.80%
74040XAE4	C+		994		(241)		753		137		(616)		14.74%		17.19%	54	Yes		1.80%
74040XAE4	C+		994		(241)		753		137		(616)		14.74%		17.19%	54	Yes		1.80%
74040YAF9	C		981		(676)		305		6		(299)		24.27%		25.71%	58	Yes		1.70%
74040YAE2	C		1,000		(695)		305		6		(299)		24.27%		25.71%	58	Yes		1.70%
74041UAE9	C+		1,022		(463)		559		14		(545)		7.62%		30.93%	64	Yes		1.57%
74041UAE9	C+		1,023		(463)		560		14		(546)		7.62%		30.93%	64	Yes		1.57%

		$	8,029	$	(3,808)	$	4,221	$	456	$	(3,765)


At December 31, 2011
74041PAEO	C	$	999	$	(652)	$	347	$	33	$	(314)		35.36%		10.55%	39	Yes		1.90%
74040XAD6	C+		1,016		(264)		752		146		(606)		14.74%		16.28%	54	Yes		1.80%
74040XAE4	C+		994		(241)		753		146		(607)		14.74%		16.28%	54	Yes		1.80%
74040XAE4	C+		994		(241)		753		145		(608)		14.74%		16.28%	54	Yes		1.80%
74040YAF9	C		981		(676)		305		5		(300)		24.27%		25.71%	58	Yes		1.70%
74040YAE2	C		1,000		(695)		305		5		(300)		24.27%		25.71%	58	Yes		1.70%
74041UAE9	C+		1,022		(441)		581		15		(566)		7.62%		24.97%	64	Yes		1.57%
74041UAE9	C+		1,023		(441)		582		15		(567)		7.62%		24.97%	64	Yes		1.57%

		$	8,029	$	(3,651)	$	4,378	$	510	$	(3,868)

(1) At March 31, 2012 and December 31, 2011, all of these securities were on cash basis accounting because INB is currently not receiving all scheduled contractual interest payments on these securities. The cash flows for the interest payments on these securities are being redirected to a more senior class of bondholders to pay down the principal balance on the more senior class faster. This occurs when deferral and default activity reduces the security’s underlying performing collateral to a level where a predetermined coverage test fails and requires cash flows from interest payments to be redirected to a senior class of security holders. If no additional deferrals or defaults occur, such test will eventually be met again through the redirection of the cash flow and cash interest payments would resume on INB’s bonds, although no such assurance can be given as to the amount and timing of the resumption, if any. In April 2012, INB received payments of interest on 74040XAD6 and 74040XAE4 totaling $18,000.

(2) Writedowns are derived from the difference between the book value of the security and the projected present value of the security’s cash flows as indicated per an analysis performed using guidance prescribed by GAAP.

(3) Obtained from Moody’s pricing service, which uses a complex valuation model that factors in numerous assumptions and data, including anticipated discounts related to illiquid trading markets, credit and interest rate risk, which under GAAP would be considered Level 3 inputs. INB believes that the actual values that would be realized in an orderly market under normal credit conditions between a willing buyer and seller would approximate the projected present value of the securities’ cash flows and therefore, these estimated fair values are used for disclosure purposes only and are not used for calculating and recording impairment. INB also has the intent and the ability to retain these trust preferred securities until maturity and currently has no intention of selling them.

(4) In determining whether there is OTTI, INB relies on a cash flow analysis as prescribed under GAAP and prepared by a third party broker to determine whether conditions are such that the projected cash flows are insufficient to recover INB’s principal investment. The basic methodology under GAAP is to compare the present value of the cash flows that are derived from assumptions made with respect to deferrals, defaults and prepayments from quarter to quarter. A decline in the present value versus that for the previous quarter is considered to be an adverse change. The discount margin in the table above represents the incremental credit spread used to derive the discount rate for present value computations. Other assumptions utilized: prepayments of 1% annually and 100% at maturity and annual defaults of 75 bps with a 15% recovery after a 2 year lag.

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 3 - Securities Held To Maturity, Continued

The following is a summary of the carrying value (amortized cost) and fair value of securities held to maturity as of March 31, 2012, by remaining period to contractual maturity (ignoring earlier call dates, if any). Actual maturities may differ from contractual maturities because certain security issuers have the right to call or prepay their obligations. The table below does not consider the effects of possible prepayments or unscheduled repayments.


	Amortized		Estimated		Wtd-Avg
($ in thousands)	Cost		Fair Value		Yield
Due in one year or less	$	—	$	-		-%
Due after one year through five years		416,240		417,654		1.19
Due after five years through ten years		164,292		164,389		1.72
Due after ten years		10,427		6,648		2.11
	$	590,959	$	588,691		1.36%

Note 4 - Loans Receivable

Major classifications of loans receivable are summarized as follows:


	At March 31, 2012				At December 31, 2011
($ in thousands)	# of Loans		Amount		# of Loans		Amount
Commercial real estate loans		355	$	867,887		347	$	864,470
Multifamily loans		161		277,956		161		290,011
Land loans		9		11,159		9		11,218

		525		1,157,002		517		1,165,699

One to four family loans		1		25		1		25
Commercial business loans		20		1,565		19		1,520
Consumer loans		13		351		12		329

		34		1,941		32		1,874

Loans receivable, gross		559		1,158,943		549		1,167,573
Deferred loan fees				(3,506)				(3,783)

Loans receivable, net of deferred fees				1,155,437				1,163,790
Allowance for loan losses (1)				(29,169)				(30,415)
Loans receivable, net (2)			$	1,126,268			$	1,133,375

At March 31, 2012 and December 31, 2011, there were $53.2 million and $57.2 million of loans, respectively, on nonaccrual status, and $9.0 million at both dates of loans classified as accruing troubled debt restructured loans (TDRs). The total of these loans represented all of our impaired loans as of those dates.

At March 31, 2012, there were three loans totaling $2.8 million, compared to one loan in the amount of $1.9 million and December 31, 2011, that were 90 days past due and still accruing interest. The balance at March 31, 2012 represents loans that have matured and the borrowers continue to make monthly payments of principal and interest. These loans were in the process of being extended as of March 31, 2012.

At March 31, 2012 and December 31, 2011, a specific impairment valuation allowance (included as part of the allowance for loan losses) totaling $7.0 million and $8.0 million, respectively, was maintained on impaired loans. All of our loans are evaluated for impairment on a loan-by-loan basis.

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 4 - Loans Receivable, Continued

The recorded investment, corresponding specific impairment valuation allowance and unpaid principal balance of our impaired loans at the dates indicated are summarized follows:


	Recorded Investment (1) by State										Specific Valuation Allowance (2)		Total Unpaid Principal (3)		# of Loans
($ in thousands)	NY		FL		NJ		OH		Total		Specific Valuation Allowance (2)		Total Unpaid Principal (3)		# of Loans
At March 31, 2012
Commercial real estate:
Retail		$11,122		$9,005		$ 500		$1,373		$22,000		$2,876		$25,747		8
Office Building		-		14,834		1,065		-		15,899		498		16,476		2
Warehouse		950		1,800		-		-		2,750		299		5,118		2
Mixed Use		4,765		-		-		-		4,765		585		5,061		3
Multifamily		939		13,006		-		-		13,945		1,715		15,290		7
Land		289		2,540		-		-		2,829		1,009		2,829		2
Totals		$18,065		$41,185		$1,565		$1,373		$62,188		$6,982		$70,521		24
At December 31, 2011
Commercial real estate:
Retail		$9,285		$9,504		$ 500		$2,304		$21,593		$2,741		$26,018		7
Office Building		888		14,834		1,065		-		16,787		884		17,733		3
Warehouse		950		1,800		-		-		2,750		299		3,251		2
Mixed Use		5,508		-		-		-		5,508		944		5,796		4
Multifamily		3,730		13,046		-		-		16,776		2,137		18,122		8
Land		290		2,565		-		-		2,855		1,009		2,855		2
Totals		$20,651		$41,749		$1,565		$2,304		$66,269		$8,014		$73,775		26

(1) Represents contractual unpaid principal balance less any partial principal chargeoffs and interest received and applied as a reduction of principal.

(2) Represents a specific valuation allowance against the recorded investment included as part of the overall allowance for loan losses.

All of our impaired loans have a specific valuation allowance.

(3) Represents contractual unpaid principal balance (for informational purposes only).

Other information related to impaired loans is summarized as follows:


	Quarter Ended March 31,
($ in thousands)	2012		2011
Average recorded investment in nonaccrual loans	$	55,736	$	51,595
Total cash basis interest income recognized on nonaccrual loans		699		520

Average recorded investment in accruing TDR loans		8,364		4,131
Total interest income recognized on accruing TDR loans under modified terms		123		58

Age analysis of our loan portfolio at March 31, 2012 is summarized as follows:


($ in thousands)	Current		Past Due 31-59 Days		Past Due 60-89 Days		Past Due 90 or more Days		Total Past Due		Total Classified Nonaccrual
Accruing Loans:
Commercial real estate	$	809,894	$	11,840	$	2,598	$	1,723	$	16,161	$	-
Multifamily		263,704		-		2,090		1,075		3,165		-
Land		9,255		-		1,615		-		1,615		-
All other		1,941		-		-		-		-
Total accruing loans		1,084,794		11,840		6,303		2,798		20,941		-
Nonaccrual Loans (1):
Commercial real estate		37,665		-		1,867		2,300		4,167		41,832
Multifamily		7,350		-		-		3,737		3,737		11,087
Land		-		-		-		289		289		289
Total nonaccrual loans		45,015		-		1,867		6,326		8,193		53,208
Total loans	$	1,129,809	$	11,840	$	8,170	$	9,124	$	29,134	$	53,208

(1)	See footnote 1 to table that follows on the next page for an explanation.

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 4 - Loans Receivable, Continued

Age analysis of our loan portfolio at December 31, 2011 is summarized as follows:


($ in thousands)	Current		Past Due 31-59 Days		Past Due 60-89 Days		Past Due 90 or more Days		Total Past Due		Total Classified Nonaccrual
Accruing Loans:
Commercial real estate	$	794,196	$	21,807	$	3,500	$	1,925	$	27,232	$	-
Multifamily		272,640		3,069		394		-		3,463		-
Land		10,928		-		-		-		-		-
All other		1,874		-		-		-		-
Total accruing loans		1,079,638		24,876		3,894		1,925		30,695		-
Nonaccrual Loans (1):
Commercial real estate		39,854		-		-		3,188		3,188		43,042
Multifamily		7,378		-		2,792		3,738		6,530		13,908
Land		-		-		-		290		290		290
Total nonaccrual loans		47,232		-		2,792		7,216		10,008		57,240
Total loans	$	1,126,870	$	24,876	$	6,686	$	9,141	$	40,703	$	57,240

(1) The amount of nonaccrual loans in the current column included $44.2 million of TDRs at March 31, 2012 and $45.7 million of TDRs at December 31, 2011 for which payments are being made in accordance with their restructured terms, but the loans were maintained on nonaccrual status in accordance with regulatory guidance. The remaining portion at both dates was comprised of certain paying loans classified nonaccrual due to concerns regarding the borrowers’ ability to continue making payments. Interest income from loan payments on all loans in nonaccrual status is recognized on a cash basis, provided the remaining principal balance is deemed collectable.

Information regarding the credit quality of the loan portfolio based on internally assigned grades follows:


($ in thousands)	Pass		Special Mention		Substandard (1)		Doubtful (1)		Total
At March 31, 2012
Commercial real estate	$	795,418	$	12,198	$	60,271	$	-	$	867,887
Multifamily		258,974		2,395		16,587		-		277,956
Land		8,070		-		3,089		-		11,159
All other		1,941		-		-		-		1,941
Total loans	$	1,064,403	$	14,593	$	79,947	$	-	$	1,158,943
Allocation of allowance for loan losses	$	20,254	$	360	$	8,555	$	-	$	29,169
At December 31, 2011
Commercial real estate	$	791,295	$	13,108	$	59,355	$	712	$	864,470
Multifamily		270,281		2,954		16,776		-		290,011
Land		8,100		-		3,118		-		11,218
All other		1,874		-		-		-		1,874
Total loans	$	1,071,550	$	16,062	$	79,249	$	712	$	1,167,573
Allocation of allowance for loan losses	$	20,353	$	392	$	9,314	$	356	$	30,415

(1) Substandard and doubtful loans consist of $53.2 million of nonaccrual loans, $9.0 million of accruing TDRs and $17.8 million of other performing loans at March 31, 2012, compared to $57.2 million of nonaccrual loans, $9.0 million of accruing TDRs and $13.7 million of other performing loans at December 31, 2011. For a discussion regarding the rating criteria we use, see note 1 to the financial statements included in our 2011 10-K.

The geographic distribution of the loan portfolio by state follows:


($ in thousands)	At March 31, 2012					At December 31, 2011
($ in thousands)	Amount		% of Total			Amount		% of Total
New York	$	752,626		64.9	%	$	763,770		65.4	%
Florida		303,968		26.2			296,604		25.4
New Jersey		30,599		2.6			30,807		2.6
Pennsylvania		19,066		1.6			22,548		1.9
Connecticut		11,504		1.0			11,569		1.0
Georgia		9,124		0.8			9,102		0.8
Virginia		8,158		0.8			8,203		0.7
North Carolina		7,698		0.7			7,732		0.7
Kentucky		7,634		0.7			7,674		0.7
Ohio		2,201		0.2			3,138		0.3
All other states		6,365		0.5			6,426		0.5
	$	1,158,943		100.0	%	$	1,167,573		100.0	%

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 4 - Loans Receivable, Continued

At March 31, 2012, we had a total of $53.2 million of TDRs (of which $44.2 million were classified nonaccrual and $9.0 million accrual), compared to $54.7 million ($45.7 million nonaccrual and $9.0 million accrual) at December 31, 2011. All TDRs are considered impaired loans. Normally, TDRs are classified nonaccrual if at the time of restructuring the loan was on nonaccrual status. Once a sufficient amount of time has passed, generally six months, if the restructured loan has performed under the modified terms and the collectability of all contractual principal (including principal partially charged off) and interest is reasonably assured, the TDR is normally returned to an accruing status. In addition to the passage of time, we also consider the loam’s payment performance prior to restructure, collateral value and the ability of the borrower to make principal and interest payments in accordance with the modified terms. Normally, a TDR continues to be considered a TDR until it is paid in full. During the quarter ended March 31, 2012, there were no loans restructured, or existing TDRs returned to accrual status or TDRs that subsequently defaulted since restructure.

The geographic distribution of TDRs by state follows:


($ in thousands)	At March 31, 2012					At December 31, 2011
($ in thousands)	Amount		% of Total			Amount		% of Total
New York	$	14,160		26.6	%	$	14,216		26.0	%
Florida		36,586		68.8			37,150		67.9
New Jersey		1,065		2.0			1,066		1.9
Ohio		1,373		2.6			2,304		4.2
	$	53,184		100.0	%	$	54,736		100.0	%

Note 5 - Allowance for Loan Losses

Activity in the allowance for loan losses by loan type for the periods indicated is as follows:


($ in thousands)	Commercial Real Estate			Multifamily			Land			All Other			Total
Quarter Ended March 31, 2012
Balance at beginning of period		$19,156			$9,180			$2,069			$ 10			$30,415
Loan chargeoffs		(1,430	)		-			-			-			(1,430	)
Loan recoveries		168			16			-			-			184
Provision (credit) for loan losses		469			(478	)		9			-			-
Balance at end of period		$18,363			$8,718			$2,078			$ 10			$29,169
Quarter Ended March 31, 2011
Balance at beginning of period		$21,919			$11,356			$1,553			$ 12			$34,840
Loan chargeoffs		(4,164	)		(349	)		-			-			(4,513	)
Loan recoveries		-			28			-			-			28
Provision (credit) for loan losses		1,934			169			(57	)		(1	)		2,045
Balance at end of period		$19,689			$11,204			$1,496			$ 11			$32,400

Impairment for all of our impaired loans is calculated on a loan-by-loan basis using either the estimated fair value of the loan’s collateral less estimated selling costs (for collateral dependent loans) or the present value of the loan’s cash flows (for non-collateral dependent loans). Any calculated impairment is recognized as a valuation allowance within the overall allowance for loan losses and a charge through the provision for loan losses. We may charge off any portion of the impaired loan with a corresponding decrease to the valuation allowance when such impairment is deemed uncollectible. At March 31, 2012 and December 31, 2011, a specific impairment valuation allowance (included as part of the allowance for loan losses) totaling $7.0 million and $8.0 million, respectively, was maintained on impaired loans.

Note 6 - Foreclosed Real Estate and Valuation Allowance for Real Estate Losses

Real estate acquired through foreclosure by property type is summarized as follows:


	At March 31, 2012				At December 31, 2011
($ in thousands)	# of Properties		Amount (1)		# of Properties		Amount (1)
Commercial real estate		4	$	11,107		4	$	11,542
Multifamily		3		13,727		3		13,727
Land		2		2,933		2		3,009
Real estate acquired through foreclosure		9	$	27,767		9	$	28,278

(1)	Reported net of any associated valuation allowance.

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 6 - Foreclosed Real Estate and Valuation Allowance for Real Estate Losses, Continued

Activity in the valuation allowance for real estate losses is summarized as follows:


	Quarter-Ended March 31,
($ in thousands)	2012		2011
Valuation allowance at beginning of period	$	6,037	$	2,688
Provision for real estate losses		511		-
Real estate chargeoffs		-		-
Valuation allowance at end of period	$	6,548	$	2,688

Note 7 - Deposits

Scheduled maturities of certificates of deposit accounts are as follows:


	At March 31, 2012					At December 31, 2011
($ in thousands)	Amount		Wtd-Avg Stated Rate			Amount		Wtd-Avg Stated Rate
Within one year	$	496,695		2.71	%	$	514,667		2.83	%
Over one to two years		355,690		3.55			397,394		3.58
Over two to three years		146,196		3.34			136,226		3.43
Over three to four years		44,475		3.16			67,855		3.27
Over four years		96,111		3.57			83,029		3.91
Total certificates of deposit	$	1,139,167		3.14	%	$	1,199,171		3.25	%

CDs of $100,000 or more totaled $568 million at March 31, 2012 and $600 million at December 31, 2011 and included brokered CDs of $111 million and $128 million, respectively.

At March 31, 2012, all CDs of $100,000 or more (inclusive of brokered CDs) by remaining maturity were as follows: $230 million due within one year; $188 million due over one to two years; $72 million due over two to three years; $19 million due over three to four years; and $59 million due thereafter.

At March 31, 2012, brokered CDs had a weighted average rate of 4.93% and their remaining maturity were as follows: $41 million due within one year; $33 million due over one to two years; $19 million due over two to three years; none due over three to four years; and $18 million due thereafter.

Note 8 - FHLB Advances and Lines of Credit

At March 31, 2012, INB had $30 million of unsecured credit lines that were cancelable at any time. As a member of the Federal Home Loan Bank of New York (FHLB) and the Federal Reserve Bank of New York (FRB), INB can borrow from these institutions on a secured basis. At March 31, 2012, INB had available collateral consisting of investment securities and certain loans that could be pledged to support additional total borrowings of approximately $628 million from the FHLB and FRB if needed.

The following is a summary of certain information regarding FHLB advances in the aggregate:


	At or For the Quarter Ended March 31,
($ in thousands)	2012			2011
Balance at period end	$	10,500		$	22,500
Maximum amount outstanding at any month end for the period	$	17,500		$	25,500
Average outstanding balance for the period	$	13,654		$	24,800
Weighted-average interest rate paid for the period		4.21	%		4.09	%
Weighted-average interest rate at period end		4.24	%		4.07	%

Scheduled contractual maturities of outstanding FHLB advances as of March 31, 2012 were as follows:


($ in thousands)	Amount		Rate
Due September 5, 2012	$	3,500		4.28	%
Due March 11, 2013		3,000		4.17	%
Due September 9, 2013		4,000		4.26	%
	$	10,500		4.24	%

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 9 - Subordinated Debentures - Capital Securities

Capital Securities (commonly referred to as trust preferred securities) outstanding are summarized as follows:


	At March 31, 2012						At December 31, 2011
($ in thousands)	Principal		Accrued Interest Payable		Interest Rate		Principal		Accrued Interest Payable		Interest Rate
Capital Securities II - debentures due September 17, 2033		$15,464		$1,225		3.42%		$15,464		$1,079		3.50%
Capital Securities III - debentures due March 17, 2034		15,464		1,164		3.26%		15,464		1,025		3.35%
Capital Securities IV - debentures due September 20, 2034		15,464		1,011		2.87%		15,464		889		2.96%
Capital Securities V - debentures due December 15, 2036		10,310		1,432		2.12%		10,310		1,368		2.20%

		$56,702		$4,832				$56,702		$4,361

The securities are obligations of IBC’s wholly owned statutory business trusts, Intervest Statutory Trust II, III, IV and V, respectively. Each Trust was formed with a capital contribution from IBC and for the sole purpose of issuing and administering the Capital Securities. The proceeds from the issuance of the Capital Securities together with the capital contribution for each Trust were used to acquire IBC’s Junior Subordinated Debentures that are due concurrently with the Capital Securities. The Capital Securities, net of IBC’s capital contributions of $1.7 million, total $55 million and qualify as regulatory Tier 1 capital up to certain limits. IBC has guaranteed the payment of distributions on, payments on any redemptions of, and any liquidation distribution with respect to the Capital Securities. Issuance costs associated with Capital Securities II to IV were capitalized and are being amortized over the contractual life of the securities using the straight-line method. The unamortized balance totaled approximately $0.8 million at March 31, 2012 and December 31, 2011. There were no issuance costs associated with Capital Securities V.

Interest payments on the Junior Subordinated Debentures (and the corresponding distributions on the Capital Securities) are payable in arrears as follows:

•

Capital Securities II - quarterly at the rate of 2.95% over 3 month libor;

•

Capital Securities III - quarterly at the rate of 2.79% over 3 month libor;

•

Capital Securities IV- quarterly at the rate of 2.40% over 3 month libor; and

•

Capital Securities V - quarterly at the rate of 1.65% over 3 month libor.

Interest payments may be deferred at any time and from time to time during the term of the Junior Subordinated Debentures at IBC’s election for up to 20 consecutive quarterly periods, or 5 years. There is no limitation on the number of extension periods IBC may elect, provided, however, no deferral period may extend beyond the maturity date of the Junior Subordinated Debentures. During an interest deferral period, interest will continue to accrue on the Junior Subordinated Debentures and interest on such accrued interest will accrue at an annual rate equal to the interest rate in effect for such deferral period, compounded quarterly from the date such interest would have been payable were it not deferred. At the end of the deferral period, IBC will be obligated to pay all interest then accrued and unpaid. During the deferral period, among other restrictions, IBC and any affiliate cannot, subject to certain exceptions: (i) declare or pay any dividends or distributions on, or redeem, purchase or acquire any capital stock of IBC or its affiliates (other than payment of dividends to IBC); or (ii) make any payment of principal or interest or premium on, or repay, repurchase or redeem any debt securities of IBC or its affiliates that rank pari passu with or junior to the Junior Subordinated Debentures. In February 2010, IBC exercised its right to defer interest payments. This deferral does not constitute a default under the indentures governing the securities. At March 31, 2012, IBC had accrued and expensed a total of $4.8 million of interest payments on the Junior Subordinated Debentures.

The Capital Securities are subject to mandatory redemption as follows: (i) in whole, but not in part, upon repayment of the Junior Subordinated Debentures at stated maturity or earlier, at the option of IBC, within 90 days following the occurrence and continuation of certain changes in the tax or capital treatment of the Capital Securities, or a change in law such that the statutory trust would be considered an investment company, contemporaneously with the redemption by IBC of the Junior Subordinated Debentures; and (ii) in whole or in part at any time contemporaneously with the optional redemption by IBC of the Junior Subordinated Debentures in whole or in part. Any redemption would be subject to the receipt of regulatory approvals.

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 10 - Preferred Dividends in Arrears

As described in note 11 to the financial statements included in our 2011 10-K, in February 2010, IBC ceased the declaration and payment of dividends on its Series A preferred stock held by the U.S. Treasury as required by IBC’s primary regulator. IBC has missed nine dividend payments as of the date of filing of this report. At March 31, 2012, the amount of preferred dividends undeclared, unpaid and in arrears totaled $3.1 million. The preferred stock carries a 5% per year cumulative preferred dividend rate, payable quarterly. The dividend rate increases to 9% beginning in December 2013. Dividends compound if they accrue and are not paid and they also reduce earnings or increase losses available to common stockholders. A failure to pay a total of six preferred share dividend payments, whether or not consecutive, gives the holders of the shares the right to elect two directors to IBC’s board of directors. That right would continue until IBC pays all dividends in arrears. In the first quarter of 2012, the Treasury exercised its right and appointed one director to IBC’s Board effective March 23, 2012.

Note 11 - Common Stock Options and Restricted Common Stock

IBC has a shareholder-approved Long Term Incentive Plan (the “Plan”) under which stock options, restricted stock and other forms of incentive compensation may be awarded from time to time to officers, employees and directors of IBC and its subsidiaries. The maximum number of shares of Class A common stock that may be awarded under the Plan is 1,500,000. At March 31, 2012, 323,360 shares of Class A common stock were available for award under the Plan. There were no grants of stock options in the first quarter of 2012 or 2011.

A summary of the activity for the quarter ended March 31, 2012 in IBC’s outstanding Class A common stock warrant/ options and related information follows:


	Exercise Price Per Warrant/Option																		Wtd-Avg Exercise Price
($ in thousands, except per share amounts)
	$5.42 (1)		$17.10		$7.50		$4.02			$3.00			$2.55			Total
Outstanding at December 31, 2011		691,882		117,840		121,390		70,510			39,900			44,100			1,085,622			$6.62
Forfeited/expired (2)		-		-		-		(100	)		(200	)		(300	)		(600	)		$2.95
Outstanding at March 31, 2012		691,882		117,840		121,390		70,410			39,700			43,800			1,085,022			$6.63
Expiration date		12/23/18		12/13/17		12/11/18		12/10/19			12/09/20			12/08/21
Vested and exercisable (3)		100%		100%		100%		67%			33%			0%			91%
Wtd-avg remaining contractual term (in years)		6.7		5.7		6.7		7.7			8.7			9.7			6.9
Intrinsic value at March 31, 2012 (4)		-		-		-		-			$32			$56			$88

(1)	Represents a warrant held by the U.S. Treasury as described in note 11 to the financial statements in our 2011 10-K.

(2)	Represent options forfeited or expired unexercised.

(3)	The $4.02 options become 100% vested and exercisable on December 10, 2012.

The $3.00 options further vest and become exercisable at the rate of 33.33% on December 9, 2012 and 2013.

The $2.55 options vest and become exercisable at the rate of 33.33% on December 8, 2012, 2013 and 2014.

Full vesting may occur earlier for all options upon the occurrence of certain events as defined in the option agreements.

(4)	Intrinsic value was calculated using the closing price of the Class A common stock on March 31, 2012 of $3.82.

On January 19, 2012, a total of 465,400 shares of restricted Class A common stock were awarded under the Plan as follows: a total of 175,000 shares to five executive officers; a total of 240,000 shares to six non-employee directors; and a total of 50,400 shares to 31 other officers and employees. For the executive officers, the restricted stock awards vest in two installments, with two thirds vesting on the second anniversary of the grant and the remaining one third on the third anniversary of the grant. For the non-employee directors, the restricted stock awards vest 100% on the first anniversary of the grant. For the other officers and employees, the restricted stock awards vest in three equal installments, with one third on each of the next three anniversary dates of the grant. Vesting is subject to the grantee’s continued employment with us or, in the case of non-employee directors, the grantee serving as our director on the aforementioned anniversary dates. All of the awards are subject to accelerated vesting upon the death or disability of the grantee or upon a change in control of our company, as defined in the restricted stock agreements. The grant date fair value for each restricted stock award was $2.90 per share, or a total fair value of $1.4 million, based on the closing market price of the Class A common stock on the grant date of January 19, 2012. There were no restricted stock awards made in 2011.

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 11 - Common Stock Options and Restricted Common Stock, Continued

A summary of the activity for the quarter ended March 31, 2012 in IBC’s outstanding Class A restricted common stock follows:


	Price Per Share
	$2.35		$2.90
Outstanding at December 31, 2011		318,100		-
Shares granted to executive officers		-		175,000
Shares granted to non-employee directors		-		240,000
Shares granted to other officers and employees		-		50,400
Outstanding at March 31, 2012 (1)		318,100		465,400

(1) All outstanding shares of restricted common stock were unvested at March 31, 2012 and subject to forfeiture. Shares issued at a price of $2.35 on December 9, 2010 will vest 100% on December 9, 2013. Shares issued at a price of $2.90 on January 19, 2012 will vest as follows: 256,800 on January 19, 2013, 133,473 on January 19, 2014 and 75,127 on January 19, 2015. All shares may vest earlier upon the occurrence of certain events as defined in the restricted stock agreements. The record holder of the restricted shares possesses all the rights of a holder of our common stock, including the right to receive dividends on and to vote the restricted shares. The restricted shares may not be sold, transferred, pledged, assigned, encumbered, or otherwise alienated or hypothecated until they become fully vested and transferable in accordance with the agreements. Shares held by certain executive officers of IBC have further restrictions on transferability as long IBC is a participant in the TARP program.

Stock-based compensation expense is recognized on a straight-line basis over the vesting period of each award and totaled $266,000 and $78,000 for the quarters ended March 31, 2012 and 2011, respectively. Stock-based compensation expense is recorded as an expense and a corresponding increase to stockholders’ equity. At March 31, 2012, pre-tax, stock-based compensation cost related to all nonvested awards of options and restricted stock not yet recognized totaled $1.7 million and will be recognized over a weighted-average period of approximately 1.82 years.

Note 12 - Deferred Tax Asset

At March 31, 2012 and December 31, 2011, we had a deferred tax asset totaling $36.3 million and $38.9 million, respectively. The tax asset relates to the unrealized benefit for net temporary differences between the financial statement carrying amounts of our existing assets and liabilities and their respective tax bases that will result in future income tax deductions as well as an unused net operating loss carryforward (NOL) of approximately $31 million for Federal purposes and approximately $63 million for state and local purposes, and a $1 million Federal AMT credit carryforward as of March 31, 2012, all of which can be applied against and reduce our future taxable income and tax liabilities. The NOL carryforwards expire in 2030 while the AMT credit carryforward has no expiration date.

We have determined that a valuation allowance for the deferred tax asset was not required at any time during the reporting periods in this report because we believe that it is more likely than not that our deferred tax asset will be fully realized. This conclusion is based on our prior taxable earnings history (exclusive of the NOL generated in the second quarter of 2010) coupled with positive evidence (such as taxable earnings generated in 2011 and the first quarter of 2012, and our future projections of taxable income) indicating that we will be able to generate an adequate amount of future taxable income over a reasonable period of time to fully utilize the deferred tax asset.

Our ability to realize our deferred tax asset could be reduced in the future if our estimates of future taxable income from our operations and tax planning strategies do not support the realization of our deferred tax asset. In addition, the amount of our net operating loss carryforwards and certain other tax attributes realizable for income tax purposes may be reduced under Section 382 of the Internal Revenue Code as a result of future offerings of our capital securities, which could trigger a “change in control” as defined in Section 382. IBC currently has no plan to issue additional capital securities other than the issuance of shares of Class A common stock in connection with awards under the Plan discussed in note 11.

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 13 - Earnings Per Common Share

Net earnings applicable to common stockholders and the weighted-average number of shares used for basic and diluted earnings per common share computations are summarized in the table that follows:


	Quarter Ended March 31,
	2012		2011
Net earnings applicable to common stockholders		$2,810,000		$1,726,000
Weighted-Average number of common shares outstanding (1)		21,493,518		21,126,489
Basic Earnings Per Common Share		$0.13		$0.08
Diluted Earnings Per Common Share		$0.13		$0.08

(1) All outstanding options and warrant to purchase common stock during each of the periods above were not dilutive for purposes of the diluted earnings per share computations as calculated under the treasury stock method.

Note 14 - Off-Balance Sheet Financial Instruments

We are party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These instruments can be in the form of commitments to extend credit, unused lines of credit and standby letters of credit, and may involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in our financial statements. Our maximum exposure to credit risk is represented by the contractual amount of those instruments. Commitments to extend credit are agreements to lend funds to a customer as long as there is no violation of any condition established in the contract. Such commitments generally have fixed expiration dates or other termination clauses and normally require payment of fees to us. Since some of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. INB from time to time issues standby letters of credit, which are conditional commitments issued by INB to guarantee the performance of a customer to a third party. The credit risk involved in the underwriting of letters of credit is essentially the same as that involved in originating loans. We had no standby letters of credit outstanding at March 31, 2012 or December 31, 2011.

The contractual amounts of off-balance sheet financial instruments are summarized as follows:


($ in thousands)	At March 31, 2012		At December 31, 2011
Unfunded loan commitments		$18,645		$18,199
Available lines of credit		856		826
		$19,501		$19,025

Note 15 - Regulatory Capital and Regulatory Matters

Regulatory Matters. IBC and INB are both currently operating under formal agreements with their primary regulators, including various restrictions arising therefrom that affect our business. For a discussion of these formal agreements and restrictions, see note 20 the financial statements in our 2011 10-K.

Regulatory Capital. At March 31, 2012 and December 31, 2011, we believe that IBC and INB met all capital adequacy requirements to which they are subject. As of the date of filing of this report, we are not aware of any conditions or events that would have changed the status of such compliance with those regulatory capital requirements from March 31, 2012.

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 15 - Regulatory Capital and Regulatory Matters, Continued

Information regarding our regulatory capital and related ratios is summarized as follows:


	INB				IBC Consolidated
	At March 31,		At December 31,		At March 31,		At December 31,
($ in thousands)	2012		2011		2012		2011
Tier 1 Capital (1)		$224,579		$218,590		$231,708		$226,325
Tier 2 Capital		16,786		17,176		16,842		17,232
Total risk-based capital (2)		$241,365		$235,766		$248,550		$243,557
Net risk-weighted assets		$1,330,456		$1,360,811		$1,334,962		$1,365,322
Average assets for regulatory purposes		$1,914,265		$1,950,445		$1,920,787		$1,958,409
Total capital to risk-weighted assets		18.14%		17.33%		18.62%		17.84%
Tier 1 capital to risk-weighted assets		16.88%		16.06%		17.36%		16.58%
Tier 1 capital to average assets		11.73%		11.21%		12.06%		11.56%

(1) IBC’s consolidated Tier 1 capital at March 31, 2012 and December 31, 2011 included $55 million of IBC’s outstanding qualifying trust preferred securities and $25 million of IBC’s Series A cumulative perpetual preferred stock held by the U.S. Treasury.

(2) See note 10 for a discussion of preferred dividends in arrears totaling $3.1 million at March 31, 2012. Dividends in arrears are recorded as reduction in capital only when they are declared and payable.

The table that follows presents information regarding our capital adequacy.


					Capital Requirements
	Actual Capital				Minimum Under Prompt Corrective Action Provisions				To Be “Well Capitalized” Under Prompt Corrective Action Provisions				Minimum Under Agreement with OCC
($ in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Consolidated at March 31, 2012: (1)
Total capital to risk-weighted assets		$248,550		18.62%		$106,797		8.00%		NA		NA		NA		NA
Tier 1 capital to risk-weighted assets		$231,708		17.36%		$53,398		4.00%		NA		NA		NA		NA
Tier 1 capital to average assets		$231,708		12.06%		$76,831		4.00%		NA		NA		NA		NA
Consolidated at December 31, 2011 :
Total capital to risk-weighted assets		$243,557		17.84%		$109,226		8.00%		NA		NA		NA		NA
Tier 1 capital to risk-weighted assets		$226,325		16.58%		$54,613		4.00%		NA		NA		NA		NA
Tier 1 capital to average assets		$226,325		11.56%		$78,336		4.00%		NA		NA		NA		NA
INB at March 31, 2012 :
Total capital to risk-weighted assets		$241,365		18.14%		$106,436		8.00%		$133,046		10.00%		$159,655		12.00%
Tier 1 capital to risk-weighted assets		$224,579		16.88%		$53,218		4.00%		$79,827		6.00%		$133,046		10.00%
Tier 1 capital to average assets		$224,579		11.73%		$76,571		4.00%		$95,713		5.00%		$172,284		9.00%
INB at December 31, 2011 :
Total capital to risk-weighted assets		$235,766		17.33%		$108,865		8.00%		$136,081		10.00%		$163,297		12.00%
Tier 1 capital to risk-weighted assets		$218,590		16.06%		$54,432		4.00%		$81,649		6.00%		$136,081		10.00%
Tier 1 capital to average assets		$218,590		11.21%		$78,018		4.00%		$97,522		5.00%		$175,540		9.00%

(1) Assuming IBC had excluded all of its eligible outstanding trust preferred securities (which totaled $55 million) from its Tier 1 capital and included the entire amount in its Tier 2 capital, consolidated proforma capital ratios at March 31, 2012 would have been 18.62%, 13.24% and 9.20%, respectively.

The table that follows presents additional information regarding our capital adequacy at March 31, 2012.


	Consolidated Regulatory Capital						INB Regulatory Capital
($ in thousands)	Actual		Required		Excess		Actual		Required		Excess
Total capital to risk-weighted assets	$	248,550	$	106,797	$	141,753	$	241,365	$	159,655	$	81,710
Tier 1 capital to risk-weighted assets	$	231,708	$	53,398	$	178,310	$	224,579	$	133,046	$	91,533
Tier 1 capital to average assets	$	231,708	$	76,831	$	154,877	$	224,579	$	172,284	$	52,295

Note 16 - Contingencies

We are periodically a party to or otherwise involved in legal proceedings arising in the normal course of business, such as foreclosure proceedings. Based on review and consultation with legal counsel, management does not believe that there is any pending or threatened proceeding against us, which, if determined adversely, would have a material effect on our business, results of operations, financial position or liquidity.

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 17 - Fair Value Measurements

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Currently, we have no assets or liabilities that are recorded at fair value on a recurring basis, such as a securities available for sale portfolio. From time to time, we are required to record at fair value other assets or liabilities on a non-recurring basis, such as our impaired loans, impaired investment securities and foreclosed real estate. These nonrecurring fair value adjustments involve the application of lower-of-cost-or-market accounting or writedowns of individual assets.

In accordance with GAAP, we group our assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. For level 3, valuations are generated from model-based techniques that use significant assumptions not observable in the market. These assumptions reflect our estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include the use of discounted cash flow models. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. See note 21 to the financial statements in our 2011 10-K for a further discussion of valuation levels 1 and 2. All of our assets measured at fair value on a nonrecurring basis use level 3 inputs.

The following tables provide information regarding our assets measured at fair value on a nonrecurring basis.


	Outstanding Carrying Value
	At March 31, 2012		At December 31, 2011
($ in thousands)	Level 3		Level 3
Impaired loans (1):
Commercial real estate		$45,414		$46,638
Multifamily		13,945		16,776
Land		2,829		2,855
Total impaired loans		62,188		66,269
Impaired securities (2)		4,221		4,378
Foreclosed real estate		27,767		28,278


	Accumulated Losses on				Total Losses (Gains) (3)
	Outstanding Balance as of				For the Quarter Ended March 31,
($ in thousands)	March 31, 2012		December 31, 2011		2012			2011
Impaired loans:
Commercial real estate		$10,755		$10,593		$652			$402
Multifamily		3,017		3,455		(438	)		608
Land		1,009		1,009		-			-
Total impaired loans		14,781		15,057		214			1,010
Impaired securities		3,808		3,651		157			105
Foreclosed real estate		6,548		6,037		511			-

(1) Comprised of all nonaccrual loans and accruing TDRs. Outstanding carrying value excludes a specific valuation allowance included in the overall allowance for loan losses. See note 4 to the financial statements included in this report on Form 10-Q.

(2) Comprised of certain held-to maturity investments in trust preferred securities considered other than temporarily impaired. See note 3 to the financial statements included in this report on Form 10-Q.

(3) Represents total losses recognized on all assets measured at fair value on a nonrecurring basis during the period indicated. The losses for impaired loans represent the change (before net chargeoffs) during the period in the corresponding specific valuation allowance, while the losses for foreclosed real estate represent writedowns in carrying values subsequent to foreclosure (recorded as provisions for real estate losses) adjusted for any gains or losses from the transfer/sale of the properties during the period. The losses on investment securities represent OTTI charges recorded as a component of noninterest income as described in note 3 to the financial statements in this report on Form 10-Q.

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 17 - Fair Value Measurements, Continued

The following table presents information regarding the change in assets measured at fair value on a nonrecurring basis for the quarter ended March 31, 2012.


($ in thousands)	Impaired Securities			Impaired Loans			Foreclosed Real Estate
Balance at December 31, 2011		$4,378			$66,269			$28,278
Net new impaired securities/loans		-			1,176			-
Other than temporary impairment writedowns		(157	)		-			-
Principal repayments/sales		-			(3,827	)		-
Chargeoffs of impaired loans		-			(1,430	)		-
Writedowns of carrying value subsequent to foreclosure		-			-			(511	)
Balance at March 31, 2012		$4,221			$62,188			$27,767

The following table presents information regarding the change in assets measured at fair value on a nonrecurring basis for the quarter ended March 31, 2011.


($ in thousands)	Impaired Securities			Impaired Loans			Foreclosed Real Estate
Balance at December 31, 2010		$4,580			$56,555			$27,064
Net new impaired securities/loans		-			7,250			-
Other than temporary impairment writedowns		(105	)		-			-
Principal repayments/sales		-			(8,587	)		-
Chargeoffs of impaired loans		-			(4,396	)		-
Balance at March 31, 2011		$4,475			$50,822			$27,064

The fair value estimates of all of our financial instruments shown in the table that follows are made at a specific point in time based on available information. Where available, quoted market prices are used. A significant portion of our financial instruments, such as our mortgage loans, do not have an active marketplace in which they can be readily sold or purchased to determine fair value. Consequently, fair value estimates for such instruments are based on assumptions made by us that include the instrument’s credit risk characteristics and future estimated cash flows and prevailing interest rates. As a result, these fair value estimates are subjective in nature, involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Accordingly, changes in any of our assumptions could cause the fair value estimates to deviate substantially. A discussion regarding the assumptions used to compute the estimated fair values disclosed in the table below can be found in note 21 to the financial statements in our 2011 10-K.

The carrying and estimated fair values of our financial instruments are as follows:


	At March 31, 2012				At December 31, 2011
($ in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets:
Cash and cash equivalents		$ 89,839		$ 89,839		$ 29,863		$ 29,863
Time deposits with banks		1,470		1,470		1,470		1,470
Securities held to maturity, net		590,959		588,691		700,444		698,804
FRB and FHLB stock		8,937		8,937		9,249		9,249
Loans receivable, net		1,126,268		1,149,738		1,133,375		1,167,523
Loan fees receivable		3,916		3,210		4,188		3,454
Accrued interest receivable		7,067		7,067		7,216		7,216
Financial Liabilities:
Deposits		1,599,653		1,641,131		1,662,024		1,705,419
Borrowed funds plus accrued interest payable		72,064		71,839		78,606		78,331
Accrued interest payable on deposits		2,372		2,372		3,676		3,676
Off-Balance Sheet Financial Instruments:
Commitments to lend		435		435		589		589
Net Financial Assets		153,932		133,175		140,910		129,564

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 18 - Recent Accounting Standards Update

In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-03 Transfers and Servicing: “Reconsideration of Effective Control for Repurchase Agreements,” which applies to all public entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The amendments do not affect other transfers of financial assets. ASU 2011-03 removes from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. Consequently, it also eliminates the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. ASU 2011-03 became effective January 1, 2012 and is to be applied prospectively to transactions or modifications of existing transactions that occur on or after such date. We adopted ASU 2011-03 on January 1, 2012 and it had no impact on our consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04 Fair Value Measurement: “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 applies to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, a liability, or an instrument classified in a reporting entity’s shareholders’ equity in the financial statements. ASU 2011-04 is expected to result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, it changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Some of the amendments clarify the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements, including the following: (1) measuring the fair value of financial instruments that are managed within a portfolio; (2) application of premiums and discounts in a fair value measurement; and (3) additional disclosures about fair value measurements. ASU 2011-04 became effective for interim and annual periods beginning after December 15, 2011 and is to be applied prospectively. We adopted ASU 2011-04 on January 1, 2012 and it had no impact on our consolidated financial statements other than to increase financial disclosures already provided.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” ASU No. 2011-05 allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The statement(s) are required to be presented with equal prominence as the other primary financial statements. ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity but does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The provisions of ASU No. 2011-05 became effective for interim reporting period beginning on or after December 15, 2011, with retrospective application required. We adopted ASU No. 2011-05 on January 1, 2012 and it had no impact on our consolidated financial statements.

In September 2011, the FASB issued ASU No. 2011-08, “Testing Goodwill for Impairment.” ASU No. 2011-08 permits an entity an option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further impairment testing is required. ASU No. 2011-08 includes examples of events and circumstances that may indicate that a reporting unit’s fair value is less than its carrying amount. ASU No. 2011-08 became effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We adopted ASU No. 2011-08 on January 1, 2012 and it had no impact on our consolidated financial statements. We have never had any goodwill.

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 18 - Recent Accounting Standards Update, Continued

In December 2011, ASU No. 2011-12 “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05” was issued. In order to defer only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments, the paragraphs in this ASU supersede certain pending paragraphs in ASU 2011-05. The amendments were made to allow the FASB time to re-deliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the Board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities are required to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. All other requirements in ASU 2011-05 are not affected by this ASU, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. The provisions of ASU 2011-123 have no impact on our consolidated financial statements.

Intervest Bancshares Corporation and Subsidiaries

Review by Independent Registered Public Accounting Firm

Hacker, Johnson & Smith P.A., P.C., our independent registered public accounting firm, has made a limited review of our financial data as of March 31, 2012 and for the three-month periods ended March 31, 2012 and 2011 presented in this document, in accordance with the standards established by the Public Company Accounting Oversight Board.

The report of Hacker, Johnson & Smith P.A., P.C. furnished pursuant to Article 10 of Regulation S-X is included on the following page herein.

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Intervest Bancshares Corporation

New York, New York:

We have reviewed the accompanying condensed consolidated balance sheet of Intervest Bancshares Corporation and Subsidiaries (the “Company”) as of March 31, 2012 and the related condensed consolidated statements of earnings, changes in stockholders’ equity and cash flows for the three-month periods ended March 31, 2012 and 2011. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet of the Company as of December 31, 2011, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated March 9, 2012, we, based on our audit, expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2011 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Hacker, Johnson & Smith P.A., P.C.

HACKER, JOHNSON & SMITH P.A., P.C.

Tampa, Florida

May 4, 2012

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Management’s discussion and analysis of financial condition and results of operations that follows should be read in conjunction with the accompanying financial statements in this report on Form 10-Q as well as our entire 2011 Annual Report on Form 10-K (“2011 10-K”).

Intervest Bancshares Corporation (“IBC”) is the parent company of Intervest National Bank (“INB”). References in this report to “we,” “us” and “our” refer to these entities on a consolidated basis, unless otherwise specified. For a discussion of our business, see note 1 to the financial statements included in our 2011 10K. Our business is also affected by various risk factors, which are disclosed beginning on page 31 of our 2011 10-K in Item 1A thereof and updated as needed in Item 1A of Part II of this report on Form 10-Q.

Available Information

IBC’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Proxy Statements and any amendments to those reports can be obtained (excluding exhibits) without charge by writing to: Intervest Bancshares Corporation, Attention: Secretary, One Rockefeller Plaza (Suite 400) New York, New York 10020. In addition, the reports (with exhibits) are available on the Securities and Exchange Commission’s website at www.sec.gov. IBC has a website at www.intervestbancsharescorporation.com that is used for limited purposes and contains certain reports after they are electronically filed with or furnished to the SEC. INB also has a website at www.intervestnatbank.com. The information on both of these web sites is not and should not be considered part of this report and is not incorporated by reference in this report.

Critical Accounting Policies

A detailed discussion of our critical accounting policies and the factors and estimates we use in applying them can be found under the caption “Critical Accounting Policies” on pages 46 to 51 in our 2011 10-K.

Comparison of Financial Condition at March 31, 2012 and December 31, 2011

A comparison of selected consolidated balance sheet information follows:


	At March 31, 2012						At December 31, 2011
	Carrying			% of			Carrying			% of
($ in thousands)	Value			Total Assets			Value			Total Assets
Cash and cash equivalents		$	89,839		4.7	%		$	29,863		1.5	%
Security investments, net			601,366		31.5				711,163		36.1
Loans receivable, net of deferred fees and loan loss allowance			1,126,268		59.0				1,133,375		57.6
Foreclosed real estate, net of valuation allowance			27,767		1.5				28,278		1.4
All other assets			63,812		3.3				66,861		3.4
Total assets		$	1,909,052		100.0	%		$	1,969,540		100.0	%
Deposits		$	1,599,653		83.8	%		$	1,662,024		84.4	%
Borrowed funds and related interest payable			72,064		3.8