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- Quarterly Report (10-Q)

Date : 05/04/2012 @ 9:44AM
Source : Edgar (US Regulatory)
Stock : Intervest Bancshares Corp. (MM) (IBCA)
Quote : 9.57  -0.01 (-0.10%) @ 8:10PM
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- 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

or

(   )         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.

 

2


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.

 

3


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

             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

             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 .

 

4


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.

 

5


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.

 

6


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.

 

7


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  
     

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.

 

8


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.

 

9


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.

 

10


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           

  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.

 

11


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  
   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

 

12


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  
   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.

 

13


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

 

14


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.

 

15


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.

 

16


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.

 

17


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.

 

18


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.

 

19


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.

 

20


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     

 

21


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.

 

22


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.

 

23


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.

 

24


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

 

25


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            78,606          4.0  

  All other liabilities

       36,284          1.9            31,379          1.6  

  Total liabilities

       1,708,001          89.5