XNAS:IBCA Intervest Bancshares Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

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 June 30, 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  x    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  x    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   x  (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  x .

Indicate number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of July 31, 2012, there were 21,590,689 shares of common stock, $1.00 par value per share, outstanding.

 

 

 


Table of Contents

INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES

June 30, 2012 FORM 10-Q

TABLE OF CONTENTS

 

      Page  

PART I. FINANCIAL INFORMATION

  

Item 1. Financial Statements

  

Condensed Consolidated Balance Sheets as of June 30, 2012 (Unaudited) and December 31, 2011

     3   

Condensed Consolidated Statements of Earnings (Unaudited) for the Quarters and Six-Months Ended June  30, 2012 and 2011

     4   

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Six-Months Ended June 30, 2012 and 2011

     5   

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six-Months Ended June  30, 2012 and 2011

     6   

Notes to Condensed Consolidated Financial Statements (Unaudited)

     7   

Review by Independent Registered Public Accounting Firm

     25   

Report of Independent Registered Public Accounting Firm

     26   

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

     27   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     47   

Item 4. Controls and Procedures

     47   

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

     48   

Item 1A. Risk Factors

     48   

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

     48   

Item 3. Defaults Upon Senior Securities

     48   

Item 4. Mine Safety Disclosures

     48   

Item 5. Other Information

     48   

Item 6. Exhibits

     48   

Signatures

     49   

Exhibit Index

     50   

Certifications

     51-53   

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 Part I 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


Table of Contents

PART 1. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Intervest Bancshares Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

 

     At June 30,     At December 31,  

($ in thousands, except par value)

   2012     2011  
     (Unaudited)     (Audited)  

ASSETS

    

Cash and due from banks

   $ 115,980      $ 22,992   

Federal funds sold and other short-term investments

     6,398        6,871   
  

 

 

   

 

 

 

Total cash and cash equivalents

     122,378        29,863   
  

 

 

   

 

 

 

Time deposits with banks

     1,470        1,470   

Securities held to maturity, net (estimated fair value of $533,211 and $698,804, respectively)

     535,056        700,444   

Federal Reserve Bank and Federal Home Loan Bank stock, at cost

     8,605        9,249   

Loans receivable (net of allowance for loan losses of $28,844 and $30,415, respectively)

     1,108,936        1,133,375   

Accrued interest receivable

     5,763        7,216   

Loan fees receivable

     3,614        4,188   

Premises and equipment, net

     4,000        4,104   

Foreclosed real estate (net of valuation allowance of $7,945 and $6,037, respectively)

     26,370        28,278   

Deferred income tax asset

     34,133        38,836   

Other assets

     11,785        12,517   
  

 

 

   

 

 

 

Total assets

   $ 1,862,110      $ 1,969,540   
  

 

 

   

 

 

 

LIABILITIES

    

Deposits:

    

Noninterest-bearing demand deposit accounts

   $ 4,634      $ 4,702   

Interest-bearing deposit accounts:

    

Checking (NOW) accounts

     13,355        9,915   

Savings accounts

     9,129        9,505   

Money market accounts

     430,022        438,731   

Certificate of deposit accounts

     1,097,475        1,199,171   
  

 

 

   

 

 

 

Total deposit accounts

     1,554,615        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

     5,326        4,404   
  

 

 

   

 

 

 

Total borrowed funds

     72,528        78,606   
  

 

 

   

 

 

 

Accrued interest payable on deposits

     3,241        3,676   

Mortgage escrow funds payable

     22,636        19,670   

Other liabilities

     4,969        8,033   
  

 

 

   

 

 

 

Total liabilities

     1,657,989        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

     (569     (762

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

     85,690        84,765   

Unearned compensation on restricted common stock awards

     (1,298     (483

Retained earnings

     73,707        67,886   
  

 

 

   

 

 

 

Total stockholders’ equity

     204,121        197,531   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,862,110      $ 1,969,540   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Condensed Consolidated Statements of Earnings

(Unaudited)

 

     Quarter Ended
June 30,
    Six-Months Ended
June 30,
 

($ in thousands, except per share data)

   2012     2011     2012     2011  

INTEREST AND DIVIDEND INCOME

        

Loans receivable

   $ 17,593      $ 21,094      $ 35,851      $ 42,064   

Securities

     2,105        2,817        4,536        5,435   

Other interest-earning assets

     8        6        17        12   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest and dividend income

     19,706        23,917        40,404        47,511   
  

 

 

   

 

 

   

 

 

   

 

 

 

INTEREST EXPENSE

        

Deposits

     9,430        12,256        19,560        24,706   

Subordinated debentures—capital securities

     459        556        926        1,098   

FHLB advances and all other borrowed funds

     112        232        255        483   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     10,001        13,044        20,741        26,287   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest and dividend income

     9,705        10,873        19,663        21,224   

Provision for loan losses

     —          742        —          2,787   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest and dividend income after provision for loan losses

     9,705        10,131        19,663        18,437   
  

 

 

   

 

 

   

 

 

   

 

 

 

NONINTEREST INCOME

        

Income from the early repayment of mortgage loans

     1,010        434        1,965        443   

Income from mortgage lending activities

     254        462        461        718   

Customer service fees

     142        111        262        229   

Impairment writedowns on investment securities

     —          —          (157     (105

All other

     —          —          —          45   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     1,406        1,007        2,531        1,330   
  

 

 

   

 

 

   

 

 

   

 

 

 

NONINTEREST EXPENSES

        

Salaries and employee benefits

     2,092        1,697        4,149        3,477   

Occupancy and equipment, net

     522        422        1,043        837   

Data processing

     98        125        201        218   

Professional fees and services

     384        411        759        909   

Stationery, printing, supplies, postage and delivery

     60        64        122        133   

FDIC insurance

     604        956        1,235        2,078   

General insurance

     145        138        290        278   

Director and committee fees

     107        114        214        220   

Advertising and promotion

     4        8        7        15   

Real estate activities expense

     479        554        939        879   

Provision for real estate losses

     1,397        1,278        1,908        1,278   

All other

     133        164        293        344   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expenses

     6,025        5,931        11,160        10,666   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before income taxes

     5,086        5,207        11,034        9,101   

Provision for income taxes

     2,326        2,321        5,020        4,062   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings

     2,760        2,886        6,014        5,039   

Preferred stock dividend requirements and discount amortization

     (448     (428     (892     (855
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings available to common stockholders

   $ 2,312      $ 2,458      $ 5,122      $ 4,184   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per common share

   $ 0.11      $ 0.12      $ 0.24      $ 0.20   

Diluted earnings per common share

   $ 0.11      $ 0.12      $ 0.24      $ 0.20   

Cash dividends per common share

   $ —        $ —        $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

 

     Six-Months Ended
June 30,
 
     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

        193           193   
     

 

 

      

 

 

 

Balance at end of period

        (569        (955
     

 

 

      

 

 

 

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

        41           30   
     

 

 

      

 

 

 

Balance at end of period

        85,690           84,735   
     

 

 

      

 

 

 

UNEARNED COMPENSATION—RESTRICTED STOCK

          

Balance at beginning of period

        (483        (749

Issuance of 465,400 shares of restricted common stock to employees/directors

        (1,350        —     

Amortization of unearned compensation to compensation expense

  

     535           125   
     

 

 

      

 

 

 

Balance at end of period

        (1,298        (624
     

 

 

      

 

 

 

RETAINED EARNINGS

          

Balance at beginning of period

        67,886           57,026   

Net earnings

        6,014           5,039   

Preferred stock discount amortization

        (193        (193
     

 

 

      

 

 

 

Balance at end of period

        73,707           61,872   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total stockholders’ equity at end of period

     21,615,689       $ 204,121        21,151,489       $ 191,154   
  

 

 

    

 

 

   

 

 

    

 

 

 

Preferred stockholder’s equity

     25,000       $ 24,431        25,000       $ 24,045   

Common stockholders’ equity

     21,590,689         179,690        21,126,489         167,109   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total stockholders’ equity at end of period

     21,615,689       $ 204,121        21,151,489       $ 191,154   
  

 

 

    

 

 

   

 

 

    

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

     Six-Months Ended
June 30,
 

($ in thousands)

   2012     2011  

OPERATING ACTIVITIES

    

Net earnings

   $ 6,014      $ 5,039   

Adjustments to reconcile net earnings to net cash provided by operating activities:

    

Depreciation and amortization

     174        184   

Provisions for loan and real estate losses

     1,908        4,065   

Deferred income tax expense

     4,703        4,053   

Compensation expense related to grants of common stock and options

     576        155   

Amortization of deferred debenture offering costs

     18        18   

Amortization of premiums (accretion) of discounts and deferred loan fees, net

     62        (555

Net gain from sale of premises

     —          (44

Impairment writedowns on investment securities

     157        105   

Net increase in accrued interest payable on debentures

     936        1,114   

Net (decrease) increase in official checks outstanding

     (2,210     3,186   

Net decrease in loan fees receivable

     574        606   

Net change in all other assets and liabilities

     1,727        462   
  

 

 

   

 

 

 

Net cash provided by operating activities

     14,639        18,388   
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Maturities and calls of securities held to maturity

     361,182        232,555   

Purchases of securities held to maturity

     (197,123     (310,629

Redemptions of FRB and FHLB stock, net

     644        188   

Repayments of loans receivable, net

     24,686        80,434   

Proceeds from sales of premises

     —          379   

Purchases of premises and equipment

     (70     (119
  

 

 

   

 

 

 

Net cash provided by investing activities

     189,319        2,808   
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Net decrease in deposits

     (107,409     (30,791

Net increase in mortgage escrow funds payable

     2,966        3,293   

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

     (111,443     (30,646
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     92,515        (9,450

Cash and cash equivalents at beginning of period

     29,863        23,911   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 122,378      $ 14,461   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES

    

Cash paid for interest

   $ 20,236      $ 25,542   

Cash paid for income taxes, net

     633        149   

Preferred stock dividend requirements and amortization of related discount

     892        855   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

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

 

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Table of Contents

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 June 30, 2012

                      

U.S. government agencies (1)

     196       $ 434,342       $ 1,827       $ 54       $ 436,115         1.27     0.7 Yrs         4.5 Yrs   

Residential mortgage-backed (2)

     46         95,959         308         157         96,110         1.83     3.6 Yrs         18.1 Yrs   

State and municipal

     1         534         —           6         528         1.25     4.7 Yrs         4.8 Yrs   

Corporate (3)

     8         4,221         —           3,763         458         2.20     20.8 Yrs         21.4 Yrs   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      
     251       $ 535,056       $ 2,135       $ 3,980       $ 533,211         1.37     1.4 Yrs         7.1 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 are guaranteed by the U.S. government nor do they 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 $20.9 million of Government National Mortgage Association (GNMA) pass-through certificates and $75.1 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 June 30, 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)

          Less Than Twelve Months      Twelve Months or Longer      Total  
   Number of
Securities
     Estimated
Fair
Value
     Gross
Unrealized
Losses
     Estimated
Fair
Value
     Gross
Unrealized
Losses
     Estimated
Fair
Value
     Gross
Unrealized
Losses
 

At June 30, 2012

                    

U.S. government agencies

     23       $ 45,723       $ 54       $ —         $ —         $ 45,723       $ 54   

Residential mortgage-backed

     19         43,678         157         —           —           43,678         157   

State and municipal

     1         528         6               528         6   

Corporate

     8         —           —           458         3,763         458         3,763   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     51       $ 89,929       $ 217       $ 458       $ 3,763       $ 90,387       $ 3,980   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 we own have either fixed interest rates or have predetermined scheduled interest rate increases and nearly all have call or prepayment features that allow the issuer to repay all or a portion of 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 are obtained from third-party brokers who provide quoted prices derived from active markets for identical or similar securities.

 

8


Table of Contents

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 investments in these debt securities represent beneficial interests in securitized financial assets that have contractual cash flows. They consist of mezzanine-class, variable-rate (indexed to 3 month libor) pooled trust preferred securities backed by debt obligations of companies in the banking industry. At the time of purchase, these securities were investment grade rated. The current estimated fair values of these securities are depressed due to various reasons, including the weak economy, the 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. There has been an adverse change in the estimated future cash flows from these securities due to the reasons cited above 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 Deferred
    # of
Banks in
Pool
    

 

Discount (4)

 
                        Margin     Rate  

At June 30, 2012

                           

74041PAEO

     C       $ 999       $ (765   $ 234       $ —         $ (234     35.36     16.60     39         1.90     4.04

74040XAD6

     C+         1,016         (264     752         142         (610     14.74     15.83     54         1.80     3.90

74040XAE4

     C+         994         (241     753         142         (611     14.74     15.83     54         1.80     3.90

74040XAE4

     C+         994         (241     753         142         (611     14.74     15.83     54         1.80     3.90

74040YAF9

     C         981         (676     305         —           (305     24.27     17.15     58         1.70     3.70

74040YAE2

     C         1,000         (695     305         —           (305     24.27     17.15     58         1.70     3.70

74041UAE9

     C+         1,022         (463     559         16         (543     7.64     30.78     64         1.57     3.67

74041UAE9

     C+         1,023         (463     560         16         (544     7.64     30.78     64         1.57     3.67
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

            
      $ 8,029       $ (3,808   $ 4,221       $ 458       $ (3,763           
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

            

At December 31, 2011

  

                        

74041PAEO

     C       $ 999       $ (652   $ 347       $ 33       $ (314     35.36     10.55     39         1.90     4.50

74040XAD6

     C+         1,016         (264     752         146         (606     14.74     16.28     54         1.80     4.39

74040XAE4

     C+         994         (241     753         146         (607     14.74     16.28     54         1.80     4.39

74040XAE4

     C+         994         (241     753         145         (608     14.74     16.28     54         1.80     4.39

74040YAF9

     C         981         (676     305         5         (300     24.27     25.71     58         1.70     4.40

74040YAE2

     C         1,000         (695     305         5         (300     24.27     25.71     58         1.70     4.40

74041UAE9

     C+         1,022         (441     581         15         (566     7.62     24.97     64         1.57     4.17

74041UAE9

     C+         1,023         (441     582         15         (567     7.62     24.97     64         1.57     4.17
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

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

 

 

    

 

 

   

 

 

    

 

 

    

 

 

            

 

(1) At June 30, 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 January, April and July 2012, INB received payments of interest on cusip# 74040XAD6 and 74040XAE4 totaling $52,000.
(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 specialist 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


Table of Contents

Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note 3—Securities Held to Maturity, Continued

 

 

See note 17 for a table that provides a cumulative roll forward of credit losses (impairment writedowns) relating to our trust preferred security investments.

The following is a summary of the carrying value (amortized cost) and fair value of securities held to maturity as of June 30, 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.

 

($ in thousands)

   Amortized
Cost
     Estimated
Fair Value
     Wtd-Avg
Yield
 

Due in one year or less

   $ —         $ —           —  

Due after one year through five years

     304,704         306,015         1.13   

Due after five years through ten years

     140,360         140,820         1.57   

Due after ten years

     89,992         86,376         1.92   
  

 

 

    

 

 

    
   $ 535,056       $ 533,211         1.37
  

 

 

    

 

 

    

Note 4—Loans Receivable

Major classifications of loans receivable are summarized as follows:

 

     At June 30, 2012     At December 31, 2011  

($ in thousands)

   # of Loans      Amount     # of Loans      Amount  

Commercial real estate loans

     362       $ 847,434        347       $ 864,470   

Multifamily loans

     158         281,530        161         290,011   

Land loans

     9         10,460        9         11,218   
  

 

 

    

 

 

   

 

 

    

 

 

 
     529         1,139,424        517         1,165,699   
  

 

 

    

 

 

   

 

 

    

 

 

 

One to four family loans

     1         25        1         25   

Commercial business loans

     20         1,587        19         1,520   

Consumer loans

     12         280        12         329   
  

 

 

    

 

 

   

 

 

    

 

 

 
     33         1,892        32         1,874   
  

 

 

    

 

 

   

 

 

    

 

 

 

Loans receivable, gross

     562         1,141,316        549         1,167,573   

Deferred loan fees

        (3,536        (3,783
     

 

 

      

 

 

 

Loans receivable, net of deferred fees

        1,137,780           1,163,790   

Allowance for loan losses (1)

        (28,844        (30,415
     

 

 

      

 

 

 

Loans receivable, net (2)

      $ 1,108,936         $ 1,133,375   
     

 

 

      

 

 

 

At June 30, 2012 and December 31, 2011, there were $50.6 million and $57.2 million of loans, respectively, on nonaccrual status, and $14.5 million and $9.0 million, respectively, 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 June 30, 2012, there were two loans totaling $5.3 million, compared to one loan in the amount of $1.9 million at December 31, 2011, that were 90 days past due and still accruing interest. The balance at June 30, 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 June 30, 2012.

At June 30, 2012 and December 31, 2011, a specific impairment valuation allowance (included as part of the allowance for loan losses) totaling $6.0 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


Table of Contents

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      NC      NJ      OH      Total           

At June 30, 2012

                          

Commercial real estate:

                          

Retail

   $ 8,420       $ 9,005       $ 3,232       $ 1,158       $ 1,373       $ 23,188       $ 2,166       $ 28,568         8   

Office Building

     —           14,834         —           1,065         —           15,899         498         16,477         2   

Warehouse

     950         1,714         —           —           —           2,664         286         3,206         2   

Mixed Use

     4,755         —           —           —           —           4,755         584         5,044         3   

Multifamily

     2,754         12,966         —           —           —           15,720         1,984         17,327         8   

Land

     521         2,493         —           —           —           3,014         515         3,014         3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Totals

   $ 17,400       $ 41,012       $ 3,232       $ 2,223       $ 1,373       $ 65,240       $ 6,033       $ 73,636         26   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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
June 30,
     Six-Months Ended
June 30,
 

($ in thousands)

   2012      2011      2012      2011  

Average recorded investment in nonaccrual loans

   $ 54,933       $ 43,456       $ 55,654       $ 48,207   

Total cash basis interest income recognized on nonaccrual loans

     723         449         1,422         969   

Average recorded investment in accruing TDR loans

     10,363         5,625         9,418         4,771   

Total interest income recognized on accruing TDR loans under modified terms

     137         79         260         137   
  

 

 

    

 

 

    

 

 

    

 

 

 

Age analysis of our loan portfolio at June 30, 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

   $ 802,759       $ —         $ 1,902       $ 5,290       $ 7,192       $ —     

Multifamily

     268,657         —           —           —           —           —     

Land

     10,173         —           —           —           —           —     

All other

     1,892         —           —           —           —        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total accruing loans

     1,083,481         —           1,902         5,290         7,192         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual Loans (1):

                 

Commercial real estate

     31,879         —           —           5,604         5,604         37,483   

Multifamily

     7,320         —           —           5,553         5,553         12,873   

Land

     287         —           —           —           —           287   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonaccrual loans

     39,486         —           —           11,157         11,157         50,643   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,122,967       $ —         $ 1,902       $ 16,447       $ 18,349       $ 50,643   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

11


Table of Contents

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 $39.0 million of TDRs at June 30, 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 June 30, 2012

              

Commercial real estate

   $ 766,762       $ 16,630       $ 64,042       $ —         $ 847,434   

Multifamily

     263,419         2,392         15,719         —           281,530   

Land

     7,447         —           3,013         —           10,460   

All other

     1,892         —           —           —           1,892   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,039,520       $ 19,022       $ 82,774       $ —         $ 1,141,316   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Allocation of allowance for loan losses

   $ 20,161       $ 439       $ 8,244       $ —         $ 28,844   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 $50.6 million of nonaccrual loans, $14.6 million of accruing TDRs and $17.6 million of other performing loans at June 30, 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 June 30, 2012     At December 31, 2011  
   Amount      % of Total     Amount      % of Total  

New York

   $ 734,986         64.4   $ 763,770         65.4

Florida

     296,315         26.0        291,797         25.0   

New Jersey

     29,928         2.6        30,807         2.6   

Pennsylvania

     18,977         1.7        22,548         1.9   

Connecticut

     11,334         1.0        11,569         1.0   

Georgia

     11,842         1.0        11,175         1.0   

North Carolina

     12,884         1.1        10,466         0.9   

Virginia

     8,097         0.7        8,203         0.7   

Kentucky

     7,594         0.7        7,674         0.7   

Ohio

     2,196         0.2        3,138         0.3   

All other states

     7,163         0.6        6,426         0.5   
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 1,141,316         100.0   $ 1,167,573         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note 4—Loans Receivable, Continued

 

We have certain loans that we have restructured (which are identified as TDRs in this report), due to economic or legal reasons related to a borrower’s financial difficulties, and for which we have granted certain concessions to the borrower that we would not otherwise have considered. These concessions generally consist of one or more of the following: deferral of principal and or interest payments for a period of time; a partial reduction in interest payments; or an extension of the loan’s maturity date. In determining if a concession has been made, we also consider if the borrower is able to access funds in the general market place at a market rate for debt with similar risk characteristics as the restructured debt. A loan that is extended or renewed at a stated interest rate equal to the current interest rate for a new loan originated by us with similar risk is not reported as a restructured loan.

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 loan’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 six-months ended June 30, 2012, there were two loans restructured, one existing TDR in the amount of $5.5 million returned to accrual status and no TDRs that subsequently defaulted since restructure.

Information regarding loans restructured during the six-months ended June 30, 2012 is as follows:

 

     Number      Recorded Investment  

($ in thousands)

   of Loans      Pre-Modification      Post-Modification  

Land – extended maturity date

     2       $ 520       $ 520   
  

 

 

    

 

 

    

 

 

 

The distribution of TDRs by accruing versus non-accruing, by loan type and by geographic distribution follows:

 

($ in thousands)

   At June 30, 2012      At December 31, 2011  

Non-accruing

   $ 38,986       $ 45,705   

Accruing

     14,596         9,030   
  

 

 

    

 

 

 
   $ 53,582       $ 54,735   
  

 

 

    

 

 

 

Commercial real estate

   $ 40,402       $ 41,923   

Multifamily

     10,167         10,247   

Land

     3,013         2,565   
  

 

 

    

 

 

 
   $ 53,582       $ 54,735   
  

 

 

    

 

 

 

New York

   $ 14,646       $ 14,216   

Florida

     36,498         37,149   

New Jersey

     1,065         1,066   

Ohio

     1,373         2,304   
  

 

 

    

 

 

 
   $ 53,582       $ 54,735   
  

 

 

    

 

 

 

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 June 30, 2012

           

Balance at beginning of period

   $ 18,363      $ 8,718      $ 2,078      $ 10       $ 29,169   

Loan chargeoffs

     (237     (261     —          —           (498

Loan recoveries

     152        21        —          —           173   

Provision (credit) for loan losses

     65        504        (569     —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at end of period

   $ 18,343      $ 8,982      $ 1,509      $ 10       $ 28,844   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Quarter Ended June 30, 2011

           

Balance at beginning of period

   $ 19,689      $ 11,204      $ 1,496      $ 11       $ 32,400   

Loan chargeoffs

     (336     (1,038     —          —           (1,374

Loan recoveries

     —          4        —          —           4   

Provision (credit) for loan losses

     (250     897        92        3         742   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at end of period

   $ 19,103      $ 11,067      $ 1,588      $ 14       $ 31,772   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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  

Six-Months Ended June 30, 2012

           

Balance at beginning of period

   $ 19,156      $ 9,180      $ 2,069      $ 10       $ 30,415   

Loan chargeoffs

     (1,667     (261     —          —           (1,928

Loan recoveries

     320        37        —          —           357   

Provision for loan losses

     534        26        (560     —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at end of period

   $ 18,343      $ 8,982      $ 1,509      $ 10       $ 28,844   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Six-Months Ended June 30, 2011

           

Balance at beginning of period

   $ 21,919      $ 11,356      $ 1,553      $ 12       $ 34,840   

Loan chargeoffs

     (4,500     (1,387     —          —           (5,887

Loan recoveries

     —          32        —          —           32   

Provision for loan losses

     1,684        1,066        35        2         2,787   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at end of period

   $ 19,103      $ 11,067      $ 1,588      $ 14       $ 31,772   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

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 June 30, 2012 and December 31, 2011, a specific impairment valuation allowance (included as part of the allowance for loan losses) totaling $6.0 million and $8.0 million, respectively, was maintained on impaired loans (which is detailed in note 4 to financial statements in this report).

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 June 30, 2012      At December 31, 2011  

($ in thousands)

   # of Properties      Amount (1)      # of Properties      Amount (1)  

Commercial real estate

     4       $ 10,627         4       $ 11,542   

Multifamily

     3         13,074         3         13,727   

Land

     2         2,669         2         3,009   
  

 

 

    

 

 

    

 

 

    

 

 

 

Real estate acquired through foreclosure

     9       $ 26,370         9       $ 28,278   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Reported net of any associated valuation allowance.

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

 

     Quarter Ended
June 30,
     Six-Months Ended
June 30,
 

($ in thousands)

   2012      2011      2012      2011  

Balance at beginning of period

   $ 6,548       $ 2,688       $ 6,037       $ 2,688   

Provision for real estate losses

     1,397         1,278         1,908         1,278   

Real estate chargeoffs

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

   $ 7,945       $ 3,966       $ 7,945       $ 3,966   
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 7—Deposits

Scheduled maturities of certificates of deposit accounts are as follows:

 

     At June 30, 2012     At December 31, 2011  

($ in thousands)

   Amount      Wtd-Avg
Stated
Rate
    Amount      Wtd-Avg
Stated
Rate
 

Within one year

   $ 484,886         2.68   $ 514,667         2.83

Over one to two years

     340,690         3.65        397,394         3.58   

Over two to three years

     133,245         3.32        136,226         3.43   

Over three to four years

     34,315         2.81        67,855         3.27   

Over four years

     104,339         3.40        83,029         3.91   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total certificates of deposit

   $ 1,097,475         3.13   $ 1,199,171         3.25
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note 7—Deposits, Continued

 

 

CDs of $100,000 or more totaled $551 million at June 30, 2012 and $600 million at December 31, 2011 and included brokered CDs of $111 million and $128 million, respectively. At June 30, 2012, all CDs of $100,000 or more (inclusive of brokered CDs) by remaining maturity were as follows: $225 million due within one year; $182 million due over one to two years; $67 million due over two to three years; $13 million due over three to four years; and $64 million due thereafter. At June 30, 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 June 30, 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 June 30, 2012, INB had available collateral consisting of investment securities and certain loans that could be pledged to support additional total borrowings of approximately $571 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
June 30,
    At or For the Six-Months Ended
June 30,
 

($ in thousands)

   2012     2011     2012     2011  

Balance at period end

   $ 10,500      $ 22,500      $ 10,500      $ 22,500   

Maximum amount outstanding at any month end for the period

   $ 10,500      $ 22,500      $ 13,500      $ 25,500   

Average outstanding balance for the period

   $ 10,500      $ 22,632      $ 12,077      $ 23,710   

Weighted-average interest rate paid for the period

     4.24     4.11     4.25     4.10

Weighted-average interest rate at period end

     4.24     4.07     4.24     4.07
  

 

 

   

 

 

   

 

 

   

 

 

 

Scheduled contractual maturities of outstanding FHLB advances as of June 30, 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
  

 

 

    

 

 

 

Note 9—Subordinated Debentures—Capital Securities

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

 

     At June 30, 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       $ 1,370         3.42   $ 15,464       $ 1,079         3.50

Capital Securities III—debentures due March 17, 2034

     15,464         1,301         3.26     15,464         1,025         3.35

Capital Securities IV—debentures due September 20, 2034

     15,464         1,131         2.87     15,464         889         2.96

Capital Securities V—debentures due December 15, 2036

     10,310         1,495         2.12     10,310         1,368         2.20
  

 

 

    

 

 

      

 

 

    

 

 

    
   $ 56,702       $ 5,297         $ 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 $0.7 million at June 30, 2012 and $0.8 million at December 31, 2011. There were no issuance costs associated with Capital Securities V.

 

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Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note 9—Subordinated Debentures—Capital Securities, Continued

 

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, as required by its primary regulator, IBC exercised its right to defer interest payments. This deferral does not constitute a default under the indentures governing the securities. At June 30, 2012, IBC had accrued and expensed a total of $5.3 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.

Note 10—Stockholders’ Equity and Preferred Dividends in Arrears

Prior to May 24, 2012, IBC was authorized to issue up to 63,000,000 shares of its capital stock, consisting of 62,000,000 shares of Class A common stock, 700,000 shares of Class B common stock and 300,000 shares of preferred stock. At IBC’s 2012 Annual Meeting of Stockholders held on May 24, 2012, stockholders approved a proposal to amend and restate IBC’s Certificate of Incorporation to eliminate any and all references to Class B common stock and to rename its Class A common stock “common stock.” As a result, as of June 30, 2012, IBC was authorized to issue up to 62,300,000 shares of its capital stock, consisting of 62,000,000 shares of common stock and 300,000 shares of preferred stock. IBC’s board of directors determines the powers, preferences and rights, and the qualifications, limitations, and restrictions thereof on any series of preferred stock issued. A total of 25,000 shares of preferred stock are designated as Series A and are owned by the U.S. Treasury.

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 June 30, 2012, the amount of preferred dividends undeclared, unpaid and in arrears totaled $3.5 million. The preferred stock carries a 5% per year cumulative preferred dividend rate, payable quarterly, which 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 our 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 will 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.

 

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Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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 common stock that may be awarded under the Plan is 1,500,000. At June 30, 2012, 326,060 shares of common stock were available for award under the Plan. There were no grants of stock options in the first six months of 2012 or 2011.

A summary of the activity in IBC’s outstanding common stock warrant and options and related information follows:

 

    Exercise Price Per Warrant/Option          

Wtd-Avg

Exercise

 

($ in thousands, except per share amounts)

  $5.42 (1)     $17.10     $7.50     $4.02     $3.00     $2.55     Total     Price  

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)

    —          (300     (300     (600     (900     (1,200     (3,300   $ 4.71   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Outstanding at June 30, 2012

    691,882        117,540        121,090        69,910        39,000        42,900        1,082,322      $ 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)

    6.5        5.5        6.5        7.5        8.5        9.4        6.6     

Intrinsic value at June 30, 2012 (4)

    —          —          —          —        $ 32      $ 55      $ 87     

 

(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 common stock on June 30, 2012 of $3.83.

On January 19, 2012, a total of 465,400 shares of restricted 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 continuing to serve 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 common stock on the grant date of January 19, 2012. There were no restricted stock awards made in 2011.

A summary of the activity in IBC’s outstanding restricted common stock follows:

 

     Price Per Share         
     $2.35      $2.90      Total  

Outstanding at December 31, 2011

     318,100         —           318,100   

Shares granted to executive officers

     —           175,000         175,000   

Shares granted to non-employee directors

     —           240,000         240,000   

Shares granted to other officers and employees

     —           50,400         50,400   
  

 

 

    

 

 

    

 

 

 

Outstanding at June 30, 2012 (1)

     318,100         465,400         783,500   
  

 

 

    

 

 

    

 

 

 

 

(1) All outstanding shares of restricted common stock were unvested at June 30, 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, 133,467 on January 19, 2014 and 75,133 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.

 

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Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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

 

Stock-based compensation expense is recognized on a straight-line basis with a corresponding increase to stockholders’ equity over the vesting period of each award and is as follows: for the quarter ended June 30, 2012 and 2011, $310,000 and $77,000, respectively, and for the six-months ended June 30, 2012 and 2011, $576,000 and $155,000, respectively. At June 30, 2012, pre-tax, stock-based compensation cost related to all nonvested awards of options and restricted stock not yet recognized totaled $1.4 million and will be recognized over a weighted-average period of approximately 1.7 years.

Note 12—Deferred Tax Asset

At June 30, 2012 and December 31, 2011, we had a deferred tax asset totaling $34.1 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) and Federal AMT credit carryforward, all of which can be applied against and reduce our future taxable income and tax liabilities. At June 30, 2012, the gross NOL amounted to approximately $24 million for Federal purposes and $56 million for state and local purposes and the Federal AMT credit carryforward amounted to $1.1 million. The NOL carryforwards expire in 2030. 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 half 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 common stock in connection with awards under the Plan discussed in note 11.

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 June 30,      Six-Months Ended June 30,  
     2012      2011      2012      2011  

Basic Earnings Per Common Share:

           

Net earnings available to common stockholders

   $ 2,312,000       $ 2,458,000       $ 5,122,000       $ 4,184,000   

Weighted-Average number of common shares outstanding

     21,590,689         21,126,489         21,542,103         21,126,489   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic Earnings Per Common Share

   $ 0.11       $ 0.12       $ 0.24       $ 0.20   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted Earnings Per Common Share:

           

Net earnings applicable to common stockholders

   $ 2,312,000       $ 2,458,000       $ 5,122,000       $ 4,184,000   

Weighted-Average number of common shares outstanding:

           

Common shares outstanding

     21,590,689         21,126,489         21,542,103         21,126,489   

Potential dilutive shares resulting from exercise of warrants /options (1)

     959         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total average number of common shares outstanding used for dilution

     21,591,648         21,126,489         21,542,103         21,126,489   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted Earnings Per Common Share

   $ 0.11       $ 0.12       $ 0.24       $ 0.20   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) For both 2011 periods, outstanding options/warrants to purchase 1,045,422 shares were not dilutive. For the 2012 quarterly and six-month periods, outstanding options/warrants to purchase 1,043,322 shares and 1,082,322 shares, respectively, were not dilutive. Potential dilutive common stock shares consist of shares that may arise from the exercise of outstanding dilutive common stock warrants and options (the number of which is computed using the “treasury stock method”).

 

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Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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 June 30, 2012 or December 31, 2011.

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

 

($ in thousands)

   At June 30, 2012      At December 31, 2011  

Unfunded loan commitments

   $ 24,825       $ 18,199   

Available lines of credit

     784         826   
  

 

 

    

 

 

 
   $ 25,609       $ 19,025   
  

 

 

    

 

 

 

Note 15—Regulatory Matters and Regulatory Capital

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. At June 30, 2012 and December 31, 2011, we believe that IBC and INB met all regulatory 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 requirements from June 30, 2012.

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

 

     INB     IBC Consolidated  
     At June 30,     At December 31,     At June 30,     At December 31,  

($ in thousands)

   2012     2011     2012     2011  

Tier 1 Capital (1)

   $ 230,523      $ 218,590      $ 237,069      $ 226,325   

Tier 2 Capital

     16,352        17,176        16,408        17,232   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total risk-based capital (2)

   $ 246,875      $ 235,766      $ 253,477      $ 243,557   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net risk-weighted assets

   $ 1,295,619      $ 1,360,811      $ 1,300,083      $ 1,365,322   

Average assets for regulatory purposes

   $ 1,859,196      $ 1,950,445      $ 1,865,616      $ 1,958,409   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total capital to risk-weighted assets

     19.05     17.33     19.50     17.84

Tier 1 capital to risk-weighted assets

     17.79     16.06     18.23     16.58

Tier 1 capital to average assets

     12.40     11.21     12.71     11.56
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) IBC’s consolidated Tier 1 capital 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 $3.5 million at June 30, 2012 and $2.8 million and December 31, 2011. Dividends in arrears have not been deducted from capital and are recorded as reduction in capital only when they are declared and payable.

 

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Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note 15—Regulatory Matters and Regulatory Capital, Continued

 

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 June 30, 2012: (1)

                    

Total capital to risk-weighted assets

   $ 253,477         19.50   $ 104,007         8.00     NA         NA        NA         NA   

Tier 1 capital to risk-weighted assets

   $ 237,069         18.23   $ 52,003         4.00     NA         NA        NA         NA   

Tier 1 capital to average assets

   $ 237,069         12.71   $ 74,625         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 June 30, 2012:

                    

Total capital to risk-weighted assets

   $ 246,875         19.05   $ 103,650         8.00   $ 129,562         10.00   $ 155,474         12.00

Tier 1 capital to risk-weighted assets

   $ 230,523         17.79   $ 51,825         4.00   $ 77,737         6.00   $ 129,562         10.00

Tier 1 capital to average assets

   $ 230,523         12.40   $ 74,368         4.00   $ 92,960         5.00   $ 167,328         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 June 30, 2012 would have been 19.50%, 14.00% and 9.76%, respectively.

The table that follows presents additional information regarding our capital adequacy at June 30, 2012.

 

     Consolidated
Regulatory Capital
     INB
Regulatory Capital
 

($ in thousands)

   Actual      Required      Excess      Actual      Required      Excess  

Total capital to risk-weighted assets

   $ 253,477       $ 104,007       $ 149,470       $ 246,875       $ 155,474       $ 91,401   

Tier 1 capital to risk-weighted assets

   $ 237,069       $ 52,003       $ 185,066       $ 230,523       $ 129,562       $ 100,961   

Tier 1 capital to average assets

   $ 237,069       $ 74,625       $ 162,444       $ 230,523       $ 167,328       $ 63,195   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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.

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.

 

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Intervest Bancshares Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note 17—Fair Value Measurements, Continued

 

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

 

     Outstanding Carrying Value  
     At June 30,
2012
     At December 31,
2011
 

($ in thousands)

   Level 3      Level 3  

Impaired loans (1):

     

Commercial real estate

   $ 46