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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED June 30, 2012 or
For The Transition Period From to Commission file number 000-23377
INTERVEST BANCSHARES CORPORATION (Exact name of registrant as specified in its charter)
(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):
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 ContentsINTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES June 30, 2012 FORM 10-Q
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.
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Table of ContentsIntervest Bancshares Corporation and Subsidiaries Condensed Consolidated Balance Sheets
See accompanying notes to condensed consolidated financial statements.
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Table of ContentsIntervest Bancshares Corporation and Subsidiaries Condensed Consolidated Statements of Earnings (Unaudited)
See accompanying notes to condensed consolidated financial statements.
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Table of ContentsIntervest Bancshares Corporation and Subsidiaries Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
See accompanying notes to condensed consolidated financial statements.
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Table of ContentsIntervest Bancshares Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
See accompanying notes to condensed consolidated financial statements.
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Table of ContentsIntervest 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 ContentsIntervest 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:
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:
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.
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Table of ContentsIntervest 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.
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Table of ContentsIntervest 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.
Note 4—Loans Receivable Major classifications of loans receivable are summarized as follows:
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.
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Table of ContentsIntervest 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:
Other information related to impaired loans is summarized as follows:
Age analysis of our loan portfolio at June 30, 2012 is summarized as follows:
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Table of ContentsIntervest 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:
Information regarding the credit quality of the loan portfolio based on internally assigned grades follows:
The geographic distribution of the loan portfolio by state follows:
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Table of ContentsIntervest 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:
The distribution of TDRs by accruing versus non-accruing, by loan type and by geographic distribution follows:
Note 5—Allowance for Loan Losses Activity in the allowance for loan losses by loan type for the periods indicated is as follows:
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Table of ContentsIntervest 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:
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:
Activity in the valuation allowance for real estate losses is summarized as follows:
Note 7—Deposits Scheduled maturities of certificates of deposit accounts are as follows:
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Table of ContentsIntervest 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:
Scheduled contractual maturities of outstanding FHLB advances as of June 30, 2012 were as follows:
Note 9—Subordinated Debentures—Capital Securities Capital Securities (commonly referred to as trust preferred securities) outstanding are summarized as follows:
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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Table of ContentsIntervest 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:
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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Table of ContentsIntervest 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:
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.
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:
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Table of ContentsIntervest Bancshares Corporation and Subsidiaries 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:
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Table of ContentsIntervest 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:
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:
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Table of ContentsIntervest 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.
The table that follows presents additional information regarding our capital adequacy at June 30, 2012.
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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Table of ContentsIntervest 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.
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