UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended DECEMBER 31, 2013

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)	(I.R.S. 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)

Securities registered pursuant to Section 12(b) of the Act

Common Stock, par value $1.00 per share	The NASDAQ Global Select Market
(Title of each class)	(Name of Each Exchange on Which Registered)

Securities registered pursuant to Section 12(g) of the Act

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:    Yes  ¨    No  x.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act:    Yes  ¨    No  x.

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 preceding 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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

Large Accelerated Filer	¨	Accelerated Filer	x
Non-accelerated Filer	¨	Smaller Reporting Company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):    Yes  ¨    No  x.

The aggregate market value of 19,454,807 shares of the Registrant’s common stock outstanding on June 28, 2013 (which excludes a total of 2,468,949 shares held by affiliates) was $129,958,111. This value is computed by reference to the closing sale price of $6.68 per share on June 28, 2013 of the Registrant’s common stock on the NASDAQ Global Select Market.

At the close of business on January 31, 2014, there were 22,012,390 shares of the Registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the 2014 Annual Meeting of Stockholders to be held in May 2014 are incorporated by reference into Part III of this Form 10-K.

Intervest Bancshares Corporation and Subsidiary

2013 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page
PART I
Item 1	Business		3
Item1A	Risk Factors		27
Item1B	Unresolved Staff Comments		35
Item 2	Properties		35
Item 3	Legal Proceedings		36
Item 4	Mine Safety Disclosures		36
	Executive Officers and Other Significant Employees		36
PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		39
Item 6	Selected Financial Data		41
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
Item 7A	Quantitative and Qualitative Disclosures About Market Risk		64
Item 8	Financial Statements and Supplementary Data		65
Item 9	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure		108
Item 9A	Controls and Procedures		108
Item 9B	Other Information		108
PART III
Item 10	Directors, Executive Officers and Corporate Governance		108
Item 11	Executive Compensation		108
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		109
Item 13	Certain Relationships and Related Transactions, and Director Independence		109
Item 14	Principal Accountant Fees and Services		109
PART IV
Item 15	Exhibits and Financial Statement Schedules		109
Signatures			110

2

PART I

The disclosures and discussions, set forth in this report on Form 10-K, are qualified by the next two paragraphs that follow and by “Item 1A Risk Factors.”

Private Securities Litigation Reform Act Safe Harbor Statement

Intervest Bancshares Corporation (“IBC”) is the parent company of Intervest National Bank (“INB”). References in this report to “we,” “us” and “our” refer to these entities on a consolidated basis, unless otherwise specified.

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-K, including without limitation statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this report, 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,” “objective,” 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 agreement to which IBC is currently subject 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 carry forwards; 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 this report on Form 10-K and updated as needed in Item 1A of Part II of our quarterly reports on Form 10-Q.

Available Information

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

Item 1. Business

Description of Business

IBC is a bank holding company incorporated in 1993 under the laws of the State of Delaware and its common stock trades on the Nasdaq Global Select Market under the symbol IBCA. IBC is the parent company of INB and owns 100% of its capital stock. IBC’s primary purpose is the ownership of INB. It does not engage in any other business activities other than, from time to time, a limited amount of real estate mortgage lending, including the participation in loans originated by INB. IBC from time to time also issues debt and equity securities as needed to raise funds for working capital purposes. IBC also owns 100% of the capital stock of four statutory business trusts (Intervest Statutory Trust II, III, IV and V, or the “Trusts”), all of which are unconsolidated entities for financial statement purposes. The Trusts do not conduct business and were formed prior to 2006 for the sole purpose of issuing and administering trust preferred securities and lending the proceeds to IBC as discussed in note 9 to the financial statements in this report.

INB is a nationally chartered commercial bank that opened for business on April 1, 1999 and accounts for 99% of our assets. In addition to its headquarters and full-service banking office in Rockefeller Plaza in New York City, INB has a total of six full-service banking offices in Pinellas County, Florida - four in Clearwater, one in Clearwater Beach and one in South Pasadena.

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INB also has a beneficial ownership interest in certain limited liability companies whose sole purpose is to hold title to real estate INB may thereby beneficially acquire through foreclosure or otherwise. The offices of IBC and INB’s headquarters and full-service banking office are leased and located on the entire fourth floor of One Rockefeller Plaza in New York City, New York, 10020-2002. The main telephone number is 212-218-2800.

Our business is banking and real estate lending conducted through INB’s operations. INB conducts a personalized banking business that attracts deposits from the general public. INB solicits deposit accounts from individuals, small businesses and professional firms located throughout its primary market areas in New York and Florida by offering various deposit products. INB uses these deposits, together with funds generated from its operations, principal repayments of loans and securities and from other sources, to originate mortgage loans secured by real estate and to purchase investment securities. INB also provides internet banking services through its website, which also attracts deposit customers from both within and outside INB’s primary market areas.

INB’s deposit flows and the rates it pays on deposits are influenced by interest rates on competing investments. INB’s volume of loan originations is dependent on a number of factors, including loan demand and whether the interest rate and maturity terms and credit risks associated with potential new loans are suitable for its portfolio and meet its Board-approved underwriting standards. INB faces strong competition in the attraction of deposits and the origination of loans. INB’s deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”) to the extent permitted by law. INB’s core data processing is outsourced and is performed by Fiserv, Inc, a leading global provider of information management and electronic commerce systems for the financial services industry.

Our revenues consist of interest, dividends and fees earned on our interest-earning assets and noninterest income. Our expenses consist of interest incurred on our interest-bearing liabilities and noninterest expenses.

Our net interest and dividend income is the difference between interest and dividend income generated from our interest-earning assets and interest expense incurred on our interest-bearing liabilities, and is dependent upon an interest-rate spread (which is the difference between the yield earned on interest-earning assets and the rate paid on interest-bearing liabilities.

Our noninterest income is derived mostly from loan and other banking fees as well as income from loan prepayments. When a mortgage loan is repaid prior to maturity, we may recognize prepayment income, which consists of the recognition of unearned fees associated with such loans at the time of payoff and the receipt of additional prepayment fees and/or interest in certain cases in accordance with the prepayment provisions in the mortgage loan. The amount and timing of, as well as income from loan prepayments, if any, cannot be predicted with certainty and can fluctuate significantly. Normally, the number of mortgage loans that are prepaid tends to increase during periods of declining interest rates and tends to decrease during periods of increasing interest rates. However, given the nature and type of the mortgage loans we originate, we may still experience loan prepayments notwithstanding the effects of movements in interest rates. Loan prepayment income can be significant to our net operating results.

Our noninterest expenses are derived primarily from the following: salaries and employee benefits; stock compensation; occupancy and equipment; data processing; professional fees and services; FDIC insurance; general insurance; real estate activities; and other operating expenses. We also record provisions (credits) for loan and real estate losses and income tax expense or benefit. The real estate activities category comprises expenses (net of rental and other income generated from collateral properties) such as real estate taxes, insurance, utilities and other charges, required in protecting our interest in real estate acquired through foreclosure and various properties collateralizing our nonaccrual loans.

Our profitability is affected by all the factors discussed above and is also significantly influenced by general and local economic conditions and changes in real estate values in the New York City metropolitan area and the State of Florida, our primary market areas, and by related monetary and fiscal policies of banking regulatory agencies, including the Office of the Comptroller of the Currency (the “OCC”), the Federal Reserve Bank of New York (the “FRB”) and the FDIC.

INB is subject to the supervision, regulation and examination of the OCC. IBC is subject to examination and regulation by the FRB and the Securities and Exchange Commission (the “SEC”).

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Business Strategy

Our business strategy is to attract deposits through competitive pricing and use those deposits along with other funds generated from our operations to originate commercial and multifamily real estate loans on a profitable basis, while maintaining the combination of efficient customer service and prompt loan underwriting, a low-cost infrastructure and a strong capital position in excess of well-capitalized standards to support our current operations and potential future growth.

We rely upon the relationships we have developed with our borrowers and brokers with whom we have done business in the past as primary sources of new loans. We believe that our extensive knowledge and experience with commercial and multifamily real estate lending coupled with our ability to rapidly and efficiently analyze, process and close mortgage loans gives us a competitive advantage. Our goal is to deliver personalized service and respond with flexibility to customer needs. We consider the ability of our management to be both accessible and responsive to both brokers and borrowers as core strengths of our organization, and one of the reasons we can make timely decisions on lending opportunities. Our senior lending officers have extensive lending expertise with excellent reputations and are known in the market for their flexibility, ability to structure deals and for honoring commitments. We provide a high level of service due to our knowledge of our customer-base and the market areas we serve. We believe all the aforementioned factors distinguish us from larger banks that operate in our primary market areas.

Market Area for Deposits

Our primary market area for our New York office is the New York metropolitan area, consisting of the five boroughs of New York City and the areas surrounding them. New York City is the nation’s financial capital and the home of more than 8 million individuals representing virtually every race and nationality. It also has a vibrant and diverse business community with many businesses and professional service firms. Historically, the New York City metropolitan area has benefited from being the corporate headquarters of many large industrial and commercial national companies, which have, in turn, attracted many smaller companies, particularly within the service industry. At June 30, 2013, INB ranked 37th out of 102 financial institutions in Manhattan with a deposit market share of 0.07%. Total market deposits in Manhattan at that date exceeded $742 billion. INB’s branch in Rockefeller Center had a deposit size of $505 million at June 30, 2013 compared to a $1.1 billion average branch size of all financial institutions operating in Manhattan.

Our primary market area for our Florida offices is Pinellas County in the Tampa Bay Area, which is located on the West Coast of Florida, midway up the Florida peninsula. The major cities in the area are Tampa (Hillsborough County) and St. Petersburg and Clearwater (Pinellas County). Pinellas County is the sixth most populous county (917,000 people) and the most densely populated county (3,347 people per square mile) in Florida per 2010 census information. This area also has many seasonal residents. At June 30, 2013, INB ranked 7th out of 36 financial institutions in Pinellas County with a deposit market share of 2.63%. Total market deposits in Pinellas County at that date exceeded $30 billion. INB’s Florida branches had an average deposit size of $132 million per branch at June 30, 2013. The average branch size of all financial institutions operating in Pinellas County was $97 million at June 30, 2013. INB’s deposit-gathering market also includes its internet web site: www.intervestnatbank.com, which attracts deposit customers from both within and outside its primary market areas.

Competition

In one or more aspects of our business, we compete with other commercial banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries. Most of these competitors are larger than us and may enjoy efficiencies and competitive advantages over us in pricing, delivery and marketing of their products and services. We believe that, despite the continued growth of large institutions and the potential for large out-of-area banking and financial institutions to enter our market areas, there will continue to be opportunities for efficiently-operated, service-oriented, well-capitalized, community-based banking organizations like us. Competition for depositors’ funds and for credit-worthy loan customers is intense and is based upon interest rates and other credit and service charges, the quality of service provided, the convenience of banking facilities, the products offered and, in the case of larger commercial borrowers, relative lending limits.

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Lending Activities

General. Our lending activities are comprised almost entirely of the origination for our loan portfolio of first mortgage loans secured by commercial and multifamily real estate. Our lending model focuses on acquisition loans for income producing properties that have sufficient cash flow to support the loan’s debt service and have rents that are below market with the likelihood of increasing over time. We also lend on properties that are vacant or substantially vacant and may require improvements to generate stabilized cash flows, as well as those located in geographical areas that are in the process of being revitalized or redeveloped, with a concentration of loans on properties located in New York and Florida, as well as some properties located mostly on the East Coast of the U.S. Most recently we have also expanded our lending market to include some Midwest states, primarily in the case of single tenant retail properties. As a matter of policy, we do not own or originate construction/development loans or condominium conversion loans. We also offer commercial and consumer loans, but do not emphasize such lending.

Sources of Loans. Mortgage brokers are the source of substantially all of the loans we originate. The brokers are paid a fee by the borrower upon the funding of the loan. Our reputation within the real estate community, with both borrowers and brokers, is critical to our ability to originate loans. To a lesser extent, our loan originations are also derived from advertising in newspapers and trade journals, existing customers, referrals from attorneys, direct solicitation by our officers and walk-in customers.

Market Areas for Loans. We tend to lend in areas that are in the process of being revitalized or redeveloped, with a concentration of loans on properties located in New York and Florida. A large number of the properties in New York are located in Manhattan, Brooklyn, Queens, Long Island, Staten Island and the Bronx. A large number of the properties we lend on in Florida are located in Clearwater, Tampa, St. Petersburg, Orlando, Fort Lauderdale, Hollywood and Miami. More recently, we have also increased our originations outside of these two states. At December 31, 2013, we also had loans on properties in Alabama, Connecticut, Georgia, Indiana, Kentucky, Maryland, Michigan, North Carolina, New Jersey, Ohio, Pennsylvania, South Carolina, South Dakota, Tennessee, Virginia and Wisconsin.

Lending Policies and Criteria. Our lending activities are conducted pursuant to INB’s Board-approved written policies and defined lending limits, including the types and amounts of loans we can originate. As a national bank, INB may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of INB’s unimpaired capital and surplus. Additional amounts may be loaned, not in excess of 10% of unimpaired capital and surplus, if such loans or extensions of credit are secured by readily-marketable collateral. INB’s internal policy requires full approval of its Board if any loan application amount exceeds 5% of its regulatory capital or exceeds 7.5% of its regulatory capital for loan-to-one-borrower limitation purposes.

In originating real estate loans, we primarily consider the net operating income generated by the underlying property to support the loan’s debt service, including whether the rents are below market with the potential to increase, the marketability and value of the property, the financial resources, liquidity, income level and managerial expertise of the borrower and its principal(s), and any prior lending experience we may have had with the borrower and/or its principal(s). All new loans are referred to one of our two senior lending officers, our Chairman and INB’s President, both of whom have substantial experience in commercial and multifamily real estate lending and have been with us since the inception of INB. These two officers, with oversight from INB’s Board of Directors and its Loan Committee, determine which lending opportunities are suitable for us, including setting all interest rates, fees charged and maturity terms of the loans we originate.

All new loans in excess of $250,000 must be first reviewed and approved by INB’s Loan Committee, which is comprised of three members of INB’s Board of Directors, one of whom is also our Chairman and the other two are independent directors. Both INB’s Chief Credit Officer and INB’s President attend and participate in all meetings of the Loan Committee.

As part of our lending policies, loan-to-value ratios (the ratio that the original principal amount of the loan bears to the lower of the purchase price or appraised value of the property securing the loan at the time of origination) on loans originated by us by policy may not exceed 80%, and in practice, rarely exceed 75%. Additionally, debt service coverage ratios (the ratio of the net operating income generated by the property securing the loan to the required debt service) typically are not less than 1.2 times.

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We also make loans on properties where there is limited or no cash flow being generated (including loans collateralized by land). For these loans, we rely on capable hands-on owners who over time, can improve or develop the property and increase the cash flow therefrom and are able to meet the loan’s debt service requirements through their other verified sources of income, while such improvements are being made.

Our underwriting procedures require the following: an appraisal of the property securing the loan that is performed by a licensed or certified appraiser approved by us to determine the property’s adequacy as collateral; a physical inspection of the property by us; mortgage title insurance; flood insurance when required; fire insurance; casualty, liability and boiler and machinery insurance; and environmental surveys. In addition, we have an internal and external appraisal review process to monitor and evaluate third-party appraisals. We also perform other analyses which may include: the condition and use of the subject property; the property’s income-producing capacity and its current level of rents; risks inherent in the property’s tenants, the global cash flows of the borrower or the principal(s) of the borrower; and the quality and experience of the property’s owner. Credit reports and other verifications, including searches related to the requirements of the Office of Foreign Assets Control (OFAC) and the USA Patriot Act, are obtained to substantiate specific information relating to the applicant’s income, credit standing and legal status. We may also require personal guarantees from the principals of our borrowers as additional security, although loans are often originated on a limited recourse basis.

Loan Terms and Fees. We originate generally short-term loans of no more than 5 to 10 years that have balloon payments at maturity. Depending on market conditions and borrower preferences, the loans have either fixed or variable interest rates, including some loans with interest rates that increase over the life of the loan on a predetermined schedule. Our loans typically provide for periodic payments of interest and principal during the term of the loan, with the remaining principal balance and any accrued interest due at maturity. Our loans generally have amortization schedules common to the banking industry of generally 25 to 30 years. We also originate some longer-term, self-liquidating loans whereby the principal is fully paid down by maturity. The terms and conditions of each loan are generally tailored to the needs of the borrower and consider the financial strength of the project and any guarantors, among other factors.

We also normally charge loan origination fees based on a percentage of the principal amount of the loan. These fees are normally comprised of a fee that is collected at the time the loan is originated and another similar fee that is contractually due when the loan is repaid (which we may refer to as an “exit fee” in this report). We record the exit fee as a receivable when the loan is originated. The total of origination and exit fees, net of our direct loan origination costs, are deferred and amortized over the contractual life of the loan as an adjustment to the loan’s yield in accordance with GAAP. We also earn other fee income and charges from the servicing of the loans we originate.

Recent Lending Trends. Over the past several years, due to increased liquidity in the banking system and widespread increasing competition for real estate loans, particularly multifamily loans in the New York City metropolitan area, the effective loan rates for multifamily (as well as commercial real estate loans to a large extent) have been driven down substantially from historical levels, with interest rates recently offered as low as 3% or below for 5 to 10 year multifamily balloon products, with a portion being interest only loans. Aggressive pricing by our competitors has fueled interest rate and term competition. Further, the lower interest rates have driven up the principal size of these loans in relation to the perceived value of the underlying collateral. We have also seen a shift in recent years of rental properties being converted to condominium or cooperative status which takes them out of the normal multifamily market. All of these conditions have reduced what we believe to be suitable lending opportunities for us during the past few years, particularly in the New York multifamily real estate market.

The market conditions described above have resulted in a large number of the loans we originated prior to 2010 being repaid through refinancing by other institutions. Our new loan originations, moreover, have been more weighted towards commercial real estate loans, with an emphasis on mixed-use properties, retail strip centers and commercial buildings with single-tenant occupancy. We have increased our lending over the last three years in the single tenant non-credit and credit sectors of the commercial real estate market due to attractive collateral values and yields in this market. At December 31, 2013, single tenant non-credit loans accounted for approximately 12% of our total loan portfolio, compared to approximately 2% at the end of 2010.

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We have also increased our lending over the last three years on loans to investors that are secured by blocks of residential condominium dwelling units due to attractive collateral values and yields in this market, particularly in our Florida market. These dwelling units are characterized as 1-4 family dwelling units. At December 31, 2013, such loans accounted for approximately 6% of our total loan portfolio compared to less than 1% at the end of 2010.

We have also increased our lending over the last three years on loans where the collateral properties (mostly single tenant) are located outside of our primary markets of New York and Florida. At December 31, 2013, such loans accounted for approximately 13% of our total loan portfolio compared to less than 9% at the end of 2010.

The market conditions and trends described above have caused our total commercial real estate loans as a percentage of our total loans to increase from 71% at the end of 2010 to 74% at December 31, 2013, while our multifamily loans, inclusive of loans on investor owned 1-4 family condominiums, as a percentage of total loans have decreased from 28% to 25% during the same time frame. The average yield on our entire loan portfolio has also declined from a weighted-average of 6.36% for the entire year of 2010 to 5.21% for the most recent quarter ended December 31, 2013, reflecting lower market interest rates and highly competitive conditions in originating new loans.

Additionally, during the same time frame, as a result of competitive market conditions, lower pricing in originating loans and borrower preference for fixed-rate products, we have originated nearly all fixed-rate loans with somewhat longer maturities. Loans with fixed interest rates constituted approximately 99% of our loan portfolio at December 31, 2013, compared to 78% at the end of 2010. The loan portfolio had a short weighted-average remaining contractual life of approximately 4.6 years as of December 31, 2013, compared to 3.5 years at December 31, 2010. See the section “Asset and Liability Management” in Item 7 of this report for further discussion of the impact of fixed-rate loans on our interest rate risk. We cannot predict how long the above trends or factors will continue or how they will impact our loan origination volumes, loan types and loan terms over the long term.

Lending Risks. Commercial and multifamily real estate loans are generally considered to have more credit risk than traditional single family residential loans because these loans tend to involve larger loan balances and their repayment is typically dependent upon the successful operation and management of the underlying real estate. Included in this category are loans we originate on vacant or substantially vacant properties, all of which typically have limited or no income streams and depend upon other sources of cash flow from the borrower for repayment, which add an additional element of risk. Our vacant land loans normally have no income streams and also depend upon other sources of cash flow from the borrower for repayment. We define substantially vacant properties as follows: commercial real estate - occupancy of less than 70% of rentable square feet; and for multifamily - occupancy of less than 70% of rentable apartments.

We also have single tenant non-credit and credit loans as defined at the end of this paragraph. This includes loans on real estate leased to national and regional chains of specialty restaurants, fast food establishments, retailers, drug stores and convenience stores, bank branches and some single occupancy office buildings, with a large portion of the new loans originated in states other than New York and Florida, including geographical areas that are considered secondary and tertiary markets. A significant portion of the loans secured by restaurants (which totaled approximately $67 million at December 31, 2013) are guaranteed by the borrowers and not by the franchisees that operate the business or by the franchisor. Nearly all of the single tenants have triple net leases, whereby the tenant also pays all of the utilities, property taxes and insurance directly to the appropriate vendors and municipalities. Loans with single-tenant exposure may have greater risk of default than loans on buildings with large, diversified tenant rosters. Moreover, some of the single tenant loans in our portfolio have leases that expire before the loan matures which further increases the credit risk of these loans, although in many cases, these loans have accelerated principal amortization schedules and the leases contain renewal options. In such situations, there is always the risk that the tenant will not renew upon lease maturity, which may result in a significant amount of time and expense involved with replacing a major tenant if it were to vacate or default on its payments or if we were to acquire the property through foreclosure. Furthermore, tenants that are not rated or are rated “non-credit” (non-credit defined as tenants with a debt rating from the major rating agencies, such as Standard and Poor’s, that is below investment grade or “BBB” for example) also pose a greater risk of default as compared to “credit rated tenants.”

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We also have certain loans categorized as 1-4 family loans, which consist almost entirely of loans secured by blocks of investor-owned individual condominium dwelling units. We normally make these loans to investors who purchase multiple condo units that remain unsold after a condo conversion or the unsold units in a new condo development. The units are normally rented for a number of years until the economy improves and the units can be sold as originally intended. Nearly all of these loans are in our Florida market. Although we classify loans secured by blocks of investor-owned individual condominium dwelling units as 1-4 family as required by regulatory guidance, they are underwritten by us in accordance with our more stringent multifamily underwriting polices. Because we believe that the risk characteristics of these loans are essentially the same as our multifamily real estate lending, we also risk weight them for regulatory capital purposes at 100%.

Many of our loans have balloon payments at maturity, which require a substantial part of or the entire original principal amount to be paid in one lump sum payment at maturity. If the net revenue from the property, or other sources of cash flow from the borrower, is not sufficient to make all debt service payments due on the loan or, if at maturity or the due date of any balloon payment, the owner of the property fails to raise the funds (through refinancing the loan, sale of the property or otherwise) to make the lump sum payment, we could sustain a loss on the loan.

All of our loans require ongoing evaluation and monitoring since they may be negatively affected to a large degree by adverse conditions in the real estate markets or the economy or changes in government regulation. Moreover, a number of our borrowers also have more than one mortgage loan outstanding with us and some may also own other properties that are encumbered by separate mortgages from other lenders, which may impair their ability to repay their obligations with us. Consequently, an adverse development with respect to such borrowers may expose us to a greater risk of loss to our otherwise performing loans with the same borrower. Furthermore, banking regulators continue to give commercial real estate lending greater scrutiny and banks with higher levels of these loans are expected to implement improved underwriting and risk management policies and portfolio stress testing, as well as maintain higher levels of allowances for possible losses and high capital levels as a result of commercial real estate lending growth and exposures. Our mortgage loans are also not insured or guaranteed by governmental agencies. In the event of a default, our ability to ultimately recover our investment in the loan is dependent upon the market value of the mortgaged property and the enforceability and collectability of the borrower’s personal guarantees, where applicable.

Loan Portfolio Data. At December 31, 2013, our real estate loans consisted of 557 loans with an aggregate principal balance of $1.13 billion and an average loan size of $2.0 million. Loans with principal balances of more than $10 million consisted of 10 loans with an aggregate principal balance of $124 million, with the largest loan being $16.3 million. Loans with principal balances of $5 million to $10 million consisted of 44 loans and aggregated to $282 million.

The tables that follow set forth certain information regarding the loan portfolio.

	At December 31,
($ in thousands)	2013			2012			2011			2010			2009
Commercial real estate loans	$	838,766		$	852,213		$	864,470		$	948,275		$	1,128,646
Multifamily loans		210,270			208,699			277,096			375,448			524,624
One to four family loans		72,064			41,676			12,940			5,148			5,248
Land loans		9,178			7,167			11,218			12,550			32,934
Commercial business loans		1,061			949			1,520			1,454			1,687
Consumer loans		211			359			329			107			616
Loans receivable, gross		1,131,550			1,111,063			1,167,573			1,342,982			1,693,755
Deferred loan fees		(4,028	)		(3,597	)		(3,783	)		(5,656	)		(7,591	)
Loans receivable, net of deferred fees		1,127,522			1,107,466			1,163,790			1,337,326			1,686,164
Allowance for loan losses		(27,833	)		(28,103	)		(30,415	)		(34,840	)		(32,640	)
Loans receivable, net	$	1,099,689		$	1,079,363		$	1,133,375		$	1,302,486		$	1,653,524
Yield earned on loan portfolio during the year		5.42	%		6.06	%		6.45	%		6.36	%		6.16	%

9

The table below sets forth the activity in the loan portfolio.

	For the Year Ended December 31,
($ in thousands)	2013			2012			2011			2010			2009
Loans receivable, net, at beginning of year	$	1,079,363		$	1,133,375		$	1,302,486		$	1,653,524		$	1,677,187
Originations		302,664			241,541			82,107			76,623			200,145
Principal repayments and sales		(279,417	)		(291,050	)		(243,698	)		(287,248	)		(186,430	)
Transfers to foreclosed real estate		(3,040	)		(4,689	)		(4,375	)		(40,885	)		(27,748	)
Chargeoffs		(1,938	)		(3,152	)		(9,598	)		(100,146	)		(8,103	)
Recoveries		2,218			840			155			883			1,354
Net (increase) decrease in deferred loan fees		(431	)		186			1,873			1,935			1,235
Net decrease (increase) in allowance for loan losses		270			2,312			4,425			(2,200	)		(4,116	)
Loans receivable, net, at end of year	$	1,099,689		$	1,079,363		$	1,133,375		$	1,302,486		$	1,653,524

The following table sets forth information regarding loans outstanding at December 31, 2013 by year of origination.

($ in thousands) Year Originated (1)	Balance Outstanding		% of Total			Balance Rated Substandard		% of Outstanding			Balance Nonaccrual		% of Outstanding
2004 and prior	$	129,895		12	%	$	3,732		3	%	$	—		—	%
2005		56,022		5			4,753		9			—		—
2006		76,776		7			8,695		11			8,695		11
2007		137,929		12			38,527		28			27,208		20
2008		107,197		9			7,828		7			—		—
2009		79,552		7			1,375		2			—		—
2010		15,273		1			2,162		14			—		—
2011		40,447		4			—		—			—		—
2012		203,715		18			500		—			—		—
2013		284,744		25			—		—			—		—
	$	1,131,550		100	%	$	67,572		6	%	$	35,903		3	%

(1) Does not consider those loans that have been extended or renewed since the date of original origination.

The table below sets forth information on our new loan originations for 2013.

								Weighted-Average
($ in thousands)	#of Loans (1)		Amount		% of Total			Rate			Yield (2)			Term (3)		DSCR (4)			LTVR
Commercial Real Estate:
Retail:
Shopping centers - anchored		9	$	6,650		2	%		4.63	%		4.72	%		6.8		1.93	x		62	%
Shopping centers - grocery anchored		1		1,638		1	%		4.38	%		4.61	%		15.0		1.27	x		53	%
Shopping centers - unanchored		14		25,347		8	%		4.65	%		4.73	%		8.5		1.70	x		61	%
Mixed-use commercial		17		53,245		18	%		4.04	%		4.12	%		5.6		1.25	x		55	%
Single tenant - credit		8		7,615		3	%		4.62	%		4.65	%		10.2		1.42	x		61	%
Single tenant - noncredit		57		81,532		27	%		4.71	%		4.76	%		8.8		1.57	x		62	%
Office buildings		6		4,146		1	%		5.16	%		5.33	%		6.2		1.07	x		67	%
Industrial/warehouses		5		13,175		4	%		4.66	%		4.73	%		7.4		1.18	x		66	%
Mobile home park		6		8,216		2	%		5.15	%		5.22	%		8.5		1.45	x		67	%
Mini-storage		1		500		—			4.08	%		4.36	%		4.9		1.37	x		71	%
Parking lots/garages		1		2,000		1	%		4.00	%		4.42	%		3.0		—			59	%
Other commercial		1		80		—			4.25	%		4.88	%		5.0		2.03	x		60	%
Multifamily (5 or more units):
Rent regulated apartments		4		5,650		2	%		3.88	%		4.01	%		4.2		1.53	x		68	%
Non-rent regulated apartments		8		8,839		3	%		4.32	%		4.36	%		7.8		0.66	x		52	%
Garden apartments		5		16,853		6	%		4.43	%		4.48	%		5.1		1.29	x		72	%
Mixed-use multifamily		13		27,176		9	%		3.94	%		4.05	%		5.4		1.35	x		52	%
One to four family (investor condos)		9		35,900		12	%		4.77	%		4.94	%		3.9		0.99	x		59	%
Land		1		3,500		1	%		4.00	%		5.86	%		1.0		—			45	%
Personal and Business		15		602		—			4.30	%		4.30	%		1.7		1.00	x		96	%
Totals		181	$	302,664		100	%		4.53	%		4.61	%		6.8		1.34	x		60	%

(1) Advances on existing loans for purposes of this table are counted as a new loan.

(2) Computed using net origination and exit fee income as a yield adjustment.

(3) Represents contractual maturity (expressed in number of years) and does not consider the impact of self-liquating loans.

(4) Computed based on property’s actual cash flows at date of origination and excludes pro-forma (or projected) cash flows in cases where properties are vacant or substantially vacant and are in the process of being leased or stabilized. Also excludes any deposits made by the borrower with us for future debt service payments.

10

The table below sets forth the location of properties securing the real estate loan portfolio at December 31, 2013.

	New York				Florida				Other States				Total Loans						Impaired
($ in thousands)	#		Amount		#		Amount		#		Amount		#		Amount		%		Loans
Commercial Real Estate:
Retail:
Shopping centers - anchored (1)		5	$	10,215		6	$	21,925		7	$	21,173		18	$	53,313		4.7	$	10,547
Shopping centers - grocery anchored (1)		2		18,637		1		1,276		2		6,486		5		26,399		2.3		—
Shopping centers - unanchored (1)		48		101,221		14		34,946		6		9,412		68		145,579		12.9		18,228
Mixed-use commercial (2)		72		168,067		6		16,386		4		4,386		82		188,839		16.7		—
Single tenant - credit (3)		12		12,522		5		5,633		4		4,139		21		22,294		2.0		—
Single tenant - noncredit (3)		29		38,004		30		35,826		47		61,476		106		135,306		12.0		—
Office buildings (4)		13		38,041		14		44,819		5		14,460		32		97,320		8.6		23,632
Industrial/warehouses (5)		15		34,479		3		3,343		—		—		18		37,822		3.3		—
Hotels (6)		7		33,769		5		26,579		—		—		12		60,348		5.3		—
Mobile home parks (7)		—		—		17		23,901		1		1,646		18		25,547		2.3		—
Mini-storage (8)		6		21,019		—		—		—		—		6		21,019		1.9		—
Parking lots/garages		7		23,109		—		—		—		—		7		23,109		2.0		—
Other commercial		1		1,871		—		—		—		—		1		1,871		0.2		—
Multifamily (5 or more units):
Rent regulated apartments (9)		35		53,305		—		—		—		—		35		53,305		4.7		—
Non-rent regulated apartments (9)		20		24,219		21		439		2		499		43		25,157		2.2		—
Garden apartments (10)		2		1,613		17		44,355		3		10,608		22		56,576		5.0		3,128
Mixed-use multifamily (2)		36		72,537		—		—		2		2,695		38		75,232		6.7		—
One to four family (11)		3		13,829		16		57,153		1		1,082		20		72,064		6.4		—
Land		1		3,500		3		4,053		1		1,625		5		9,178		0.8		1,625
Total real estate loans		314	$	669,957		158	$	320,634		85	$	139,687		557	$	1,130,278		100.0	$	57,160
Average loan balance			$	2,134			$	2,029			$	1,643			$	2,029
Loans on nonaccrual status		—		—		3	$	23,489		3	$	12,414		6	$	35,903		3.2
Loans with full or partial personal guarantees		190	$	367,161		132	$	249,369		51	$	84,137		373	$	700,667		62.0
Loans with DSCRs of less than 1.00x (12)		41	$	75,281		15	$	33,005		10	$	27,091		66	$	135,377		12.0
Loans with DSCRs of 1.00x to 1.20x (12)		32	$	65,937		36	$	28,967		11	$	13,040		79	$	107,944		9.6

(1) Comprised predominantly of neighborhood/community strip shopping centers containing general merchandise and convenience retailers, including grocery, drug, service, personal care, repair, discount and home improvement stores. An anchored center contains one tenant, which may be either a credit or non-credit tenant, whose percentage of the property’s total income and rentable space is 50% or greater.

(2) Comprised of properties having both residential and commercial use, usually containing retail or commercial space on the ground floor. Mixed use loans are classified as multifamily or commercial based on the greater percentage of income from residential or commercial use.

(3) Comprised of properties occupied by a single tenant consisting mostly of restaurants, bank branches, fast food establishments, discount retailers, retail drugstore chains, convenience stores, grocery stores, as well as local retailers and service and repair businesses. The single tenants have been further segmented by those with an investment grade rating (minimum BBB rating on its publicly traded debt), or credit tenants, and those that are either non-rated or have a less than investment grade rating, or non-credit tenants.

(4) Comprised of office building properties, normally with multiple floors with multiple tenants engaged in various businesses, including medical, administrative and legal services.

(5) Comprised typically of commercial buildings used for or intended to be used for the storage of goods by manufacturers, importers, exporters, wholesalers, transport businesses, etc. They are usually large buildings in industrial areas of cities/towns/villages that contain one or more tenants.

(6) Hotel properties in Florida are comprised of flagged hotels located in Orlando, Miami Beach, Clearwater and Tampa areas, with room counts ranging from 50 to over 200 and floors ranging from 2 to 7. Hotel properties in New York are comprised predominantly of single occupancy room hotels (commonly known as “SROs”) in New York City and Brooklyn, and several small non-flagged hotels/motels in Long Island.

(7) Mobile homes are often sited in land lease communities known as mobile home parks. These communities allow home owners to rent space on which to place a home, normally consisting of single or double manufactured homes. In addition to providing space, the community can provide basic utilities and other amenities.

(8) Mini-storage facilities, also known as self-storage, are storage space facilities leased to individuals or companies for storing various personal items or business parts or inventory. Mini-storage facilities may also provide other services in addition to rentals.

(9) Comprised of apartment buildings principally in the 5 boroughs of New York City consisting mostly of pre- and post-war walkup, elevator and loft buildings, including brownstones and townhouses, further segmented by those subject to rent regulations (rent control and rent stabilization).

(10) Comprised of garden style apartments, which refer to a large development of small apartment buildings two to four stories tall where there are no internal hallways, although adjacent apartments may share a wall. Entrance to the apartments is from a common stairwell or patio, and the buildings are typically surrounded by outdoor landscaping or patios.

(11) Comprised nearly all of investor-owned individual residential condominium dwelling units or townhouses. These loans are made primarily to investors who purchase multiple (blocks of) units/townhouses that remain unsold after a condo conversion or the unsold units in a new development. The units are normally rented (or in the process of being rented) for an extended period of time until they can be sold as originally intended. The loans are underwritten in accordance with our multifamily underwriting policies and their risk characteristics are essentially the same as our multifamily real estate lending, and we risk weight them for regulatory capital purposes the same as substantially all of the rest of our loan portfolio, or at 100%.

11

Notes to preceding table continued:

(12) Consist of loans where the underlying collateral is not producing adequate cash flows to service the loan’s required payments (predominantly in cases where the collateral is a vacant or substantially vacant building or land) and such payments are being made by the borrower’s other sources of funds. In many such cases, the borrower or its principals has guaranteed the loan and/or deposited escrow funds with us to cover the loan’s contractual debt service payments for a portion of or the entire loan term while the underlying collateral property is being leased up or improved to increase rents. These types of loans include loans known in the industry as bridge loans. In accordance with our internal grading criteria (which considers loan-to-value ratios, personal guarantees, projected stabilized cash flows from the collateral, deposits of debt service payments with us and other qualitative factors), the total amount of these loans were internally graded as follows: $192 million were pass rated, $6 million were special mention rated and $45 million were substandard rated.

The table below sets forth information regarding the credit quality of the loan portfolio based on internally assigned ratings (as defined in note 1 to the financial statements in this report).

	At December 31,
($ in thousands)	2013		2012		2011		2010		2009
Pass rated loans	$	1,058,087	$	1,016,424	$	1,071,550	$	1,216,615	$	1,384,452
Special mention rated loans		5,891		19,425		16,062		40,259		131,191
Substandard rated loans		67,572		75,214		79,249		86,108		178,112
Doubtful rated loans		—		—		712		—		—
Total loans	$	1,131,550	$	1,111,063	$	1,167,573	$	1,342,982	$	1,693,755

The table that follows summarizes loans rated substandard and doubtful at the dates indicated.

	At December 31,
($ in thousands)	2013		2012		2011		2010		2009
Loans on nonaccrual status	$	35,903	$	45,898	$	57,240	$	52,923	$	123,877
TDRs on accruing status		12,976		20,076		9,030		3,632		37,782
Other impaired accruing loan		7,828		—		—		—		—
Other non-impaired accruing loans (1)		10,865		9,240		13,691		29,553		16,453
Total substandard and doubtful rated loans (2)	$	67,572	$	75,214	$	79,961	$	86,108	$	178,112

(1) Represent loans for which there were concerns at the date indicated regarding the ability of the borrowers to meet existing repayment terms. These loans reflect the distinct possibility, but not the probability, that we will not be able to collect all amounts due according to the contractual terms of the loans. These loans may never become delinquent, nonaccrual or impaired.

(2) All of these loans are closely monitored and considered in the determination of the overall adequacy of the allowance for loan losses.

The table below sets forth information regarding our loans of $10 million or more at December 31, 2013.

($ in thousands) Property Type	Property Location	Principal Balance		Current Interest Rate (1)			Maturity Date	Days Past Due	Status
Shopping ctr. - unanchored	White Plains, New York	$	16,334		4.30	%	Apr 2017	None	Accrual
Hotel	Orlando, Florida		15,724		5.00	%	Jan 2018	None	Accrual
Office building	Miami, Florida		14,484		5.13	%	Oct 2018	None	TDR-nonaccrual (2)
Mix use - commercial	Brooklyn, New York		11,717		4.13	%	Oct 2018	None	Accrual
Shopping ctr. - grocery anchored	Manorville, New York		11,563		4.38	%	Aug 2028	None	Accrual
Hotel	New York, New York		11,115		4.00	%	Dec 2016	None	Accrual
Mix use – commercial	New York, New York		11,068		4.13	%	Apr 2019	None	Accrual
Office building	Fort Lauderdale, Florida		10,913		6.00	%	May 2016	None	Accrual
Hotel	New York, New York		10,661		6.00	%	Jul 2014	None	Accrual
Mix use - commercial	New York, New York		10,195		4.50	%	Jul 2022	None	Accrual
		$	123,774

(1) Rates are all fixed except for the loan on the office building in Miami, which has scheduled step-ups.

(2) Loan restructured in June 2011 and has performed in accordance with its restructured terms through December 31, 2013. Current monthly payments are comprised of principal and interest payments at a 5.125% interest rate. The interest rate increases each year on June 1 (beginning on June 1, 2014), as follows to: 5.25%, 5.375%, 5.50%, 5.625% and 5.75%. Regulatory guidance requires the loan to remain on nonaccrual status as of December 31, 2013. Interest income is recognized on a cash basis.

The table below sets forth the geographic distribution of the loan portfolio.

	At December 31,
	2013					2012					2011					2010					2009
($ in thousands)	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
New York	$	670,052		59	%	$	717,141		65	%	$	763,770		65	%	$	916,485		68	%	$	1,123,300		66	%
Florida		321,812		28			286,619		26			291,797		25			310,560		23			392,712		23
Other States		139,686		13			107,303		9			112,006		10			115,937		9			177,743		11
	$	1,131,550		100	%	$	1,111,063		100	%	$	1,167,573		100	%	$	1,342,982		100	%	$	1,693,755		100	%

12

The table below sets forth the scheduled contractual principal repayments of the loan portfolio.

	At December 31,
($ in thousands)	2013		2012		2011		2010		2009
Due within one year	$	133,533	$	211,273	$	211,548	$	248,566	$	290,761
Due over one to five years (1)		661,724		608,558		719,439		858,184		1,088,987
Due over five years (1)		336,293		291,232		236,586		236,232		314,007
	$	1,131,550	$	1,111,063	$	1,167,573	$	1,342,982	$	1,693,755

(1) At December 31, 2013, all of our loans due after one year had fixed interest rates, including some with predetermined rate step-ups.

The table below sets forth the scheduled contractual principal repayments of the loan portfolio by type.

	At December 31, 2013
($ in thousands)	Due Within One Year		Due Over One to Five Years		Due Over Five Years		Total
Commercial real estate	$	98,647	$	461,247	$	278,872	$	838,766
Multifamily		21,397		144,184		44,689		210,270
One to four family		7,545		51,787		12,732		72,064
Land		5,125		4,053		—		9,178
Commercial business		654		407		—		1,061
Consumer		165		46		—		211
	$	133,533	$	661,724	$	336,293	$	1,131,550

For additional information concerning the loan portfolio, see note 3 to the financial statements in this report.

Asset Quality

In addition to our underwriting standards discussed previously, after a loan is originated, we undertake various steps (such as an annual physical inspection of the subject property and periodic monitoring of loan documentation, rent rolls, cash flows and the value of the property securing the loan) with the objective of quickly identifying, evaluating and initiating corrective actions if necessary. We constantly monitor the payment status of our loans and pursue a timely follow-up on any delinquencies, including initiating collection procedures even before a loan is 90 days past due, as deemed necessary. We also assess substantial late fees on delinquent loan payments and other service charges.

All of the loans we originate are subject to the risk of default, otherwise known as credit risk, which represents the possibility of us not recovering amounts due from our borrowers. The credit quality of our loan portfolio is dependent primarily on each borrower’s ability to continue to make required loan payments and, in the event a borrower is unable to continue to do so, the value of the real estate securing the loan.

A borrower’s ability to pay in the case of multifamily and commercial real estate loans is typically dependent on the cash flow generated by the underlying collateral property, which can be impacted by economic conditions. Other factors, such as unanticipated expenditures or changes in financial and real estate markets, may also impact a borrower’s ability to pay. Real estate values are also impacted by a variety of other factors including collection or foreclosure delays. Additionally, political issues, including armed conflicts, acts of terrorism, or natural disasters, such as hurricanes, may have an adverse impact on economic conditions of the country as a whole and may be more pronounced in specific geographic regions. All of these factors can affect the rents and occupancy levels of the collateral properties, which in turn affect their market value and the amounts we may ultimately recover in the event of a default.

Loan concentrations are defined as amounts loaned to a number of borrowers engaged in similar activities or on properties located in a particular geographic area. Our loan portfolio is concentrated in commercial real estate and multifamily mortgage loans. The properties securing these loans are also concentrated primarily in two states, New York and Florida. Many of the properties securing our loans are also located in geographical areas that are being revitalized or redeveloped, which can be impacted more severely by a downturn in real estate values. Moreover, many of the real estate loans we originate are on properties requiring rehabilitation or have deferred maintenance.

We place loans on nonaccrual status when principal or interest becomes 90 days or more past due or earlier in certain cases, unless the loan is well secured and in the process of collection. All previously accrued and uncollected interest and late charges on loans placed on nonaccrual status are reversed through a charge to interest income and the amortization of any unearned fee income is discontinued.

13

While loans are on nonaccrual status, interest income is normally recognized only to the extent cash is received until a return to accrual status is warranted. In some circumstances, interest continues to accrue on mortgage loans that have matured and the borrower continues to make monthly payments of principal and interest. These loans are classified as 90 days past due and still accruing interest if they are well secured and in the process of collection.

We estimate the fair value of the properties that collateralize our impaired loans based on a variety of information, including third party appraisals and our management’s judgment of other factors. Our internal policy is to obtain externally prepared appraisals (or in limited cases indications of value from licensed appraisers or local real estate brokers) as follows: for all impaired loans; for restructured or renewed loans; upon classification or downgrade of a loan; upon accepting a deed in lieu of foreclosure; upon transfer of a loan to foreclosed real estate; and at least annually thereafter for all of our impaired and substandard rated loans and real estate owned through foreclosure. In addition to obtaining appraisals, we also consider the knowledge and experience of our two senior lending officers (our Chairman and INB’s President) and INB’s Chief Credit Officer related to values of properties in our geographical market areas. These officers take into account various information, including: local and national real estate market data provided by third parties; the consideration of the type, condition, location and occupancy of the specific collateral property as well as the current economic conditions and demand for the specific property in the area the property is located in assessing our internal estimates of fair value. Additionally, we require that all third-party appraisals we receive be reviewed by a different external appraiser for reasonableness.

From time to time, we may restructure a loan. A loan that we restructure, for 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 is considered a troubled debt restructure or TDR. These concessions are made to provide payment relief generally consisting of the deferral of principal and or interest payments for a period of time, a partial reduction in interest payments or an extension of the 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 TDR. We normally place a TDR on nonaccrual status upon restructure and subsequently return the TDR to an accrual status if the ultimate collectability of all contractual principal is assured, and the borrower has demonstrated satisfactory payment performance either before or after the restructuring, usually consisting of a minimum six-month period.

We may acquire and beneficially hold title to real property pursuant to a foreclosure of a mortgage loan in the normal course of business beneficially through a subsidiary or an affiliated entity. These properties are held for sale. Upon foreclosure of the property, the related loan is transferred from the loan portfolio to the foreclosed real estate category at the estimated fair value of the property, less estimated selling costs. Such amount becomes the new cost basis of the property. Adjustments made to reduce the carrying value at the time of transfer are charged to the allowance for loan losses as a loan chargeoff.

After foreclosure, we periodically perform market valuations (which include obtaining an appraisal of the collateral property at least annually) and, based on these valuations, the property is carried at the lower of its cost basis or estimated fair value less estimated selling costs. Changes in the valuation allowance of the property are charged to the “Provision for Real Estate Losses”. Revenues and expenses from operations of the property are included in the caption “Real Estate Activities Expenses.”

14

The table below summarizes nonperforming assets, TDRs, past due loans and selected ratios at the dates indicated.

	At December 31,
($ in thousands)	2013			2012			2011			2010			2009
Nonaccrual loans(1):
Loans past due 90 days or more	$	—		$	5,651		$	7,216		$	14,215		$	100,209
Loans past due 31-89 days		—			—			2,792			15,965			—
Loans past due 0-30 days		2,719			3,956			1,526			1,269			—
TDR loans past due 0-30 days (2) (3)		33,184			36,291			45,706			21,474			23,668
Total nonaccrual loans		35,903			45,898			57,240			52,923			123,877
Real estate acquired through foreclosure		10,669			15,923			28,278			27,064			31,866
Investment securities on a cash basis (4)		—			3,721			4,378			2,318			1,385
Total assets considered nonperforming	$	46,572		$	65,542		$	89,896		$	82,305		$	157,128
TDR loans on accruing status and 0-30 days past due (5)	$	13,429		$	20,076		$	9,030		$	3,632		$	97,311
Loans past due 90 days or more and still accruing (6)		4,087			4,391			1,925			7,481			6,800
Loans past due 60-89 days and still accruing		—			—			3,894			4,008			5,907
Loans past due 31-59 days and still accruing		2,642			15,497			24,876			7,356			1,385
Nonaccrual loans to total gross loans		3.17	%		4.13	%		4.90	%		3.94	%		7.31	%
Nonperforming assets to total assets		2.97	%		3.93	%		4.56	%		3.97	%		6.54	%
Allowance for loan losses to total net loans		2.47	%		2.54	%		2.61	%		2.61	%		1.94	%
Allowance for loan losses to nonaccrual loans		77.52	%		61.23	%		53.14	%		65.83	%		26.35	%

(1) We may place a loan on nonaccrual status prior to it becoming past due 90 days based on the specific facts and circumstances associated with each loan that indicate that it is probable the borrower may not be able to continue making monthly payments. Interest income from payments made on all nonaccrual loans is recognized on a cash basis (or when collected) if the outstanding principal is determined to be collectible. A loan on nonaccrual status can only be returned to accrual status if ultimate collectability of contractual principal is assured and the borrower has demonstrated satisfactory payment performance. In the case of a TDR, satisfactory payment performance can be achieved either before or after the restructuring (usually for a period of no shorter than six months).

(2) Represent loans whose terms have been modified through the deferral of principal and/or a partial reduction in interest payments, or extension of maturity term (referred to as a TDR in this report). All were current as to payments and performing in accordance with their restructured terms at the dates indicated, but were required to be classified nonaccrual for the reasons noted in footnote 1 above.

(3) These loans were yielding 4.56% on a weighted-average basis at December 31, 2013. A number of the nonaccrual TDR loans in the table above (which aggregated to 3 loans or $10 million at December 31, 2013) have been partially charged-off (by a cumulative total of $5.4 million). For these TDRs, the evaluation for full repayment of contractual principal must include the collectability of amounts charged off. Although the loans have been partially charged off for financial statement purposes, the borrowers remain obligated to pay all contractual principal due, although there can be no assurance that such charged-off amounts will be collected.

(4) See note 2 to the financial statements in this report for a discussion of these securities.

(5) Represent modified loans as described in footnote 2 above, except that they were maintained on accrual status. All of these loans were performing and current and as of December 31, 2013, they had an aggregate weighted-average yield of 4.97%.

(6) The amount at December 31, 2013 consisted of three loans that matured and as to which the borrowers were making monthly loan payments. The loans were in the process of being extended as of December 31, 2013.

The table below summarizes the change in total loans on nonaccrual status for the periods indicated.

	For the Year Ended December 31,
($ in thousands)	2013			2012			2011			2010			2009
Balance at beginning of year	$	45,898		$	57,240		$	52,923		$	123,877		$	108,610
Net new additions		7,457			14,632			36,317			87,933			80,471
Transfers to accruing TDR category		(2,274	)		(6,403	)		—			—			—
Principal repayments and sales		(10,200	)		(11,730	)		(18,144	)		(64,625	)		(29,353	)
Chargeoffs		(1,938	)		(3,152	)		(9,481	)		(53,377	)		(8,103	)
Transfers to foreclosed real estate		(3,040	)		(4,689	)		(4,375	)		(40,885	)		(27,748	)
Balance at end of year	$	35,903		$	45,898		$	57,240		$	52,923		$	123,877

The table below summarizes the change in TDRs on accrual status for the periods indicated.

	For the Year Ended December 31,
($ in thousands)	2013			2012			2011			2010			2009
Balance at beginning of year	$	20,076		$	9,030		$	3,632		$	97,311		$	—
Net new additions		464			5,243			5,452			9,918			99,816
Transfers from non-accruing TDR category		2,274			6,403			—			—			—
Transfers to non-impaired accrual status		(1,934	)		—			—			—			—
Principal repayments and sales		(7,451	)		(600	)		(54	)		(59,748	)		(2,505	)
Chargeoffs		—			—			—			(43,849	)		—
Balance at end of year	$	13,429		$	20,076		$	9,030		$	3,632		$	97,311

15

The table below sets forth information regarding our TDRs as of December 31, 2013.

($ in thousands) Property Type	Property Location	Contractual Principal Balance Due		Carrying Value		Interest Rate			Principal Amortization	Maturity Date	Collateral Last Appraised
Nonaccrual Status (1)
Unanchored retail center	West Palm, Florida	$	5,549	$	4,320		4.50	%	No	Aug 2014	Mar 2013
Unanchored retail center	Lake Worth, Florida		5,452		4,685		4.50	%	No	Sep 2014	Mar 2013
Unanchored retail center	Maple Heights, Ohio		4,744		1,000		4.00	%	No	Apr 2017	Jan 2013
Office building	Miami, Florida		14,484		14,484		5.13	%	Yes	Oct 2018	Mar 2013
Office building	Norcross, Georgia		8,694		8,694		3.75	%	No	Dec 2015	Apr 2013
			38,923		33,183		4.56	%
Accrual Status
Land	Rapid City, South Dakota		1,625		1,625		6.00	%	Yes	Dec 2014	Mar 2013
Single tenant-noncredit	New York, New York		5,321		5,321		4.50	%	Yes	Mar 2014	May 2012
Garden apartment	Lake Worth, Florida		854		854		6.00	%	Yes	Oct 2016	Nov 2013
Unanchored retail center	Monroe, New York		2,902		2,902		5.13	%	Yes	Mar 2017	Aug 2013
Office building	Clearwater, Florida		453		453		5.00	%	Yes	Oct 2017	Nov 2012
Garden apartment	Orlando, Florida		2,274		2,274		4.75	%	Yes	Nov 2015	Sep 2013
			13,429		13,429		4.97	%
		$	52,352	$	46,612		4.68	%

(1) All these TDRs were performing in accordance with their modified terms but were maintained on nonaccrual status as of December 31, 2013 in accordance with regulatory guidance. Interest income on such loans is recognized on a cash basis. The carrying value for these loans represents contractual unpaid principal balance less any partial principal chargeoffs (totaling $5.4 million) and interest received and applied as a reduction of principal (totaling $0.3 million). The borrowers remain obligated to pay all contractual amounts due although collection of such amounts by us is not assured.

The table below details real estate we owned through foreclosure (REO) at the dates indicated.

($ in thousands)				Net Carrying Value (1) as of:
Description of Property	City	State	Acquired	Dec 31, 2013		Sep 30, 2013		Jun 30, 2013		Mar 31, 2013		Dec 31, 2012		Last Appraised
7 story vacant office building and vacant lot (6)	Yonkers	NY	8/09	$	1,334	$	1,334	$	1,334	$	1,334	$	1,334		5/13
146 unit garden apart. complex - 75% occupied (2)	Austell	GA	9/09		—		—		1,600		1,750		2,000		10/12
39 acres of vacant land partially waterfront (3)	Perryville	MD	4/10		—		—		1,000		1,000		1,133		12/12
622 unit garden apart. complex - 82% occupied	Louisville	KY	7/10		6,685		6,685		6,685		6,685		6,685		5/13
192 unit garden apart. complex - 93% occupied (4)	Louisville	KY	7/10		—		—		—		3,315		3,315		5/13
27K sq. ft. industrial warehouse - 65% occupied (5)	Sunrise	FL	9/12		—		1,200		1,400		1,400		1,456		5/13
Two, 5 story vacant office buildings - 182K sq. ft.	Jacksonville	FL	2/13		2,650		2,800		2,850		2,850		—		3/13
				$	10,669	$	12,019	$	14,869	$	18,334	$	15,923

(1) Reported net of any valuation allowance recorded due to decreases in the estimated fair value of the property subsequent to the date of foreclosure. See note 6 to the financial statements in this report for the activity in the valuation allowance.

(2) Sold in Q3-13 for $1.5 million. Original cost basis upon transfer to REO was $4.8 million.

A net loss from the sale of this property of $0.1 million was recorded in Q3-13.

(3) Sold in Q3-13 for $1.2 million. Original cost basis upon transfer to REO was $2.0 million.

A net gain from the sale of this property of $0.2 million was recorded in Q3-13.

(4) Sold in Q2-13 for $4.1 million. Original cost basis upon transfer to REO was $3.4 million.

A net gain from the sale of this property of 0.7 million was recorded in Q2-13.

(5) Sold in Q4-13 for $1.3 million. Original cost basis upon transfer to REO was $1.3 million.

A net gain from the sale of this property of $0.2 million was recorded in Q4-13.

(6) Sold in Q1-14 for $1.4 million. Original cost basis upon transfer to REO was $2.2 million.

A net gain from the sale of this property of $0.1 million was recorded in Q1-14.

We review the estimated fair value of our portfolio of real estate owned through foreclosure at least quarterly by performing market valuations of the properties, which normally consist of obtaining externally prepared appraisals at least annually for every property, as well as performing quarterly reviews of economic and real estate market conditions in the local area where the property is located, including taking into consideration discussions with real estate brokers and interested buyers, in order to determine if a valuation allowance is needed to reflect any decrease in the estimated fair value of the property since acquisition. All of the properties owned at December 31, 2013 were being marketed for sale.

16

The table below summarizes the change in foreclosed real estate for the periods indicated.

	For the Year Ended December 31,
($ in thousands)	2013			2012			2011			2010			2009
Balance at beginning of year	$	15,923		$	28,278		$	27,064		$	31,866		$	9,081
Transfers from loan portfolio		3,040			4,689			4,375			40,885			27,748
Write downs to carrying values subsequent to foreclosure (1)		(1,105	)		(4,068	)		(3,349	)		(15,509	)		(2,275	)
Sales		(8,152	)		(12,882	)		—			(30,178	)		(2,698	)
Gain (loss) on sales and/transfers from loan portfolio		963			(94	)		188			—			10
Balance at end of year	$	10,669		$	15,923		$	28,278		$	27,064		$	31,866

(1) Recorded as an increase to the valuation allowance for real estate owned through the provision for real estate losses.

For additional information on nonaccrual loans, TDRs, past due loans, real estate owned through foreclosure and the valuation allowance for real estate losses, see notes 3 and 6 to the financial statements and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report.

Allowance for Loan Losses

A detailed discussion of the factors that we use in computing the allowance for loan losses can be found in Item 7 under the caption “Critical Accounting Policies” in this report.

The table below sets forth information regarding the activity in our allowance for loan losses.

	At or For the Year Ended December 31,
($ in thousands)	2013			2012			2011			2010			2009
Allowance at beginning of year (1)	$	28,103		$	30,415		$	34,840		$	32,640		$	28,524
(Credit) provision for loan losses charged to expense (3)		(550	)		—			5,018			101,463			10,865
Chargeoffs: (3)
Commercial real estate		(1,932	)		(2,588	)		(7,186	)		(59,469	)		(3,253	)
Multifamily		(6	)		(564	)		(2,412	)		(34,576	)		(1,799	)
Land		—			—			—			(6,101	)		(3,051	)
Total chargeoffs		(1,938	)		(3,152	)		(9,598	)		(100,146	)		(8,103	)
Recoveries:
Commercial real estate		1,053			507			90			—			—
Multifamily		682			333			65			883			1,354
Land		483			—			—			—			—
Total recoveries		2,218			840			155			883			1,354
Allowance at end of year (1) (2)	$	27,833		$	28,103		$	30,415		$	34,840		$	32,640
Total loans, net of deferred fees	$	1,127,522		$	1,107,466		$	1,163,790		$	1,337,326		$	1,686,164
Average loans outstanding during the year	$	1,092,229		$	1,149,689		$	1,258,454		$	1,489,004		$	1,721,688
Ratio of allowance to net loans receivable		2.47	%		2.54	%		2.61	%		2.61	%		1.94	%
Ratio of net chargeoffs to average loans		—	%		0.20	%		0.75	%		6.67	%		0.39	%

(1) Nearly all of the allowance for loan losses is allocated to real estate loans. See note 4 to the financial statements in this report.

(2) The total amount of the allowance at December 31, 2013, 2012, 2011, 2010 and 2009, included a specific valuation allowance for impaired loans in the amount of $6.1 million, $5.9 million, $8.0 million, $7.2 million and $13.8 million, respectively.

(3) Amounts for 2010 include a $73.4 million provision for loan losses and $82.2 million of chargeoffs recorded in connection with a bulk sale. In May 2010, we completed a large bulk sale in order to accelerate the reduction of our problem assets. We sold certain non- performing and underperforming loans and some real estate owned. The assets sold aggregated to approximately $207 million and consisted of $192.6 million of loans and $14.4 million of real estate. The assets were sold at a substantial discount to their then net carrying values of $197.7 million for net proceeds of $119.1 million. As a result of the bulk sale, we recorded a $78.7 million combined provision for loan and real estate losses, which contributed approximately $44 million, or 79%, to our net after tax loss of $55 million in 2010.

For additional information and discussion on the allowance for loan losses, see note 4 the financial statements and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this report.

Security Investment Activities

Our security investments are normally purchased by INB and are classified as held to maturity and are carried at amortized cost when INB has the intent and ability to hold them to maturity. Historically, INB has invested in debt securities that are issued directly by the U.S. government or one of its agencies with short- to intermediate-maturity terms. INB has also, from time to time, purchased residential mortgage backed securities issued by U.S. government agencies.

17

INB’s goal is to maintain a securities portfolio with a short weighted-average life of no more than five years, which allows for the resulting cash flows to either be reinvested in similar securities, used to fund loan commitments, pay off borrowings or fund deposit outflows as needed. INB’s securities portfolio does not contain securities of any issuer with an aggregate book value and aggregate market value in excess of 10% of its stockholders’ equity, excluding those issued by the U.S. government or its agencies (see Item 1A “Risk Factors”).

Our security investments carry market risk (insofar as increases in market interest rates would generally cause a decline in their market value), prepayment risk (insofar as they may be called or repaid before their stated maturity during times of low market interest rates and we may then have to reinvest the funds at a lower interest rate) and credit risk (insofar as they may default, particularly as it relates to our investments in corporate securities).

INB may from time to time maintain an available-for-sale portfolio for securities that it will hold for indefinite periods of time that may sold in response to changes in interest rates or other factors, including asset/liability management strategies. We have never engaged in trading activities. We may also invest in other short-term instruments (including overnight and term federal funds, bank commercial paper and certificates of deposit) to temporarily invest excess cash flow generated from our deposit-gathering activities and operations.

The table below summarizes the amortized cost (carrying value), contractual maturities and weighted-average yields of INB’s portfolio of securities held to maturity. The table excludes Federal Home Loan Bank of New York (FHLB) and the Federal Reserve Bank of New York (FRB) stock investments required to be held by INB in order for it to be a member of these institutions.

	Due One Year or Less					Due After One Year to Five Years					Due After Five Years to Ten Years					Due After Ten Years					Total
($ in thousands)	Carrying Value		Avg. Yield			Carrying Value		Avg. Yield			Carrying Value		Avg. Yield			Carrying Value		Avg. Yield			Carrying Value		Avg. Yield
At December 31, 2013
U.S. government agencies	$	12,329		1.27	%	$	259,699		0.90	%	$	33,878		1.16	%	$	—		—	%	$	305,906		0.94	%
Residential MBS		—		—			2,648		0.89			22,629		1.71			52,223		1.87			77,500		1.79
State and Municipal		—		—			531		1.25			—		—			—		—			531		1.25
	$	12,329		1.27	%	$	262,878		0.90	%	$	56,507		1.38	%	$	52,223		1.87	%	$	383,937		1.11	%
At December 31, 2012
U.S. government agencies	$	4,775		1.16	%	$	242,248		0.78	%	$	108,221		1.06	%	$	—		—	%	$	355,244		0.87	%
Residential MBS		—		—			2,073		0.81			10,722		1.41			71,484		1.84			84,279		1.76
State and Municipal		—		—			533		1.25			—		—			—		—			533		1.25
Corporate		—		—			—		—			—		—			3,721		2.11			3,721		2.11
	$	4,775		1.16	%	$	244,854		0.78	%	$	118,943		1.09	%	$	75,205		1.85	%	$	443,777		1.05	%
At December 31, 2011
U.S. government agencies	$	—		—		$	483,149		1.21	%	$	207,218		1.76	%	$	5,699		2.46	%	$	696,066		1.38	%
Corporate		—		—			—		—			—		—			4,378		2.09			4,378		2.09
	$	—		—		$	483,149		1.21	%	$	207,218		1.76	%	$	10,077		2.30	%	$	700,444		1.39	%
At December 31, 2010
U.S. government agencies	$	5,025		0.43	%	$	388,852		1.51	%	$	209,313		1.84	%	$	6,565		2.27	%	$	609,755		1.63	%
Corporate		—		—			—		—			—		—			4,580		2.02			4,580		2.02
	$	5,025		0.43	%	$	388,852		1.51	%	$	209,313		1.84	%	$	11,145		2.15	%	$	614,335		1.63	%
At December 31, 2009
U.S. government agencies	$	22,077		2.77	%	$	440,741		2.38	%	$	149,742		3.62	%	$	16,524		4.24	%	$	629,084		2.74	%
Corporate		—		—			—		—			—		—			5,772		1.67			5,772		1.67
	$	22,077		2.77	%	$	440,741		2.38	%	$	149,742		3.62	%	$	22,296		3.57	%	$	634,856		2.73	%

For additional information on our security investments, see note 2 the financial statements and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report.

18

Sources of Funds

Our primary sources of funds consist of the following: retail deposits obtained through INB’s branch offices and the mail; principal repayments of loans; maturities and calls of securities; borrowings through FHLB advances or the federal funds market; brokered deposits; deposits from the national CD market; and cash flow provided by operating activities. INB’s deposit accounts are solicited from individuals, small businesses and professional firms located throughout INB’s primary market areas through the offering of a variety of deposit products. INB also uses its internet web site www.intervestnatbank.com to attract deposit customers from both within and outside its primary market areas. INB believes it does not have a concentration of deposits from any one source. INB’s deposit products include the following: certificates of deposit (including denominations of $100,000 or more); individual retirement accounts (IRAs); checking and other demand deposit accounts; negotiable order of withdrawal (NOW) accounts; savings accounts; and money market accounts. Interest rates offered by INB on deposit accounts are normally competitive with those in INB’s primary market areas.

The determination of rates and terms on deposit accounts also take into account INB’s liquidity requirements, outstanding loan commitments, desired capital levels and government regulations. Maturity terms, service fees and withdrawal penalties on deposit products are reviewed and established by INB on a periodic basis. INB also offers internet banking services, ATM services with access to local, state and national networks, wire transfers, automated clearing house (ACH) transfers, direct deposit of payroll and social security checks and automated drafts for various accounts. In addition, INB offers safe deposit boxes to its customers in Florida. INB periodically reviews the scope of the banking products and services it offers consistent with market opportunities and its available resources. INB relies heavily on certificates of deposit (time deposits) as its main source of funds from deposit accounts.

See the sections “Supervision and Regulation” and “Liquidity and Capital Resources” in this report for additional information on deposits.

The table below sets forth the distribution of deposit accounts by type.

	At December 31,
	2013					2012					2011					2010					2009
($ in thousands)	Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total
Demand	$	5,211		0.4	%	$	5,130		0.4	%	$	4,702		0.3	%	$	4,149		0.2	%	$	3,429		0.2	%
Interest checking		17,831		1.4			15,185		1.1			9,915		0.6			10,126		0.6			9,117		0.4
Savings		10,027		0.7			9,601		0.7			9,505		0.6			10,123		0.6			11,682		0.6
Money Market		367,384		28.7			395,825		29.0			438,731		26.4			436,740		24.7			496,065		24.4
Certificates of deposit		881,779		68.8			936,878		68.8			1,199,171		72.1			1,304,945		73.9			1,509,691		74.4
Total deposits (1)	$	1,282,232		100.0	%	$	1,362,619		100.0	%	$	1,662,024		100.0	%	$	1,766,083		100.0	%	$	2,029,984		100.0	%

(1) At December 31, 2013, 2012, 2011, 2010 and 2009, individual retirement account deposits totaled $177 million, $205 million, $242 million, $260 million and $289 million, respectively, most of which were certificates of deposit.

The table below sets forth certificate of deposits by remaining maturity.

	At December 31,
	2013					2012					2011					2010					2009
($ in thousands)	Amount		Wtd-Avg Stated Rate			Amount		Wtd-Avg Stated Rate			Amount		Wtd-Avg Stated Rate			Amount		Wtd-Avg Stated Rate			Amount		Wtd-Avg Stated Rate
Within one year	$	307,122		1.97	%	$	519,236		2.92	%	$	514,667		2.83	%	$	431,881		3.09	%	$	591,746		3.63	%
Over one to two years		167,323		1.92			181,698		2.79			397,394		3.58			349,174		3.63			256,025		4.28
Over two to three years		170,956		1.92			89,049		2.74			136,226		3.43			298,287		4.26			241,217		4.45
Over three to four years		106,700		2.50			60,119		3.02			67,855		3.27			113,587		3.78			251,745		4.61
Over four years		129,678		2.06			86,776		2.93			83,029		3.91			112,016		4.13			168,958		4.31
	$	881,779		2.03	%	$	936,878		2.89	%	$	1,199,171		3.25	%	$	1,304,945		3.65	%	$	1,509,691		4.11	%

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The table below sets forth the remaining maturities of certificates of deposit of $100,000 or more.

	At December 31,
($ in thousands)	2013			2012			2011			2010			2009
Due within three months or less	$	29,642		$	53,498		$	69,125		$	62,432		$	87,778
Due over three months to six months		29,395			36,727			41,334			24,354			47,607
Due over six months to one year		83,680			163,423			134,353			91,977			78,441
Due over one year		330,450			208,943			355,182			460,167			478,804
Total	$	473,167		$	462,591		$	599,994		$	638,930		$	692,630
As a percentage of total deposits		37	%		34	%		36	%		36	%		34	%
Brokered CDs included above (1):	$	90,535		$	77,889		$	127,819		$	159,149		$	170,117

The table below sets forth total deposits by offices in New York and Florida.

	At December 31,
($ in thousands)	2013		2012		2011		2010		2009
New York Main Office	$	504,108	$	534,155	$	699,935	$	824,306	$	990,777
Florida Offices (six offices)		778,124		828,464		962,089		941,777		1,039,207
	$	1,282,232	$	1,362,619	$	1,662,024	$	1,766,083	$	2,029,984

The table below sets forth net deposit flows.

	For the Year Ended December 31,
($ in thousands)	2013			2012			2011			2010			2009
Net (decrease) increase before interest credited	$	(106,688	)	$	(336,533	)	$	(152,558	)	$	(324,496	)	$	89,654
Net interest credited		26,301			37,128			48,499			60,595			76,195
Net deposit (decrease) increase	$	(80,387	)	$	(299,405	)	$	(104,059	)	$	(263,901	)	$	165,849

INB also borrows funds from time to time on an overnight or short-term basis to manage its liquidity needs. As a member of the FHLB and FRB, INB can borrow from these institutions on a secured basis using INB’s security investments and certain loans as collateral. INB also has an agreement with two correspondent banks whereby it could borrow overnight a limited amount of funds on an unsecured basis. For additional information on FHLB advances and INB’s lines of credit, see note 8 the financial statements in this report.

IBC’s historical sources of funds to meet its obligations have been derived from the following: interest income from short-term investments and a limited number of mortgage loans; monthly dividends from INB; and monthly management fees from INB for providing it with certain administrative services. IBC’s historical sources of working capital have been derived from the issuance of its common stock through public or private offerings, exercise of its common stock warrants/options, the issuance of its trust preferred securities and preferred stock and the issuance of its subordinated debentures to the public. For additional information on stockholders’ equity and borrowed funds, see notes 9 and 10 to the financial statements in this report.

Employees

At December 31, 2013, we employed 81 full-time equivalent employees. We provide various benefits to our employees, including group life, health, dental and disability insurance, a 401(k) retirement plan and a long-term employee incentive plan. None of our employees are covered by a collective bargaining agreement and we consider our employee relations to be satisfactory.

Federal and State Taxation

IBC and its subsidiary file a consolidated federal income tax return and combined state and city income tax returns in New York. IBC also files a franchise tax return in Delaware. INB files a state income tax return in Florida. INB also files state tax returns, as needed, for certain entities that own title to real estate INB acquires through foreclosure. All the above returns are filed on a calendar year basis and we report our income and expenses using the accrual method of accounting. Consolidated income tax returns have the effect of eliminating intercompany income and expense, including dividends, from the computation of our taxable income for the taxable year in which the items occur. In accordance with an income tax sharing agreement, income tax charges or credits are allocated among IBC and its subsidiary on the basis of their respective taxable income or taxable loss that is included in our income tax returns.

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Banks and bank holding companies are subject to federal and state income taxes in essentially the same manner as other corporations. Florida, New York State and New York City taxable income is calculated under applicable sections of the Internal Revenue Code of 1986, as amended (the “Code”), with some modifications required by state and city law. Although INB’s federal income tax liability is determined under provisions of the Code, which is applicable to all taxpayers, Sections 581 through 597 of the Code apply specifically to financial institutions. In addition to the regular income tax, we are subject to a Federal alternative minimum tax, or AMT, in an amount equal to 20% of alternative minimum taxable income to the extent the AMT exceeds our regular income tax. The AMT is available as a credit against future regular income tax. New York State imposes an annual franchise tax on banking corporations, based on net income allocable to New York State. If, however, the application of an alternative minimum tax (based on taxable assets allocated to New York, “alternative” net income, or a flat minimum fee) results in a greater tax, an alternative minimum tax is imposed. We are also subject to the alternative minimum tax for New York City (which is similar to the New York State alternative minimum tax).

As a Delaware corporation not earning income in Delaware, IBC is exempt from Delaware corporate income tax but is required to file an annual report with and pay an annual franchise tax to the State of Delaware. The tax is imposed as a percentage of the capital base of IBC.

See note 14 to the financial statements and the section “Critical Accounting Policies” in this report for a further discussion of income taxes and our deferred tax asset.

Investment in Subsidiaries

The following table provides information regarding IBC’s consolidated subsidiary:

	At December 31, 2013
($ in thousands)	% of Voting Stock Owned			Total Investment		IBC’s Equity in Underlying		Subsidiary’s Earnings For the Year Ended December 31,
	by IBC			By IBC		Net Assets		2013		2012		2011
Intervest National Bank		100	%	$	240,918	$	240,918	$	15,732	$	13,494	$	12,704

INB also has an ownership interest in a number of limited liability companies whose sole purpose is to own title to real estate INB acquires through foreclosure. These entities are normally dissolved when the properties are sold.

Supervision and Regulation

The supervision and regulation of banks or bank holding companies and their subsidiaries is intended primarily for the protection of depositors, the FDIC deposit insurance fund (DIF) and the banking system as a whole, and not for the protection of our stockholders or creditors. The regulatory agencies have broad enforcement power, including the power to impose substantial fines and other penalties for violations of laws and regulations. To the extent that the following information describes statutory and regulatory provisions and formal agreements, it is qualified in its entirety by reference to the particular statutory or regulatory provision or formal agreement. Any changes in the aforementioned may have a material effect on our business, results of operations and financial condition.

Bank Holding Company Regulation

IBC is a holding company under the Bank Holding Company Act of 1956 and is subject to supervision, regulation and examination by FRB. The Act and other federal laws subject bank holding companies to particular restrictions on the types of activities in which they may engage and to a broad range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations.

Scope of Permissible Activities and a Source of Strength for Subsidiaries. A bank holding company generally may not engage in, or acquire or control, directly or indirectly, voting securities or assets of any company that is engaged in activities other than those of banking, managing or controlling banks. A bank holding company must also serve as a source of financial and managerial strength for its subsidiary banks and must not conduct its operations in an unsafe or unsound manner. See the section “Written Agreement” below.

Mergers and Acquisitions by Bank Holding Companies. Subject to certain exceptions, a bank holding company is required to obtain the prior approval of the FRB before it may merge or consolidate with another bank holding company, acquire all or substantially all of the assets of any bank, or, direct or indirect, ownership or control of any voting securities of any bank or bank holding company, if after such acquisition the bank holding company would control, directly or indirectly, more than 5% of the voting securities of such bank or bank holding company.

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Anti-Tying Restrictions. Subject to certain exceptions, a bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property or furnishing of services.

Capital Adequacy. The FRB has capital adequacy guidelines for bank holding companies that are based upon a risk-based capital determination, whereby a bank holding company’s capital adequacy is determined by assigning different categories of assets and off-balance sheet items to broad risk categories. Bank holding companies are required to maintain a minimum ratio of Tier 1 capital to average total consolidated assets (leverage capital ratio) of at least 3% for strong banks and bank holding companies and a minimum leverage ratio of at least 4% for all other bank holding companies. At December 31, 2013, IBC’s Tier 1 capital and total capital ratios were 19.95% and 21.21%, respectively, and its leverage capital ratio was 15.46%. See the caption entitled Basel III in this section for further discussion of capital requirements.

Dividends. IBC’s ability to pay cash dividends on its capital stock is dependent upon its level of cash on hand and upon the cash dividends received from INB. IBC must first pay its operating and interest expenses from funds it receives from its subsidiaries. As a result, stockholders may receive cash dividends from IBC only to the extent that funds are available after payment of the aforementioned expenses. In addition, the FRB generally prohibits a bank holding company from paying cash dividends except out of its net income, provided that the prospective rate of earnings retention appears consistent with the bank holding company’s capital needs, asset quality and overall financial condition. Since February 2010, IBC cannot, without the prior approval of the FRB, pay dividends on or redeem its capital stock, pay interest on or redeem its trust preferred securities, or incur new debt. See the sections “Written Agreement” and “TARP” below.

Control Acquisitions. The Bank Control Act prohibits a person or group of persons from acquiring “control” of a bank holding company unless the FRB has been notified and has not objected to the transaction.

Enforcement Authority. The FRB may impose civil or criminal penalties or may institute a cease-and-desist proceeding for the violation of applicable laws and regulations. IBC is also under the jurisdiction of the Securities and Exchange Commission (SEC) and various state securities commissions for matters related to the offering and sale of its securities, and is subject to the SEC rules and regulations relating to periodic reporting, reporting to shareholders, proxy solicitation and insider trading. IBC’s common stock is listed on the Nasdaq Global Select Market and, as a result, IBC is also subject to the rules of Nasdaq for listed companies.

Written Agreement. In January 2011, IBC entered into a written agreement (the “Federal Reserve Agreement”) with its primary regulator, the FRB, which requires IBC’s Board of Directors to take the steps necessary to utilize IBC’s financial and managerial resources to serve as a source of strength to INB, including causing INB to comply with its Formal Agreement with its primary regulator, the OCC (which agreement was terminated by the OCC in March 2013).

In addition, as noted earlier, IBC cannot declare or pay dividends without the prior approval of the FRB and the Director of the Division of Banking Supervision and Regulation of the Board of Governors (the “Banking Director”). IBC also cannot take any payments representing a reduction in capital from INB without prior approval of the FRB and IBC cannot not make any distributions of interest, principal or other sums on its subordinated debentures or trust preferred securities without prior approval from the FRB and the Banking Director. Further, IBC may not incur, increase or guarantee any debt or purchase or redeem any shares of its stock without prior approval of the FRB. IBC was also required within 90 days of the date of the Federal Reserve Agreement to submit a plan to continue to maintain sufficient capital. Finally, IBC must notify the FRB when appointing any new director or senior executive officer or changing responsibilities of any senior executive officer, and IBC is also restricted in making certain severance and indemnification payments. We believe we have taken all necessary actions to promptly address the requirements of the Federal Reserve Agreement and that IBC is in compliance with such agreement as of the date of filing of this report. The FRB has advised IBC that the FRB is reviewing the need for the Federal Reserve Agreement.

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TARP. The Emergency Economic Stabilization Act of 2008 (EESA) established the Troubled Asset Relief Program (TARP). TARP gave the U.S. Treasury authority to deploy up to $750 billion into the U.S. financial system with an objective of improving liquidity in the capital markets. In October 2008, Treasury announced plans to direct $250 billion of this authority into preferred stock investments in banks. On December 23, 2008, IBC voluntarily applied for and was approved to participate in the above program and sold to the Treasury 25,000 shares of IBC’s newly issued Series A Fixed Rate Cumulative Perpetual Preferred Stock, with a liquidation preference of $1,000 per share, along with a ten year warrant to purchase at any time up to 691,882 shares of IBC’s common stock for $5.42 per share, for a total cash investment of $25 million from the Treasury. In 2013, IBC repurchased and/or redeemed the entire amount of Series A Preferred Stock and those shares were cancelled. At December 31, 2013, the Treasury continued to hold the warrant referenced above. See note 10 to the financial statements in this report for a further discussion.

Bank Regulation

INB is a nationally chartered bank that is subject to regulation and examination by the OCC, its primary regulator, and by virtue of the insurance of INB’s deposits, it is also subject to the supervision and regulation of the FDIC. Because INB is a member of the Federal Reserve System, it is subject to regulation pursuant to the Federal Reserve Act. In addition, because the FRB regulates IBC, the FRB also has supervisory authority that directly affects INB. The FDIC and other federal banking agencies have broad enforcement powers, including, but not limited to, the power to terminate deposit insurance and impose substantial fines and other civil and criminal penalties.

Transactions with Affiliates. Under Section 23A and 23B of the Federal Reserve Act, subject to certain exemptions, INB may engage in a transaction with an affiliate, as such term is defined therein, only if the aggregate amount of the transactions with one affiliate or with all affiliates does not exceed 10% or 20%, respectively, of the capital stock and surplus of INB. INB is also generally prohibited from purchasing a low-quality asset from an affiliate. Any transaction between INB and an affiliate must be on terms and conditions that are consistent with safe and sound banking practices. Additionally, transactions with affiliates, can only be made on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to INB, as those prevailing at the time for comparable transactions with nonaffiliated companies, or, in the absence of comparable transactions, on terms and under circumstances, including credit standards, that in good faith would be offered to nonaffiliated companies.

Loans to One Borrower. INB generally may not make loans or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, up to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2013, INB was in compliance with the loans-to-one-borrower limitations.

Loans to Insiders. INB is prohibited from extending credit to its executive officers, directors, principal shareholders and their related interests, collectively referred to as “insiders,” unless the extension of credit is made on substantially the same terms and in accordance with underwriting procedures that are not less stringent than those prevailing at the time for comparable transactions with unrelated persons. INB as a matter of policy does not extend such credit and there were no such loans outstanding at December 31, 2013.

Reserve Requirements. Pursuant to Regulation D, INB must hold a percentage of certain types of deposits as reserves in the form of vault cash, as a deposit in a Federal Reserve Bank or as a deposit in a pass-through account at a correspondent institution.

Dividends. When INB pays cash dividends on its capital stock its pays them to IBC as the sole shareholder of INB. INB’s dividend policy is to pay dividends at levels consistent with maintaining its desired liquidity and capital ratios and debt servicing obligations. INB’s board of directors may declare dividends to be paid out of INB’s undivided profits. No dividends may be paid by INB without the OCC’s approval if the total amount of all dividends, including the proposed dividend, declared by INB in any calendar year exceeds INB’s total retained net income for that year, combined with its retained net income of the preceding two years. Also, INB may not declare or pay any dividends if, after making the dividend, INB would be “undercapitalized” and no dividend may be paid by INB if it is in default of any deposit insurance assessment due to the FDIC.

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Capital Adequacy. In general, capital adequacy regulations for national banks such as INB, are similar to the FRB guidelines discussed earlier. Under the OCC’s current regulations and guidelines as of December 31, 2013, all banks must maintain minimum ratios of capital as follows: Tier 1 capital to total average assets (leverage ratio) - 4%; Tier 1 capital to risk-weighted assets - 4%; and total capital to risk-weighted assets - 8%. At December 31, 2013, INB’s leverage capital ratio, Tier 1 capital and total capital ratios were 15.23%, 19.65% and 20.91%, respectively. INB was considered a well-capitalized bank at December 31, 2013.

Prompt Corrective Action. Federal banking agencies have the authority to take “prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements. Applicable regulations divide banks into five different categories, depending on their level of capital: (i) well-capitalized; (ii) adequately capitalized; (iii) undercapitalized; (iv) significantly undercapitalized; and (v) critically undercapitalized. A bank is deemed to be “well-capitalized” if it has a total risk-based capital ratio of 10% or more, a Tier 1 risk-based capital ratio of 6% or more and a leverage ratio of 5% or more, and the bank is not subject to an order or capital directive to meet and maintain a specific capital level.

Interest Rate and Brokered Deposit Restrictions. Financial institutions that are less than well capitalized are barred from paying interest on their deposit products at rates of interest in excess of 75 basis points above the national rate unless it receives an exemption from the FDIC that the institution’s local market rate is above the national rate. In addition, they cannot accept, renew or rollover brokered deposits without approval from their primary regulator. At December 31, 2013, INB was considered well-capitalized.

Deposit Insurance Assessments. INB’s deposits are insured up to applicable limits through the FDIC’s Deposit Insurance Fund (DIF) up to a maximum of $250,000 per separately insured depositor. Insured institutions are required to pay insurance premiums based on the risk each institution poses to DIF. The FDIC also has the authority to raise or lower assessment rates on insured deposits, subject to limits, and to impose special additional assessments. The FDIC can terminate a depository institution’s deposit insurance if it finds that the institution is being operated in an unsafe and unsound manner or has violated any rule, regulation, order or condition administered by the institution’s regulatory authorities. Any termination of deposit insurance would have a material adverse effect on INB.

The FDIC insurance assessment base is defined as average total assets minus tangible equity. In addition to deposit liabilities, the base contains certain liabilities. Assessment rates assigned to institutions depend on the instruction’s regulatory exam ratings and other risk measures. Banks are assigned to one of four risk categories based on two criteria: capital adequacy and supervisory ratings. The three capital groups are well-capitalized, adequately capitalized and undercapitalized, consistent with prompt corrective action designations. The three supervisory groups are based primarily on CAMELS ratings, although the FDIC has the ability to consider other factors as well. In general, banks with CAMELS ratings of 1 or 2 are assigned to the A category, banks with a CAMELS rating of 3 are assigned to the B category, and banks with a CAMELS rating of 4 or 5 are assigned to the C category. The base assessment rates range from 5 basis points for the lowest risk category to 35 basis points for the highest risk category, with further adjustments (plus or minus) thereto based on an institution’s level of unsecured debt and brokered deposits, which make the total assessment rates range from 2.5 basis points to a high of 45 basis points. INB’s assessment rate for its most recent billing period ended December 31, 2013 was 14 basis points.

In addition to the assessment for deposit insurance, institutions are also required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund, which payment is established and changes quarterly. These assessments will continue until the Financing Corporation bonds mature in 2017 to 2019.

Community Reinvestment. Under the Community Reinvestment Act (CRA) of 1977, INB must assist in meeting the credit needs of the communities in its market areas by, among other things, providing credit to low and moderate-income individuals and neighborhoods. The FDIC applies the lending, investment and service tests to assess a bank’s CRA performance and assigns to a bank a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial noncompliance” on the basis of the bank’s performance under these tests. All banks are required to publicly disclose their CRA performance ratings. INB’s latest CRA rating was satisfactory.

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Regulation of Lending Activity. In addition to the laws and regulations discussed above, INB is also subject to certain consumer laws and regulations, including, but not limited to, the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act of 1974, and their associated Regulations Z, X and B, respectively.

Monetary Policy and Economic Control. Commercial banking is affected not only by general economic conditions, but also by the monetary policies of the FRB. Changes in the discount rate on member bank borrowing, availability of borrowing at the “discount window,” open market operations, the imposition of changes in reserve requirements against member banks’ deposits and assets of foreign branches and the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates are some of the instruments of monetary policy available to the FRB. These monetary policies are used in varying combinations to influence overall growth and distributions of bank loans, investments and deposits, and this use may affect interest rates charged on loans or paid on deposits. The monetary policies of the FRB, which have a significant effect on the operating results of commercial banks, are influenced by various factors, including inflation, unemployment, short-term and long-term changes in the international trade balance and in the fiscal policies of the United States Government.

Other Legislation Affecting Us

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 facilitates the interstate expansion and consolidation of banking organizations by permitting bank holding companies that are adequately capitalized and managed to acquire banks located in states outside their home states regardless of whether such acquisitions are authorized under the law of the host state.

The Gramm-Leach-Bliley Act of 1999, among other things, permits banks, securities firms and insurance companies to affiliate under a common holding company structure, but imposes certain restrictions concerning collection, disclosure and safeguarding of customer information.

The USA Patriot Act of 2001 requires financial institutions to help prevent, detect and prosecute international money laundering and financing of terrorism. Financial institutions are required to collect customer information, monitor transactions and report certain information to U.S. law enforcement agencies, such as the U.S. Treasury Department Office of Foreign Assets Control (OFAC) concerning customers and their transactions. INB has systems and procedures in place designed to comply with the USA Patriot Act.

The Sarbanes-Oxley Act of 2002 imposed a myriad of corporate governance and accounting measures designed so that shareholders have full, accurate and timely information about the public companies in which they invest. All public companies are affected by the Sarbanes-Oxley Act.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010 imposes significant regulatory and compliance changes, including the imposition of increased capital, leverage, and liquidity requirements, and numerous other provisions designed to improve supervision and oversight of, and strengthen safety and soundness within, the financial services sector. Under the Dodd-Frank Act, bank holding companies are prohibited from including in their Tier 1 regulatory capital certain hybrid debt and equity securities issued on or after May 19, 2010. Among the securities included in this prohibition are trust preferred securities (TRUPS), which IBC has used in the past as a tool for raising Tier 1 capital. IBC is permitted to continue to include its existing outstanding TRUPS in its Tier 1 capital. Under FRB requirements, the amount of qualifying cumulative perpetual preferred stock and qualifying TRUPS, as well as certain types of minority interest, that may be included as Tier 1 capital is limited to 25 percent of the sum of core capital elements net of goodwill.

Additionally, the excess amounts of restricted core capital elements in the form of qualifying TRUPS included in Tier 2 capital is limited to 50 percent of Tier 1 capital (net of goodwill). However, amounts in excess of this limit will still be taken into account in the overall assessment of an organization’s funding and financial condition. In the last five years before the underlying subordinated note matures, the associated TRUPS must be treated as limited-life preferred stock. Thus, in the last five years of the life of the note, the outstanding amount of TRUPS is excluded from Tier 1 capital and included in Tier 2 capital, subject, together with subordinated debt and other limited-life preferred stock, to a limit of 50 percent of Tier 1 capital. During this period, the TRUPS will be amortized out of Tier 2 capital by one-fifth of the original amount less redemptions each year and excluded totally from Tier 2 capital during the last year of life of the underlying note.

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Basel III. On July 2, 2013, the federal banking regulators approved the final proposed rules that revise the regulatory capital rules to incorporate certain revisions by the Basel Committee on Banking Supervision to the Basel capital framework (“Basel III”). The phase-in period for the final rules will begin for us on January 1, 2015, with full compliance with the final rules phased in on January 1, 2019. The final rules, among other things, include a new common equity Tier 1 capital (“CET1”) to risk-weighted assets ratio, including a capital conservation buffer, which will gradually increase from 4.5% on January 1, 2015 to 7.0% on January 1, 2019. The final rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% on January 1, 2015 to 8.5% on January 1, 2019, as well as require a minimum leverage ratio of 4.0%.

The final rules also require that certain non-qualifying capital instruments, including TRUPS, be phased out of Tier 1 capital (as denoted on the previous page), except that bank holding companies with less than $15 billion in assets as of December 31, 2009 will be grandfathered and may continue to include trust preferred security debt issuances in Tier 1 capital, subject to certain restrictions. Since IBC had less than $15 billion in assets at December 31, 2009, it will continue to include its existing $55 million of TRUPS in its Tier 1 regulatory capital computations.

The final rules also provide for a number of adjustments to and deductions from the new CET1. Under current capital standards, the effects of accumulated other comprehensive income items included in capital are excluded for the purposes of determining regulatory capital ratios. Under Basel III, the effects of certain accumulated other comprehensive items are not excluded. However, certain banking organizations, including IBC and INB, may make a one-time permanent election to continue to exclude these items. IBC and INB expect to make this election in order to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of INB’s investment securities portfolio. We are currently evaluating the provisions of the final rules and their expected impact. We believe that we would have been in compliance with Basel III requirements if they had been effective as of December 31, 2013.

Other Regulation - Mortgage Lending

Multifamily properties may be subject to rent control and rent stabilization laws, which may restrict the owner from raising rents on apartments. If real estate taxes, fuel costs and maintenance of and repairs to the property were to increase substantially, and such increases are not offset by increases in rental income, the ability of the owner of the property to make payments due on the loan might be adversely affected.

Laws and regulations relating to asbestos require that whenever any work is undertaken in a property in an area in which asbestos is present, the asbestos must be removed or encapsulated in accordance with such and laws and regulations. The cost of asbestos removal or encapsulation may be substantial, and if there were not sufficient cash flow from the property, after debt service on mortgages, to fund the required work, and the owner of the property fails to fund such work from other sources, the value of the property could be adversely affected, with consequent impairment of the security for the mortgage. Laws and regulations relating to the storage, disposal and clean up of hazardous or toxic substances at real property have been adopted. Such laws may impose a lien on the real property superior to any mortgages on the property. In the event such a lien was imposed on any property which serves as security for a mortgage owned by us, the security for such mortgage could be impaired.

Our lending business is regulated by federal, state and, in certain cases, local laws, including, but not limited to, the Equal Credit Opportunity Act of 1974 and Regulation B. We are also subject to various other federal, state and local laws, rules and regulations governing, among other things, the licensing of mortgage lenders and servicers. We must comply with procedures mandated for mortgage lenders and servicers, and must provide disclosures to certain borrowers. Failure to comply with these laws, as well as with the laws described above, may result in civil and criminal liability, termination or suspension of licenses, rights of rescission for mortgage loans, lawsuits and/or administrative enforcement actions. Additional legislative and regulatory proposals have been made and others can be expected. It is not possible to predict whether or in what form final proposals may be adopted and, if adopted, what their effect will be on us.

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Item 1A. Risk Factors

The following risk factors contain important information about us and our business and should be read in their entirety. Additional risks and uncertainties not known to us or that we now believe to be not material could also impair our business. If any of the following risks actually occur, our business, results of operations and financial condition could suffer significantly.

Risks Related to Our Business

Difficult economic and market conditions have adversely affected us and our industry.

Since the end of 2007, we have been negatively impacted by a weak economy, high rates of unemployment, increased office and retail vacancy rates and lower commercial real estate values both nationally and in our primary markets, New York and Florida, all of which have resulted in a significant increase in our nonperforming assets and associated loan and real estate loss provisions and expenses to carry these assets. Unlike larger banks that are more geographically diversified, our business and operating results are closely tied to the local economic conditions and commercial real estate values in New York and Florida.

From December 2007 to June 2009, the United States experienced the worst economic downturn since the Great Depression. This period was marked by reduced business activity across a wide range of industries and regions, significant increases in unemployment, volatility and disruption in the capital and credit markets, and dramatic declines in the housing market, with decreasing home prices and increasing delinquencies and foreclosures, which negatively impacted the credit performance of mortgage and construction loans and resulted in significant write-downs of assets by many financial institutions across the United States. The recession was also marked by tightening of the credit markets and steep declines in the stock markets, which resulted in a difficult loan environment and decreased the value of our portfolio of investment securities. Although the domestic economy continued its modest recovery during 2013, the recovery is weak and there can be no assurance that the economy will not enter into another recession, whether in the near or long term. Furthermore, real estate values and the demand for commercial real estate loans have not fully recovered, and reduced availability of commercial credit and continuing unemployment have negatively impacted the credit performance of commercial and consumer credit. Additional market developments such as a relapse or worsening of economic conditions in Europe would likely exacerbate the lingering effects of the difficult market conditions experienced by us and others in the financial services industry and could further slow, stall or reverse the slow recovery in the U.S., all of which could have a negative impact on our business, financial condition and results of operations.

Our business strategy may not be successful.

Our business strategy (discussed under “Item 1 Business” in this report) is focused on attracting deposits by offering competitive interest rates and using those deposits and other funds generated from our operations to originate commercial and multi-family real estate loans on a profitable basis. Our ability to execute this strategy depends on many factors, including some outside of our control, such as the state of economic conditions generally and in our market areas in particular, interest rate trends, the state of credit markets, real estate values, loan demand, competition, government regulations, regulatory restrictions and regulatory capital requirements. We may not be successful in maintaining or increasing the level of our loans or deposits at an acceptable risk or on profitable terms, which would negatively impact our results of operations and financial condition.

We depend on a limited number of executive officers to implement our business strategy.

Mr. Lowell Dansker, age 63, our Chairman, and Mr. Keith Olsen, age 60, President of INB, with oversight from both INB’s and IBC’s Board of Directors and its Committees, make all of our strategic decisions for us, including all of our underwriting, lending and investment decisions. This includes determining which types of loans are suitable for us, geographical locations to lend in, setting the terms and rates on all loans, determining our funding types and rates to offer on deposits, and investing our funds not used for loan originations into the security investments.

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The ultimate success of our business strategy is directly related to the expertise and judgments of these two executive officers and our business may suffer if we lose their services or their judgments prove to be incorrect. If Mr. Dansker or Mr. Olsen or any of our other key employees (as disclosed in “Executive Officers and Other Significant Employees” included at the end of Part I of this report) were to become unavailable for any reason, our business may be adversely affected and, in the case of Mr. Dansker and Mr. Olsen, particularly due to their skills and knowledge of the real estate markets in which we operate, their years of lending experience and the difficulty of promptly finding qualified replacement personnel to execute our current business strategy. To attract and retain qualified personnel, we offer various employee benefits, including an executive employment agreement for Mr. Dansker. We also have a written succession plan that identifies key internal officers to perform executive officer functions in case of temporary disruptions due to such things as illnesses or leaves of absence. This plan also contains procedures for the selection of permanent replacements, if any. The plan, however, may not be effective and we may not be able to ultimately attract and retain qualified personnel. Competition for qualified personnel may also increase our hiring and retention costs. All of the above factors could negatively affect our business, operating results and financial condition.

We depend on brokers for our loan originations.

We rely on referrals from real estate mortgage brokers for our loan origination volume. If those referrals were to decline or not expand, other sources of loan originations may not be available to us, which may cause our business to suffer and negatively impact our operating results.

We face strong competition in our market areas.

Our primary markets consist of New York and Florida, which are highly competitive markets. We experience competition in both lending and attracting deposits from other banks and nonbanks (including savings associations, credit unions, securities firms, investment bankers, money market funds, life insurance companies and the mutual fund industry) some of which are significantly larger institutions with greater resources, lower cost of funds or a more established market presence. Because our business directly depends on our ability to attract deposits and originate loans profitably, our ability to efficiently compete for depositors and borrowers is critical to our success. Our operating results could suffer if we are not able to successfully compete in these markets.

Our loan portfolio is concentrated in loans secured by commercial and multi-family real estate.

Our loan portfolio is concentrated in loans secured by commercial and multi-family real estate, which increases the risk associated with our loan portfolio. Such loans are generally considered riskier than many other kinds of loans, like single family residential real estate loans, since these loans tend to involve larger loan balances to one borrower or groups of related borrowers, and repayment of such loans is typically dependent upon the successful operation of the underlying real estate. Additionally, we also have some loans secured by vacant or substantially vacant properties as well as some vacant land, all of which typically do not have adequate or any income streams and depend upon other sources of cash flow from the borrower for repayment.

As discussed in “Item 1 Business” in this report, over the past several years, due to various factors, a large number of the loans we originated prior to 2010 have been repaid through refinancing by other institutions. Our new loan originations, moreover, have been more weighted towards commercial real estate loans. Our total commercial real estate loans (inclusive of land loans) as a percentage of our total loans was 75% at December 31, 2013, while our multifamily loans (inclusive of loans on investor owned residential condominiums) as a percentage of total loans was 25% at December 31, 2013. We cannot predict how long this trend will continue. For a further discussion of our lending risks, see the section “Item 1 Business” under the caption “Lending Activities” in this report.

All of our loans require ongoing evaluation and monitoring since they may be negatively affected to a greater degree by adverse conditions in the real estate markets or the economy or changes in government regulation. A number of our borrowers also have more than one mortgage loan outstanding with us. Likewise, these borrowers may also own other properties that are encumbered by separate mortgages from other lenders. Consequently, an adverse development with respect to the borrower may expose us to a greater risk of loss with respect to our otherwise performing loans with the same borrower.

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Furthermore, banking regulators are giving commercial real estate lending greater scrutiny and banks with higher levels of these loans are expected to have effective underwriting and risk management policies, perform portfolio stress testing, maintain higher levels of loan loss and higher regulatory capital levels.

Regardless of the effectiveness of the lending policies and procedures we utilize, we may experience lending losses as a result of factors beyond our control, including changes in market and economic conditions affecting the value of our loan collateral and problems affecting the credit and business of our borrowers. Our ability to recover our investment in the mortgage loans we originate is ultimately dependent on the market value of the collateral property. Many of the loans we originate permit no recourse or limited recourse against the property’s owner. Even with personal recourse, successful collection is still difficult to achieve. In addition, our losses in connection with delinquent loans may be more pronounced because our commercial and multifamily real estate mortgage loans generally have amortization schedules, which are common to the banking industry, that result in limited principal reduction during the life of the loan and consequently, a substantial part of the loan’s original principal amount is due at maturity. All of the above factors could adversely affect our operating results and financial condition.

Many of the properties securing our loans are concentrated in New York and Florida and in areas that are undergoing revitalization or are vacant or substantially vacant.

The properties securing our loans at December 31, 2013 are concentrated in New York (59%) and Florida (28%), and more recently we have originated a greater amount of loans outside of these two states (13%), predominantly the Mid-Atlantic and South East Coast and some in the Midwest. Additionally, we have and will continue to lend in geographical areas of all of these states that are in the process of being revitalized or redeveloped or considered secondary or tertiary markets, all of which can be negatively impacted to a greater degree in an economic downturn or real estate slump. A large number of the properties we lend on may also need repair and or improvements, have below market rents, or may be vacant or substantially vacant and are in the process of being rented. Properties securing loans of this type and in these types of neighborhoods may be more susceptible to fluctuations in value and have higher default rates than properties in more established areas. All of the above increases the risk associated with our loan portfolio.

The properties securing our loans may be negatively impacted by storms, natural disasters and other factors.

Florida is especially susceptible to hurricanes and tropical storms and related flooding and wind damage, as well as other disasters. The Northeast can also be affected by hurricanes and other natural disasters. Such weather and environmental events can disrupt business, result in damage to properties and negatively affect the local economy, all of which may adversely affect the cash flows, values and marketability of properties that secure our loans. Furthermore, hurricane and other storm damage have increased the cost of property and casualty insurance premiums, especially in Florida. We cannot predict whether or to what extent damage may be caused by the occurrence of such events. Such events could affect the ability of our borrowers to repay their loans, could impair the value of the collateral securing our loans, and could cause significant property damage, thus increasing our expenses and/or reducing our revenues.

Other factors, such as political issues, including armed conflicts and acts of terrorism, may have an adverse impact on economic conditions of the country as a whole and may be more pronounced in specific geographic regions, which could negatively affect the market value of the mortgaged properties underlying our loans as well as the levels of rent and occupancy of income-producing properties. Since a large number of properties underlying our loans are located in New York City, we may be more vulnerable to the adverse impact of such occurrences than other institutions, which could have a significant negative impact on us.

All of the above could increase the risk associated with our loan portfolio and could result in a decline in loan originations, a decline in the value or destruction of properties securing our loans and an increase in loan delinquencies, foreclosures or loan and real estate losses, all of which could negatively impact our operating results and financial condition.

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We are required to maintain strong and effective loan management and monitoring systems.

Bank regulators require banks with concentrations of assets to have management, policies, procedures and systems appropriate to manage these risks, especially where the real estate loans are concentrated geographically or in particular lines of business. Because of our high concentration in loans secured by commercial real estate (inclusive of multifamily properties, vacant land and loans on investor owned 1-4 family condominiums), we are required to maintain strong loan management and monitoring systems as a result of the perceived risks of our concentration in commercial and multifamily real estate loans. We have and will continue to add personnel and incur increased costs of consultants and other third parties to maintain effective loan monitoring systems, all of which has and will continue to increase our operating expenses.

Our loans are relatively short-term and have balloon payments at maturity.

We generally originate short-term real estate mortgage loans that have balloon payments at maturity. Our borrowers are expected to have to refinance their loans at maturity or payoff the loans at maturity from other sources of cash or from sales of the underlying collateral property. We are therefore subject to the risks that our borrowers will not be able to repay us or refinance their loans due to adverse conditions in their businesses, unavailability of alternative financing, or an inability to timely sell the property securing our loan. These conditions also reduce the rate of payoffs on our loans, which may negatively impact our liquidity. In addition, any disruptions in the credit markets or other lenders’ diversification away from commercial real estate or multifamily lending as well as declines in real estate values may increase our delinquent and nonperforming loans, foreclosures and the potential for future losses. Problem assets also increase our expenses and take additional time and effort to manage. All of the above could adversely affect our earnings, credit quality and liquidity.

We currently have an elevated level of problems assets.

Although we have successfully reduced our problem assets over the last several years, as discussed elsewhere in this report, we currently have an elevated level of problem assets (nonperforming loans, TDRs, real estate owned through foreclosure, and other performing loans rated substandard for which there were concerns regarding the ability of the borrowers to meet existing repayment terms), which increases the risk associated with our company and business. The timing and amount of the resolution and/or disposition of all these assets cannot be predicted with certainty. Many of our TDRs will continue to be classified as such until they are repaid. In addition, our ability to complete foreclosure or other proceedings, if necessary, to acquire and sell certain collateral properties in many cases can be delayed by various factors outside of our control. We may be required to sell these, as well as other new nonaccrual or problem assets that may arise in the future, at a loss compared to their current net carrying values. Moreover, a sustained and prolonged economic and real estate downturn could further adversely affect the quality of our assets, increase our nonperforming assets, increase our loan and real estate losses and related carrying expenses, and could also reduce the demand for our products and services and our ability to attract deposits, all of which could adversely affect our operating results and financial condition.

We may have higher loan and real estate losses than we have allowed for.

We maintain an allowance for loan losses and a valuation allowance for real estate losses that we believe are adequate and reflect the amount of losses inherent in our loan and real estate owned portfolios at a specific point in time. The allowances, however, ultimately may not be adequate to protect us against actual losses that we may sustain. There is a risk that we may experience losses that could exceed the allowances we have set aside. In determining the size of the allowances, we make various assumptions and judgments about the collectability of our loan portfolio and the estimated market values of the underlying collateral properties and of real estate owned, which are discussed under the caption “Critical Accounting Policies” in this report.

If our assumptions and judgments prove to be incorrect, we may have to increase these allowances or replenish them after chargeoffs by recording additional loss provisions. Furthermore, our regulators may require us to make additional provisions for loan and real estate losses after their periodic review of these portfolios and related allowances based solely on their judgments. All of the above could adversely affect our financial condition and operating results.

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We are subject to the risks and costs associated with owning real estate.

From time to time, we need to foreclose on the properties that collateralize our mortgage loans that are in default as a means of repayment and may thereafter own and operate such properties for an extended period of time, which expose us to risks and costs inherent in the ownership of real estate. Costs associated with the ownership of real estate (principally real estate taxes, insurance, maintenance and repairs) may exceed the rental income earned from the property, if any, and we may therefore have to advance additional funds to operate and or maintain the property in order protect our investment. Further, hazardous substances could be discovered on the properties and we may be required to remove the substances from and remediate the properties at our expense, which could be substantial. All of the above factors could also adversely affect our operating results and financial condition.

The credit downgrade of U.S. government securities could have a material adverse effect on us.

Like most financial institutions, we own a large amount of investments in debt instruments issued by U.S. government agencies. The continuing debates in Congress regarding the national debt ceiling, federal budget deficit concerns, and overall weakness in the economy resulted in recent actual and threatened downgrades of U.S. government securities by the various major credit ratings agencies, including Standard and Poor’s and Fitch Ratings. While the federal banking agencies including the Federal Reserve and the FDIC have issued guidance indicating that, for risk-based capital purposes, the risk weights for U.S. Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities will not be affected by the downgrade, the possible future downgrade of the federal government’s credit rating by one or both of the other two major rating agencies could create uncertainty in the U.S. and global financial markets. We cannot predict if, when or how these changes or future changes to the credit ratings will affect economic conditions. However, these or future rating downgrades could have a material adverse effect on our business, financial condition and operating results, and could exacerbate other risks described in this report.

We need to maintain adequate amounts of liquidity.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, repayments of loans, or other sources could have a substantial negative effect on our liquidity and our ability to meet our obligations. In addition to deposits, our primary funding sources include unsecured federal funds that we purchase from correspondent banks as well as secured advances, both short- and longer-term, that are available from the Federal Home Loan Bank of New York and the Federal Reserve Bank of New York, with the use of our investment securities and certain loans that can be pledged as collateral. Other sources of liquidity that may be available to us, but cannot be assured, include our ability to issue and sell debentures and capital stock in public or private transactions. It should be noted that volatility in the capital and credit markets can produce downward pressure on stock prices and reduced credit availability for certain issuers without regard to those issuers’ underlying financial condition or performance. These factors could have material adverse effects on our ability to access capital or credit and on our business, financial condition and operating results.

Our access to adequate amounts of funding sources on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. Our ability to borrow could be impaired by factors that are not specific to us, such as a disruption in the financial markets, adverse changes in the financial condition of our correspondent banks that supply us with federal funds, or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations and the credit markets. Regulatory requirements for greater liquidity may also adversely affect our profitability. Our current level of liquidity sources may not be adequate, or may be adversely affected in the future, which may reduce the availability of funds to us, all of which could negatively affect our operations and business and ability to be a going concern.

Our business is greatly impacted by changes in interest rates.

As a financial institution, we are subject to the risk of fluctuations in interest rates. A significant change in interest rates could have a material adverse effect on our profitability, which depends primarily on the generation of net interest income. Our net interest income is dependent on our interest rate spread, which is the difference between yields earned on our interest-earning assets and the rates paid on our interest-bearing liabilities.

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As a result, our success depends directly on our ability to invest a substantial percentage of our assets in mortgage loans with rates of return that exceed our cost of funds. Our loan portfolio was nearly all comprised of loans with fixed rates and the portfolio had an average weighted life of 4.6 years as of December 31, 2013. Our current portfolio of investment securities and overnight investments were short-term and their yield substantially less than our loans and we expect that to be the case in the future. Fluctuations in interest rates are difficult to predict and manage and, therefore, we may not be able to maintain an adequate positive interest rate spread. Historically, we have also not used any hedging strategies or other similar tools to manage our interest rate risk. For a further discussion of our management of interest rate risk, see the caption entitled “Asset and Liability Management” included in Item 7 of this report. A sudden and substantial change in interest rates may adversely impact our earnings, our cost of funds, loan demand, and the value of our collateral and investment securities, all of which could adversely impact our earnings and financial condition.

We have a higher cost of funds and a high level of indebtedness.

INB relies heavily on higher-cost certificates of deposit (time deposits) as its main source of funds and it needs to pay competitive interest rates to attract and retain all of its deposit accounts regardless of type to fund our loan originations. INB’s high cost of funds or inability to pay competitive interest rates in the future to attract deposits could negatively affect our results of operations and business.

Our borrowed funds (exclusive of deposits) and related interest payable was approximately $58 million at December 31, 2013 and is described in notes 8 and 9 to our financial statements. This level of indebtedness could make it difficult for us to satisfy all of our obligations to the holders of our debt and could limit our ability to obtain additional debt financing to fund our working capital requirements. The inability to incur additional indebtedness could adversely affect our business and financial condition by, among other things, limiting our flexibility in planning for, or reacting to, changes in our industry; and placing us at a competitive disadvantage with respect to our competitors who may operate on a less leveraged basis. As a result, this may make us more vulnerable to changes in economic conditions and require us to dedicate a substantial portion of our cash flow from operations to the repayment of our indebtedness, which would reduce the funds available for other purposes. All the above may adversely affect our financial condition and our business.

We are subject to reputational risk and social factors.

Our ability to attract and retain depositors and customers is highly dependent upon consumer and other external perceptions of either or both of our business practices and financial condition. Adverse perceptions could damage our reputation to a level that could lead to difficulties in generating and maintaining deposit accounts, accessing credit markets and increased regulatory scrutiny on our business. Borrower payment behaviors also affect us. To the extent that borrowers determine to stop paying on their loans where the financed properties’ market values are less than the amount of their loan, or otherwise, our costs and losses may increase. Adverse developments or perceptions regarding the business practices or financial condition of our competitors, or our industry as a whole, may also indirectly adversely impact our reputation. In addition, adverse reputational impacts on third parties with whom we have important relationships may also adversely impact our reputation. All of the above factors may result in greater regulatory and/or legislative scrutiny, which may lead to laws or regulations that may change or constrain the manner in which we engage with our customers and the products we offer and may also increase our litigation risk, all of which could negatively impact our business, financial condition and operating results.

Regulatory Risks

Our business is subject to extensive regulation.

We operate in a highly regulated industry and are subject to examination, supervision and comprehensive regulation by various regulatory agencies, whose focus is to protect the Deposit Insurance Fund and depositors, not our stockholders. Our compliance with these regulations is costly and restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits and locations of offices. We are also subject to regulatory capital requirements, which require us to maintain adequate capital to support our growth. If we fail to meet these capital and other regulatory requirements, our ability to grow, our cost of funds and FDIC insurance could be materially and adversely affected. See the section “Supervision and Regulation” in Item 1 of this report for a further discussion. All of the above could limit or restrict our business activities and the cost of compliance is currently high and may be higher in the future.

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Non-compliance with laws and regulations could result in fines, sanctions or other adverse consequences.

Financial institutions like us are required under the USA PATRIOT Act and Bank Secrecy Act to develop programs to prevent financial institutions from being used for money-laundering and terrorist activities. Financial institutions are also obligated to file suspicious activity reports with the U.S. Treasury Department’s Office of Financial Crimes Enforcement Network if such activities are detected. These rules also require established procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure or the inability to comply with these regulations could result in fines or penalties, intervention or sanctions by regulators, and costly litigation or expensive additional controls and systems. Although we have developed policies and procedures and systems designed to assist in compliance with these laws and regulations, it is possible for such safeguards to fail or prove deficient during the implementation phase to avoid non-compliance with such laws, all of which could have a material negative impact on our business and profitability.

IBC relies on cash dividends from INB to meet its obligations.

IBC is a separate and distinct legal entity from INB. IBC has raised working capital in the past through the sale of capital stock and debentures and has down streamed the proceeds from such transactions to INB as capital investments. IBC needs cash dividend payments from IBC to fund the interest payments on IBC’s outstanding debt. Various federal and state laws and regulations limit the amount of dividends that a bank may pay to its parent company as described in more detail under the caption “Supervision and Regulation” in Item 1 of this report. If INB is unable to pay dividends to IBC for any reason, IBC in turn may not be able to service its debt, pay its other obligations, or pay cash dividends on its capital stock, which could have a material adverse effect on our business.

IBC is operating under a formal written agreement with its primary regulator.

Since January 2011, IBC has been operating under a written agreement with its primary regulator, the Federal Reserve Bank of New York (the “FRB”). The agreement, among other things, requires IBC to use its financial and managerial resources to serve as a source of strength to INB. In addition, the agreement, among other things, requires IBC to obtain approval from the FRB to do any of the following: (1) declare or pay dividends on its capital stock; (2) take any payments from INB that represent a reduction in INB’s capital; (3) make any distributions of interest, principal or other sums on IBC’s outstanding debt (subordinated debentures); and (4) incur, increase or guarantee any debt or purchase or redeem any shares of IBC’s capital stock. As of the filing date of this report, IBC remained subject to this written agreement with the FRB and the restrictions contained therein, including those described above. IBC has advised the FRB that in IBC’s view it has complied with all of the requirements of the written agreement. IBC further advised the FRB that INB’s Formal Agreement with the OCC was terminated by the OCC in March 2013. The FRB is currently reviewing the need for its written agreement with IBC. The FRB agreement and its restrictions could negatively impact our ability to conduct our business.

Accounting, Systems and Internal Control Risks

Changes in accounting standards may affect our performance.

Our accounting policies and procedures are fundamental to how we record and report our financial condition and operating results. Almost annually, there are changes in the financial accounting and reporting standards that govern the preparation of financial statements in accordance with GAAP. These changes can be difficult to predict and can materially impact how we and the rest of the industry record and report its financial condition and operating results. The Financial Accounting Standards Board has and continues to issue a large number of accounting standards that necessarily require all companies to exercise significant judgment and interpretation in the application of those standards. For example, banks now need to use “significant” judgment when assessing the estimated fair value of the assets and liabilities sitting on their balance sheets even though market values can change rapidly and may not be representative due to the inactivity of certain markets. Furthermore, these judgments and estimates could lead to inaccuracy and/or incomparability of financial statements due to differing conclusions on the same facts and circumstances. Future changes in financial accounting and reporting standards, including marking all our assets and liabilities to market values, could have a negative effect on our operating results and financial condition and even require us to restate prior period financial statements.

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The accuracy of our judgments and estimates about financial and accounting matters will impact our operating results and financial condition.

We necessarily make certain estimates and judgments in preparing our financial statements. The quality and accuracy of those estimates and judgments will have an impact our operating results and financial condition. For a further discussion, see the caption “Critical Accounting Policies” in this report.

Failure to maintain an effective system of internal control over financial reporting may not allow us to be able to accurately report our financial condition, operating results or prevent fraud.

We regularly review and update our internal control over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures. We maintain controls and procedures to mitigate against risks such as processing system failures and errors, and customer or employee fraud. We maintain insurance coverage for certain of these risks. Any system of controls and procedures, however well designed and operated, is based in part on certain assumptions and can provide only reasonable assurances that the objectives of the system are met. Events could occur which are not prevented or detected by our internal controls or are not insured against or are in excess of our insurance limits. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, operating results and financial condition.

We are subject to security and operational risks relating to our use of technology that could damage our reputation and our business.

We rely on communications and information systems to conduct our business. Furthermore, we have access to large amounts of confidential financial information and control substantial financial assets, including those belonging to our customers, to whom we offer remote access, and we regularly transfer substantial financial assets by electronic means. Our operations are dependent upon our ability to protect our computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any failure, interruption or breach in security of our systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations. Although we, with the help of third-party service providers, intend to continue to implement security technology and establish operational procedures to prevent such damage, our security measures may not be successful.

In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms we and our third-party service providers use to encrypt and protect customer transaction data. A failure of such security measures could have a material adverse effect on our financial condition and results of operations. We also face the risk of operational disruption, failure, termination or capacity constraints caused by third parties that facilitate our business activities by providing technology such as software applications, as well as financial intermediaries. Such parties could also be the source of an attack on, or breach of, our operational systems, data or infrastructure.

We also face the potential risk of losses due to fraud, including commercial checking account fraud, automated teller machine (“ATM”) skimming and trapping, write-offs necessitated by debit card fraud, and other forms of online banking fraud, which are being more sophisticated and present new challenges as mobile banking increases, as well as employee fraud. Employee errors could also subject us to financial claims for negligence. We maintain a system of internal controls and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud. Should our internal controls fail to prevent or detect an occurrence, and if any resulting loss is not insured or exceeds applicable insurance limits, such failure could have a material adverse effect on our business, financial condition and results of operations.

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The operations of our business, including our interaction with customers, are increasingly done via electronic means, and this has increased our risks related to cybersecurity.

We are exposed to the risk of cyber-attacks in the normal course of business. In general, cyber incidents can result from deliberate attacks or unintentional events. We have observed an increased level of attention in the industry focused on cyber-attacks that include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as by causing denial-of-service attacks on websites.

Cyber-attacks may be carried out by third parties or insiders using techniques that range from highly sophisticated efforts to electronically circumvent network security or overwhelm websites to more traditional intelligence gathering and social engineering aimed at obtaining information necessary to gain access. The objectives of cyber-attacks vary widely and can include theft of financial assets, intellectual property, or other sensitive information, including the information belonging to our banking customers. Cyber-attacks may also be directed at disrupting our operations. While we have not incurred any material losses related to cyber-attacks, nor are we aware of any specific or threatened cyber-incidents as of the date of this report, we may incur substantial costs and suffer other negative consequences if we fall victim to successful cyber-attacks. Such negative consequences could include remediation costs that may include liability for stolen assets or information and repairing system damage that may have been caused; increased cybersecurity protection costs that may include organizational changes, deploying additional personnel and protection technologies, training employees, and engaging third party experts and consultants; lost revenues resulting from unauthorized use of proprietary information or the failure to retain or attract customers following an attack; litigation; and reputational damage adversely affecting customer or investor confidence.

We continually encounter technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology driven by products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

Item  1B. Unresolved Staff Comments

None

Item 2. Properties

The office of IBC and INB’s headquarters and full-service banking office are located in leased premises (of approximately 21,500 sq. ft.) on the entire fourth floor of One Rockefeller Plaza in New York City, New York, 10020. The lease expires in March 2024.

INB’s principal office in Florida is located at 625 Court Street, Clearwater, Florida, 33756. INB also operates five other branch offices in Florida; three of which are in Clearwater, Florida, at 1875 Belcher Road North, 2175 Nursery Road and 2575 Ulmerton Road; one is at 6750 Gulfport Blvd, South Pasadena, Florida; and one is at 483 Mandalay Avenue, Clearwater Beach, Florida. With the exception of the Belcher and Mandalay offices, which are leased through September 2022 and January 2016, respectively, INB owns all the properties in which its offices are located in Florida. Additionally, INB has an option to extend the terms of the Belcher lease (for an additional five years). All the above leases contain operating escalation clauses related to real estate taxes and operating costs based upon various criteria and are accounted for as operating leases.

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INB’s office at 625 Court Street consists of a two-story building containing approximately 22,000 sq. ft. INB occupies the ground floor (approximately 8,500 sq. ft.) and leases the 2nd floor to a single commercial tenant. The branch office at 1875 Belcher Road is a two-story building in which INB leases approximately 5,100 sq. ft. on the ground floor. The branch office at 2175 Nursery Road is a one-story building containing approximately 2,700 sq. ft., which is entirely occupied by INB. The branch office at 2575 Ulmerton Road is a three-story building containing approximately 17,000 sq. ft. INB occupies the ground floor (approximately 2,500 sq. ft.) and leases the upper floors to various commercial tenants. The branch office at 6750 Gulfport Blvd. is a one-story building containing approximately 2,800 sq. ft., which is entirely occupied by INB. The branch office at 483 Mandalay Avenue is located in a shopping center known as Pelican Walk Plaza in which INB leases approximately 2,100 sq. ft. In addition, each of INB’s Florida offices includes drive-through teller facilities (except for Mandalay) and Automated Teller Machines (ATMs). INB also owns a two-story building located on property contiguous to its Court Street office in Florida, which contains approximately 12,000 sq. ft. and is leased to commercial tenants. We believe our current facilities are adequate to meet our present and currently foreseeable needs.

Item 3. Legal Proceedings

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, we do not believe that there is any pending or threatened proceeding against us, which, if determined adversely, would have a material effect on our business, operating results, financial position or liquidity.

Item 4. Mine Safety Disclosures

Not Applicable

Executive Officers and Other Significant Employees

Executive Officers

Lowell S. Dansker, age 63, has served as Chairman of the Board of Directors, Chief Executive Officer and Chairman of the Executive Committee of Intervest Bancshares Corporation since August 2006. He previously served Intervest Bancshares Corporation as President, Treasurer and member of the Executive Committee since incorporation in 1993, and as Vice Chairman of the Board of Directors from October 2003 to August 2006. Mr. Dansker also serves as the Chairman, Chief Executive Officer and Chairman of the Executive and Loan Committees of Intervest National Bank and as an Administrator of Intervest Statutory Trust II through V. Mr. Dansker received a Bachelor of Science in Business Administration degree from Babson College and a Law degree from the University of Akron School of Law and has been admitted to practice in New York, Ohio, Florida and the District of Columbia.

John J. Arvonio, age 51, has served as Chief Financial Officer and Chief Accounting Officer of Intervest Bancshares Corporation since August 2006 and December 2005, respectively, and as Senior Vice President, Chief Financial and Accounting Officer and Secretary of Intervest National Bank since September 2000. Prior to that, Mr. Arvonio served as Vice President, Controller and Secretary of Intervest National Bank since April 1998. Mr. Arvonio received a Bachelors degree in Accounting, with honors, from Iona College and is a NYS Certified Public Accountant. Mr. Arvonio has nearly 25 years of banking experience, including serving as Vice President, Accounting Policy and Technical Advisor for The Greater New York Savings Bank from 1992 to 1997, Manager of Financial Reporting for the Leasing and Investment Banking Divisions of Citibank from 1989 to 1992 and as a Senior Auditor for Ernst & Young from 1985 to 1989.

Keith A. Olsen, age 60, has served as a Director and as President of Intervest National Bank since July 2001 and February 2008, respectively. Mr. Olsen served as President of the Florida Division of Intervest National Bank from July 2001 to February 2008. Prior to that, Mr. Olsen was the President of Intervest Bank from 1994 until it merged into Intervest National Bank in July 2001. Mr. Olsen also served as Senior Vice President of Intervest Bank from 1991 to 1994. Mr. Olsen received an Associates degree from St. Petersburg Junior College and a Bachelors degree in Business Administration and Finance from the University of Florida, Gainesville. Mr. Olsen is also a graduate of the Florida School of Banking of the University of Florida, Gainesville, the National School of Real Estate Finance of Ohio State University and the Graduate School of Banking of the South of Louisiana State University. Mr. Olsen has been in banking for more than 30 years.

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Stephen A. Helman, age 74, has served as a Director, and as Vice President and Secretary of Intervest Bancshares Corporation since December 2003 and February 2006, respectively. Mr. Helman is also a Vice President and Director of Intervest National Bank. Mr. Helman also is a member of the Executive Committee of Intervest Bancshares Corporation and an Administrator of Intervest Statutory Trust V. Mr. Helman received a Bachelor of Arts degree from the University of Rochester and a law degree from Columbia University. Mr. Helman has been a practicing attorney for more than 25 years.

Robert W. Tonne, age 59, has served as Vice President and Chief Credit Officer for Intervest National Bank since February 2010. Mr. Tonne has over 30 years experience in various credit and lending functions. Prior to joining Intervest National Bank, Mr. Tonne served as a Senior Vice President with Sovereign Bank/Independence Community Bank from 2000 to May 2009. While at Sovereign/Independence, Mr. Tonne held various positions including Team Leader/Portfolio Monitoring Department and Credit Deputy for the New York Lending Team. Prior to 2000, Mr. Tonne served at Allied Irish Bank, Fleet Bank, and The Bank of New York in various credit and lending functions. Mr. Tonne began his banking career with The Bank of New York in 1976. Mr. Tonne received a Masters of Business Administration from Adelphi University in 1979 and a Bachelor of Business Administration from Hofstra University in 1976.

Other Significant Employees

Lisa Amato, age 42, has served as Vice President, Branch Coordinator for Intervest National Bank since May 2011. Prior to that, Ms. Amato worked for Patriot Bank as Vice President, Sales and Service Leader from February 2007 to May 2011 and served on their Compliance Committee. Ms. Amato has more than 11 years of banking experience with small to large financial institutions. Ms. Amato completed Management training courses at Pasco Hernando Community College.

Gail Balmaceda, age 42, has served as Vice President and Operations Manager of the New York Division of Intervest National Bank since 2007. Prior to that, Ms. Balmaceda has served Intervest National Bank in various capacities since 1999, including as an Assistant Vice President from 2006 to 2007 and as Operations Supervisor from 2003 to 2005.

John B. Carella, age 56, has served as Vice President, Loan Operations in the New York Division of Intervest National Bank since September 2006. Mr. Carella also serves as the Secretary of the Loan Committee. He served as Vice President of Intervest Mortgage Corporation from 2002 to August 2006. Prior to joining Intervest in 1999, Mr. Carella worked for a real estate lender and attorney from 1985 to 1999. Mr. Carella graduated from Fordham University, with honors, receiving a Bachelor of Arts degree in History. Mr. Carella has over 25 years of experience in banking and real estate lending and development.

Rich Dowdy, age 38, has served as Vice President of the Florida Division of Intervest National Bank since July 2013. Prior to that, Mr. Dowdy was Senior Vice President of Jefferson Bank and prior to that was Vice President of Synovus Bank. Mr. Dowdy received a Bachelors degree from The University of Georgia and a MBA from the University of South Florida. He is also a graduate of the Florida School of Banking at the University of Florida. Mr. Dowdy has over 15 years of commercial banking experience.

Matthew E. Englert, age 34, has served as Vice President and ALCO Officer of Intervest National Bank, since August 2010. Prior to joining Intervest National Bank, Mr. Englert worked for Sovereign Bank, a subsidiary of Banco Santander, as an Interest Rate Risk Analyst and Treasury Analyst. Mr. Englert earned a Bachelors degree in Finance from Kutztown University and a Bachelors degree in Political Science from York College of Pennsylvania.

Erik E. Larson, age 41, has served as Vice President, Loan Operations Officer in the Florida Division of Intervest National Bank since October 2005. Prior to that, Mr. Larson was an Assistant Vice President with Intervest National Bank both in Loan Operations and Branch Management capacities. Mr. Larson joined Intervest National Bank in 1998. Prior to that, Mr. Larson served in a supervisory position with Barnett Bank. Mr. Larson received a Bachelors degree in Mathematics from Stockton State College, Pomona, New Jersey.

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Noah S. Littell, age 33, has served as Vice President, Relationship Manager in the New York Division of Intervest National Bank since August 2013. He served as Assistant Vice President of Intervest from 2008 to 2013. Prior to joining Intervest in 2007, Mr. Littell worked for Sterling National Bank in the Loan Originations Dept. from 2004 to 2007. Mr. Littell graduated from Baruch College, City University of New York, receiving a Bachelor of Business Administration degree in Accounting. He is currently pursuing his Masters of Science degree in Real Estate Finance at Baruch College. Mr. Littell has over 9 years of experience in banking and real estate lending.

John W. Loock, age 63, has served as Vice President and Controller of Intervest National Bank since September 2007. He previously served as Assistant Vice President and Assistant Controller of Intervest National Bank from 1999 to August 2007. Mr. Loock received a Bachelor of Mathematics and Master of Business Administration degrees from Iona College. Mr. Loock has more than 30 years of banking experience encompassing various positions with small to large banking institutions.

Elizabeth Macias, age 58, has served as Vice President of Information Technology, Systems and Security for Intervest National Bank since October 2005. Prior to joining Intervest National Bank, Ms. Macias served as Vice President and Director of Management Information Systems at First Central Savings Bank from April 2004 to September 2005. Prior to that, Ms. Macias served as Vice President-Director of Management Information Systems and Product Development for New York National Bank from 1983 to 2004. Ms. Macias received a Bachelors of Science in Business from Manhattan College and an AAS, in Computer Digital Systems from PSI Institute in New York. Ms. Macias has worked in the area of bank management information systems and technology for over 25 years and banking in general for over 30 years.

Michael Primiani, age 53, has served as Vice President, Compliance/BSA Officer and New York Office Security Officer for Intervest National Bank since December 2005. Prior to joining Intervest National Bank, Mr. Primiani served as Vice President, BSA Officer and Branch Administrator for First Central Savings Bank from March 2001 to December 2005. Prior to that, Mr. Primiani served as Assistant Vice President and Branch Manager for Astoria Federal Savings from May 1987 to February 2001, and in various supervisory positions at Astoria Federal Savings from 1979 to 1987. Mr. Primiani received an Associate Degree in Business Management from Queensborough Community College. Mr. Primiani has more that 26 years of banking experience.

Diane S. Rathburn, age 51, has served as Vice President, Operations/Human Resource Manager of the Florida Division of Intervest National Bank since January 2003. Prior to that, Mrs. Rathburn was an Assistant Vice President, Branch Coordinator and Assistant Vice President, Branch Administrator since August 1999. Mrs. Rathburn joined Intervest National Bank in July 1991. Prior to that, Mrs. Rathburn served in a supervisory position of the Bookkeeping Department of Southeast Bank.

Jack E. Russell III, age 53, has served as Vice President and Loan Relationship Manager for Intervest National Bank since May 2012. Prior to joining Intervest National Bank, Mr. Russell was with Synovus Bank of Tampa Bay for 9 years, most recently as a Senior Vice President. Mr. Russell held various positions serving as the Retail and Business Banking Department Manager and also serving as a Commercial and Commercial Real Estate Lender. Mr. Russell initiated his career serving 11 years with Barnett Bank after graduating from their Management Associate program and later serving in various capacities in Credit, Commercial Lending and Business Banking. Mr. Russell received his Bachelors of Science in Business and Management from the University of Florida in 1982. Mr. Russell has over 29 years of experience with various banks developing and managing, commercial and commercial real estate loans in the Florida market.

David B. Stroyan, age 66, has served as Vice President of the Florida Division of Intervest National Bank since November 2008. Prior to that, Mr. Stroyan was Executive Vice President and Senior Loan Officer of Bank of Central Florida and prior to that was Senior Vice President of Mercantile Bank. Mr. Stroyan received a Bachelors degree from the Georgia Institute of Technology. He is also a graduate of The School of Banking of the South at Louisiana State University. Mr. Stroyan has over 25 years of banking experience.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Securities

IBC’s common stock is listed for trading on the Nasdaq Global Select Market under the symbol “IBCA”. At January 31, 2014, there were approximately 80 holders of record of the common stock and approximately 1,800 beneficial owners of the common stock, which includes persons or entities that hold their stock in nominee form or in street name through various brokerage firms. At January 31, 2014, there were 22,012,390 shares of common stock outstanding. The market price of the common stock on the close of business on January 31, 2014 was $7.48 per share.

The following table shows the high and low sales prices per share for the common stock by calendar quarter for the periods indicated.

	2013				2012
	High		Low		High		Low
First quarter	$	6.00	$	3.80	$	4.00	$	2.55
Second quarter	$	6.90	$	5.67	$	4.12	$	3.60
Third quarter	$	7.93	$	6.70	$	3.90	$	3.51
Fourth quarter	$	8.05	$	6.86	$	4.23	$	3.71

Common Dividends

IBC’s common stockholders are entitled to receive cash dividends when and if declared by IBC’s Board of Directors out of funds legally available for such purposes. No dividends have been declared or paid on IBC’s common stock since June 2008.

Preferred Dividends

In 2013, IBC, with approval from its regulator, paid $5.1 million in cash dividends on its Series A preferred stock. The preferred shares were originally issued to the U.S. Treasury under the TARP program. All of the Series A preferred stock was repurchased or redeemed and retired by IBC in 2013. See note 10 to the financial statements in this report for a further discussion. At December 31, 2013, there was no preferred stock outstanding.

Restrictions on Payment of Dividends

IBC’s ability to pay cash dividends is limited under applicable state corporation law to an amount equal to its surplus, which represents the excess of its net assets over paid-in-capital or, if there is no surplus, its net earnings for the current and/or immediately preceding fiscal year. IBC’s ability to pay cash dividends is further limited by the funding requirements of its outstanding trust preferred securities, which were issued prior to 2006 to raise additional working capital for INB.

The primary source of funds for any cash dividends payable to IBC’s stockholders would be the dividends received from IBC’s subsidiary, INB. INB has historically paid cash dividends to IBC in order to provide funds for the debt service on IBC’s outstanding trust preferred securities as well as for the payment of dividends on its capital stock. The payment of cash dividends by INB is determined by INB’s Board of Directors and is dependent upon a number of factors, including INB’s capital requirements, applicable regulatory limitations, results of operations and financial condition.

Since January 2011, IBC has been operating under a written agreement with its primary regulator, the Federal Reserve Bank of New York (the “FRB”). The FRB agreement, among other things, requires IBC to obtain approval from the FRB to declare or pay dividends on its capital stock, take any payments from INB that represent a reduction in INB’s capital, make any distributions of interest, principal or other sums on IBC’s outstanding debt (subordinated debentures), and incur, increase or guarantee any debt or purchase or redeem any shares of IBC’s capital stock. As of December 31, 2013, IBC remained subject to this written agreement with the FRB and all the restrictions contained therein, including those described above. The FRB has advised IBC that it is reviewing the need for such agreement.

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Share Repurchases

IBC did not repurchase any shares of its common stock in 2013.

Stock Performance Graph

The following graph compares the cumulative total shareholder return of IBC’s common stock against the cumulative total return of the Nasdaq Stock Market (U.S. companies) Composite Index, an index for banks with total assets of $1 billion to $5 billion, and the Nasdaq Bank index. The graph was prepared by SNL Financial L.C. and assumes that $100 was invested on December 31, 2008 and that all applicable dividends were reinvested. The points marked on the horizontal axis correspond to December 31 of each year. Each of the referenced indices is calculated in the same manner. The graph depicts past performance and should not be considered to be an indication of future performance.

	Period Ending
Index	12/31/08		12/31/09		12/31/10		12/31/11		12/31/12		12/31/13
Intervest Bancshares Corporation		100.00		82.21		73.43		66.42		97.49		188.22
NASDAQ Composite		100.00		145.36		171.74		170.38		200.63		281.22
SNL Bank $1B-$5B		100.00		71.68		81.25		74.10		91.37		132.87
SNL Bank NASDAQ		100.00		81.12		95.71		84.92		101.22		145.48

The above graph and related information is not deemed to be “soliciting material” or “filed” with the SEC or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent we specifically request that it be treated as soliciting material or specifically incorporate it by reference into such filings.

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Item 6. Selected Financial Data

The table that follows should be read in conjunction with our financial statements, together with the related notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operation, all of which are contained elsewhere in this report. The financial information in the table is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this report.

	At or For The Year Ended December 31,
($ in thousands, except per share data)	2013			2012		2011		2010			2009
Financial Condition Data:
Total assets	$	1,567,796		$	1,665,792	$	1,969,540	$	2,070,868		$	2,401,204
Cash and cash equivalents		24,700			60,395		29,863		23,911			7,977
Securities held to maturity, net		383,937			443,777		700,444		614,335			634,856
Loans receivable, net of deferred fees		1,127,522			1,107,466		1,163,790		1,337,326			1,686,164
Allowance for loan losses		27,833			28,103		30,415		34,840			32,640
Checking and savings deposits		33,069			29,916		24,122		24,398			24,228
Money market deposits		367,384			395,825		438,731		436,740			496,065
Certificates of deposits		791,244			858,989		1,071,352		1,145,796			1,339,574
Brokered certificates of deposits		90,535			77,889		127,819		159,149			170,117
Total deposits		1,282,232			1,362,619		1,662,024		1,766,083			2,029,984
Borrowed funds and related accrued interest payable		57,570			62,930		78,606		84,676			118,552
Available lines of credit		427,000			512,000		761,000		688,000			581,000
Preferred equity		—			24,624		24,238		23,852			23,466
Common equity		196,991			186,323		173,293		162,108			190,588
Asset Quality Data:
Nonaccrual loans	$	35,903		$	45,898	$	57,240	$	52,923		$	123,877
Foreclosed real estate, net of valuation allowance		10,669			15,923		28,278		27,064			31,866
Investment securities on a cash basis		—			3,721		4,378		2,318			1,385
Accruing troubled debt restructured loans		13,429			20,076		9,030		3,632			97,311
Loans 90 days past due and still accruing		4,087			4,391		1,925		7,481			6,800
Loan chargeoffs		1,938			3,152		9,598		100,146			8,103
Loan recoveries		2,218			840		155		883			1,354
Real estate chargeoffs		4,427			4,766		—		15,614			—
Impairment writedowns on security investments		964			582		201		1,192			2,258
Operations Data:
Interest and dividend income	$	63,616		$	77,284	$	92,837	$	107,072		$	123,598
Interest expense		27,110			38,067		50,540		62,692			81,000
Net interest and dividend income		36,506			39,217		42,297		44,380			42,598
(Credit) provision for loan losses		(550	)		—		5,018		101,463			10,865
Net interest and dividend income (expense) after (credit) provision for loan losses		37,056			39,217		37,279		(57,083	)		31,733
Noninterest income		4,946			6,194		4,308		2,110			297
Noninterest expenses:
Provision for real estate losses		1,105			4,068		3,349		15,509			2,275
Real estate (income) expenses (1)		(836	)		2,146		1,619		4,105			4,945
Operating expenses		15,584			16,668		15,861		19,069			19,864
Earnings (loss) before income taxes		26,149			22,529		20,758		(93,656	)		4,946
Provision (benefit) for income taxes		11,655			10,307		9,512		(40,348	)		1,816
Net earnings (loss) before preferred dividend requirements		14,494			12,222		11,246		(53,308	)		3,130
Preferred dividend requirements (2)		1,057			1,801		1,730		1,667			1,632
Net earnings (loss) available to common stockholders	$	13,437		$	10,421	$	9,516	$	(54,975	)	$	1,498
Per Common Share Data:
Basic earnings (loss) per share	$	0.61		$	0.48	$	0.45	$	(4.95	)	$	0.18
Diluted earnings (loss) per share		0.61			0.48		0.45		(4.95	)		0.18
Cash dividends per share		—			—		—		—			—
Book value per share (3)		8.99			8.44		8.07		7.61			23.04
Market price per share		7.51			3.89		2.65		2.93			3.28

(1) Real estate expenses are comprised of expenditures consisting of real estate taxes, insurance, utilities and other charges required to protect our interest in real estate acquired through foreclosure and properties collateralizing our nonaccrual loans.

(2) Represents dividend requirements on outstanding preferred stock and amortization of related preferred stock discount. All preferred stock was repurchased or redeemed and retired during 2013.

(3) Represents common stockholders’ equity (less preferred dividends in arrears of $4.2 million, $2.8 million and $1.4 million at December 31, 2012, 2011 and 2010, respectively) divided by common shares outstanding.

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Item 6. Selected Financial Data, Continued

	At or For The Year Ended December 31,
($ in thousands)	2013			2012			2011			2010			2009
Other Data and Ratios:
Common shares outstanding		21,918,623			21,589,589			21,125,289			21,126,489			8,270,812
Common stock warrants and options outstanding		1,041,445			1,078,122			1,085,622			1,045,422			1,019,722
Average common shares outstanding used to calculate:
Basic earnings (loss) per common share		21,894,030			21,566,009			21,126,187			11,101,196			8,270,812
Diluted earnings (loss) per common share		21,993,626			21,568,196			21,126,187			11,101,196			8,270,812
Adjusted net earnings (loss) used for diluted earnings (loss) per common share	$	13,437		$	10,421		$	9,516		$	(54,975	)	$	1,498
Net interest margin		2.39	%		2.29	%		2.18	%		2.11	%		1.83	%
Return on average assets		0.90	%		0.66	%		0.56	%		-2.42	%		0.13	%
Return on average common equity		7.58	%		6.82	%		6.74	%		-32.20	%		1.65	%
Noninterest income to average assets		0.31	%		0.34	%		0.21	%		0.10	%		0.01	%
Noninterest expenses to average assets (4)		0.97	%		0.91	%		0.78	%		0.87	%		0.84	%
Nonperforming assets to total assets		2.97	%		3.93	%		4.56	%		3.97	%		6.54	%
Nonaccrual loans to total gross loans		3.17	%		4.13	%		4.90	%		3.94	%		7.31	%
Loans, net of unearned income to deposits		88	%		81	%		70	%		76	%		83	%
Loans, net of unearned income to deposits (bank only)		84	%		77	%		67	%		72	%		79	%
Allowance for loan losses to total net loans		2.47	%		2.54	%		2.61	%		2.61	%		1.94	%
Allowance for loan losses to nonaccrual loans		78	%		61	%		53	%		66	%		26	%
Efficiency ratio (5)		38	%		37	%		34	%		41	%		46	%
Average stockholders’ equity to average total assets		12.81	%		11.07	%		9.43	%		8.60	%		9.03	%
Stockholders’ equity to total assets		12.56	%		12.66	%		10.03	%		8.98	%		8.91	%
Tier 1 capital to average assets		15.46	%		14.71	%		11.56	%		10.06	%		11.17	%
Tier 1 capital to risk-weighted assets		19.95	%		20.15	%		16.58	%		13.56	%		14.18	%
Total capital to risk-weighted assets		21.21	%		21.41	%		17.84	%		14.83	%		15.44	%

(4) For purposes of this calculation, noninterest expenses exclude real estate expenses and provisions for real estate losses.

(5) Defined as noninterest expenses (excluding provisions for real estate losses and real estate expenses) as a percentage of net interest and dividend income plus noninterest income.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Intervest Bancshares Corporation (“IBC”) is the parent company of Intervest National Bank (“INB”). References in this report to “we,” “us” and “our” refer to these entities on a consolidated basis, unless otherwise specified. This section presents discussion and analysis of our financial condition at December 31, 2013 and 2012, and our results of operations for each of the three years in the period ended December 31, 2013. This section should be read in conjunction with our accompanying financial statements and related footnotes in this report. For a detailed discussion of our business, see Item 1 “Business” in this report.

Critical Accounting Policies

Overview. The preparation of our financial statements and the information included in management’s discussion and analysis is governed by policies that are based on accounting principles generally accepted in the United States (otherwise known as “GAAP”) and general practices within the banking industry. The financial information contained in our financial statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. In addition, GAAP itself may change from one previously acceptable method to another method.

An accounting policy is deemed to be “critical” if it is important to a company’s results of operations and financial condition, and requires significant judgment and estimates on the part of management in its application. The preparation of financial statements and related disclosures in conformity with GAAP requires us to make estimates and assumptions that affect certain amounts reported in our financial statements and related disclosures. Actual results could differ from these estimates and assumptions. We believe that the estimates and assumptions used in connection with the amounts reported in our financial statements and related disclosures contained herein are reasonable and made in good faith.

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We consider our current critical accounting policies to be those that relate to the determination of the following: our allowance for loan losses; our 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. Each item is highly susceptible to change from period to period and requires us to make numerous assumptions about a variety of information that directly affect the calculation of the amounts reported in our financial statements. For example, the impact of a large unexpected chargeoff could deplete the allowance for loan losses and potentially require us to record increased loan loss provisions to replenish the allowance, which would negatively affect our operating results and financial condition.

Allowance for Loan Losses. The amount of the allowance for loan losses reflects our judgment as to the estimated credit losses that may result from defaults in our loan portfolio. The allowance is established through a loan loss provision charged to expense. Loans are charged off against the allowance when we believe that of any portion of the outstanding principal amount of the loan will not be collected and is confirmed as a loss. Subsequent recoveries of previous chargeoffs are added back to the allowance. We evaluate the adequacy of the allowance at least quarterly or more frequently when necessary. This evaluation is inherently subjective as it requires us to make estimates that are susceptible to significant revision as more information becomes available to us. The allowance for loan losses consists of a general and specific component as follows.

General Component. The general component of the allowance relates to our loans that are not impaired and it is based on a number of factors that begin with our actual historical loan loss experience by major loan category expressed as a percentage of outstanding loans. In determining this historical loss rate, we review our charge off history generally over a 5 year look-back period. This history excludes losses that arose from a bulk sale in May 2010, which comprised the sale of a large number of our problem assets at sales prices substantially below their appraised values. The assets were sold substantially below their then net carrying values as we were required to expedite the reduction of these assets during a time when the financial markets were volatile and real property values were depressed. We believe the losses from the bulk sale were not indicative of the ultimate losses that may have occurred had the assets been resolved on an individual basis, over time and not on a steeply discounted basis. A transaction, such as this one, that is unusual and deemed not reflective of normal charge-off history can be excluded from an historical analysis. Because our actual loss experience by itself may not adequately predict the level of losses inherent in the current portfolio, we then also review other qualitative factors to determine if our historical loss rate should be increased or decreased based upon a review of those factors. Our evaluation considers the following qualitative factors and such discussion should be read in conjunction with the section “Lending Activities” in Item 1 “Business” of this report.

(i) Size of our loans. Our loan portfolio has many individual loans with large principal balances, which increases the risk profile of the portfolio because the default of a large loan may have a greater negative impact on our lending losses.

(ii) Concentrations of our loans. Our loan portfolio is concentrated in loans secured by commercial and multifamily real estate, including some properties that are vacant or substantially vacant and vacant land, all of which are generally considered to have more credit risk than traditional 1-4 family residential lending. The properties that collateralize our loans are also concentrated in two states, New York and Florida, and many are also located in geographical areas that are considered secondary and tertiary markets, and/or are being revitalized or redeveloped, which areas are negatively impacted to a greater degree in an economic downturn. These concentrations increase the risk profile of our loan portfolio.

(iii) Changes in the quality of our review of specific problem loans, including loans on nonaccrual status, and estimates of fair value of the underlying properties. We consider the effectiveness of our internal procedures for monitoring loans and how they may impact our historical loss rate. When a loan experiences payment problems, an internal review is initiated to re-evaluate the loan’s internal credit rating. We also engage an independent third party to perform quarterly reviews of the entire loan portfolio, which includes all problem loans. Our loans are downgraded or upgraded based on known facts and circumstances at the time of review, which includes the review of rent rolls, financial statements and strength of borrower’s repayment sources and a physical inspection and a determination of the estimated fair value of the collateral property. We also take into consideration the nature and extent of personal guarantees and global cash flow analysis in determining credit ratings for our loans.

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We estimate the fair value of the properties that collateralize our loans based on a variety of information, including third party appraisals and our management’s judgment of other factors. Our internal policy is to obtain externally prepared appraisals (or in limited cases indications of value from licensed appraisers or local real estate brokers) as follows: for all impaired loans; for restructured or renewed loans; upon classification or downgrade of a loan; upon accepting a deed in lieu of foreclosure; upon transfer of a loan to foreclosed real estate; and at least annually thereafter for all of our substandard rated loans and real estate owned through foreclosure. In addition to obtaining appraisals, we also consider the knowledge and experience of our two senior lending officers related to values of properties in our geographical market areas. They take into account various information, including: local and national real estate market data provided by third parties; the consideration of the type, condition, location and occupancy of the specific collateral property as well as the current economic conditions and demand for the specific property in the area the property is located in assessing our internal estimates of fair value. Additionally, we require that all third-party appraisals we receive be reviewed by a different external appraiser for reasonableness. We believe all the above steps are effective and help mitigate the risk profile of our loan portfolio.

(iv) Changes in the volume of our past due loans, nonaccrual loans and adversely classified assets. We continually monitor our level of such assets to determine trends and/or other issues that may impact the risk profile of the loan portfolio. Since 2010, the amount of and volume of new problem assets has declined significantly. When adjusting our historical loss experience, we consider the results of the above analysis.

(v) Adverse situations which may affect our borrowers’ ability to repay. All problem loans are reviewed individually based on the facts and circumstances known to us at that time. An assessment is made as to whether there are specific issues unique to each loan or borrower that caused the problem or whether such issues identified are generic/systemic to the entire or a large portion of the loan portfolio and as such increase the risk profile of the loan portfolio. When adjusting our historical loss experience, we consider the results of the above assessments.

(vi) Changes in national, regional and local economic and business conditions and other developments that may affect the collectability of our loan portfolio, including impacts of political, regulatory, legal and competitive changes on the portfolio. We continually monitor real estate market and economic conditions, both locally in our lending areas and on a national level. The monitoring process is done through the review of various publications, discussions with brokers and existing customers and analysis of market rents. Political and regulatory issues, including armed conflicts and acts of terrorism, or natural disasters such as hurricanes, may have an adverse impact on economic conditions as a whole and may be more pronounced on loans in specific geographic regions. When adjusting our historical loss experience, we consider the results of the above assessments.

(vii) Changes to our lending policies and procedures, underwriting standards, risk selection (loan volumes and loan terms) and to our collection, loan chargeoff and recovery practices. We continually review our lending policies, procedures and practices and take into account their effectiveness. Among other things, we have: detailed policy guidelines for acceptable debt service coverage ratios based on the length of amortization periods; detailed requirements for personal guarantees; a formal credit approval process; a loan presentation format for the Loan Committee to clearly identify any policy exceptions; reports to identify concentration risks and track a loan’s financial or performance data; a troubled debt loan restructuring (TDR) policy for identifying borrowers experiencing financial difficulties; a loan credit grading policy and appraisal requirement policy, including timeframes for ordering new appraisals; and a formal third-party review process for all appraisals. We believe all of the above steps are effective and help mitigate the risk profile of our loan portfolio.

(viii) Changes in the experience, ability and depth of our lending management and other relevant staff. INB’s Chief Credit Officer has 25 years of experience and reviews the assignment of credit ratings for all of our loans. He also attends all loan committee meetings and provides his input. We have loan relationship managers who are dedicated to monitoring our loans. The above coupled with the substantial experience of our two senior lending officers (our Chairman and INB’s President) in commercial and multifamily real estate lending have had a positive effect on this qualitative factor. We also believe there is substantial experience on our lending and underwriting staff and on our Loan Committee, which also helps mitigate the risk profile of our loan portfolio.

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Specific Component - This portion of the allowance relates to loans that are impaired. A loan is normally deemed impaired when, based upon current information or events known to us, it is probable that we will be unable to collect both principal and interest due according to the contractual terms of the loan agreement. We consider a variety of factors in determining whether a loan is impaired, including (i) any notice from the borrower that the borrower will be unable to repay all principal and interest amounts contractually due under the loan agreement, (ii) any delinquency in the principal and/or interest payments other than minimal delays or shortfalls in payments, and (iii) other information known by us that would indicate the full repayment of principal and interest is not probable. We generally consider delinquencies of 60 days or less to be minimal delays, and accordingly do not consider such delinquent loans to be impaired in the absence of other indications.

Our impaired loans normally consist of loans on nonaccrual status and those classified as TDRs. Generally, 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 confirmed as a loss. The net carrying amount of an impaired loan (net of the valuation allowance) does not at any time exceed our recorded investment in the loan.

Valuation Allowance for Real Estate Losses. We maintain a valuation allowance for real estate we acquired through foreclosure (“REO”). We estimate the fair value of REO in the same manner as impaired loans. We periodically adjust the carrying values of REO to reflect any decreases in their estimated fair values resulting from changing market conditions through an increase to the valuation allowance and a charge to the provision for real estate losses.

Summary. We believe, based on information known to us as of the date of calculation that the level of our allowance for loan losses and valuation allowance for real estate losses was adequate to cover estimated losses in our loan and REO portfolios. Although we believe we use the best information available to make determinations with respect to these allowances, future adjustments to one or both allowances may be necessary if facts and circumstances differ from those previously assumed in their determination. Additionally, our regulators, as an integral part of their examination process, periodically review both of these allowances based on the regulators’ judgment concerning information available to them during their examination process as well as other factors they utilize for all banks. Accordingly, they may require us to take certain chargeoffs and/or recognize additions to the allowances based on their judgments.

Other Than Temporary Impairment Charges on Security Investments. For a discussion of the factors and estimates used in assessing for and computing other than temporary impairment charges on our security investments, see notes 1 and 2 to the financial statements in this report.

Valuation Allowance for Deferred Tax Assets. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance may be established. We need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets, including projections of future taxable income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors change. A valuation allowance for deferred tax assets may be required if the amounts of taxes recoverable change. Such a valuation allowance would be established through a charge to income tax expense that would adversely affect our operating results.

For a summary of our other significant accounting policies, see note 1 to the financial statements in this report.

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Overview of Our Financial Results

• Our net earnings available to common stockholders increased to $13.4 million or $0.61 per share in 2013, from $10.4 million or $0.48 per share in 2012 and $9.5 million or $0.45 per share in 2011.

• Our net interest and dividend income decreased to $36.5 million in 2013, from $39.2 million in 2012 and $42.3 million in 2011.

• Our net interest margin increased to 2.39% in 2013, from 2.29% in 2012 and 2.18% in 2011.

• We recorded a credit for loan losses of $0.5 million in 2013, compared to no credit or provision for loan losses in 2012 and a $5.0 million provision for loan losses in 2011.

• Our noninterest income (which includes loan prepayment income and is significant to the total) decreased to $4.9 million in 2013, from $6.2 million in 2012 and $4.3 million in 2011.

• Our provision for real estate losses decreased to $1.1 million in 2013, from $4.1 million in 2012 and $3.3 million in 2011.

• Our real estate expenses, net of rental and other income, totaled $2.1 million in 2012 and $1.6 million in 2011. For 2013, REO activities produced net income of $0.8 million.

• Our operating expenses amounted to $15.6 million in 2013, compared to $16.7 million in 2012 and $15.9 million in 2011.

• Our efficiency ratio (which measures our ability to control our expenses as a percentage of our revenues) continued to be favorable but increased slightly to 38% for 2013, from 37% for 2012 and 34% for 2011.

• Our income tax expense increased to $11.7 million in 2013, from $10.3 million in 2012 and $9.5 million in 2011.

• Preferred dividend requirements decreased to $1.1 million in 2013, from $1.8 million in 2012 and $1.7 million in 2011.

• Our total assets decreased to $1.57 billion at December 31, 2013, from $1.67 billion at December 31, 2012 and $1.97 billion at December 31, 2011.

• Our total loans, net of deferred fees, amounted to $1.13 billion at December 31, 2013, compared to $1.11 billion at December 31, 2012 and $1.16 billion at December 31, 2011.

• New loan originations increased to $303 million in 2013, from $242 million in 2012 and $82 million in 2011.

• Our loans on nonaccrual status decreased to $36 million at December 31, 2013, from $46 million at December 31, 2012 and $57 million at December 31, 2011.

• REO decreased to $11 million at December 31, 2013, from $16 million at December 31, 2012 and $28 million at December 31, 2011.

• Our total deposits decreased to $1.28 billion at December 31, 2013, from $1.36 billion at December 31, 2012 and $1.66 billion at December 31, 2011.

• Our book value per common share increased to $8.99 at December 31, 2013, from $8.44 at December 31, 2012 and $8.07 at December 31, 2011.

Other Developments During 2013

On March 21, 2013, INB’s primary regulator, the Office of the Comptroller of the Currency (the “OCC”), terminated its Formal Agreement with INB. As of that date, INB was no longer subject to the operating restrictions required by that agreement or to the OCC’s heightened regulatory capital requirements (which had been imposed on INB since February 2010). As of December 31, 2013, IBC remained subject to its own written agreement with the Federal Reserve Bank of New York (the “FRB”) and the operating restrictions contained therein, which are discussed in the section “Supervision and Regulation” in this report.

On June 24, 2013, IBC completed the repurchase of 6,250 shares of its Series A Fixed Rate Cumulative Perpetual Preferred Stock (the “Preferred Stock”) from the U.S. Department of the Treasury (the “Treasury”) pursuant to a modified Dutch auction conducted by the Treasury. IBC purchased the shares for an aggregate purchase price of $7.3 million, representing a price of $970.00 per share plus $1.2 million in accumulated and unpaid dividends through the auction closing date. Pursuant to the auction, the Treasury sold all 25,000 shares of Preferred Stock held by it as a result of IBC’s participation in the TARP Capital Purchase Program. The remaining 18,750 shares not purchased by IBC were purchased by unrelated third parties. Upon completion of the auction, IBC ceased to be subject to Treasury’s regulations concerning executive compensation and corporate governance.

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On August 15, 2013, IBC redeemed the remaining 18,750 shares of Preferred Stock for an aggregate purchase price of $22.6 million, which represented the stated liquidation value of $1,000 per share plus $3.9 million of accumulated and unpaid dividends through the redemption date.

IBC obtained all necessary regulatory approvals to complete the repurchase and redemption, and retired all repurchased shares. As of December 31, 2013, the Treasury continued to hold a warrant to purchase 691,882 shares of IBC’s common stock at an exercise price of $5.42 per share.

In the first and second quarters of 2013, INB entered into settlement agreements with respect to certain litigation INB had pursued in connection with foreclosure actions it had commenced in 2010 on several of its loans. INB commenced the actions to collect, in one case, insurance proceeds, which it contended had been improperly paid to various third parties, and in another case, damages due to alleged legal malpractice when the loan was originated. As a result of these settlements, INB received net proceeds totaling $2.7 million and $0.1 million in the first and second quarters of 2013, respectively, which were recorded as $1.2 million of recoveries of prior loan charge offs and $1.6 million of recoveries of prior real estate expenses associated with two loans and underlying collateral property. These transactions contributed to the improvement in our net earnings in 2013.

In December 2013, in anticipation of the requirements of the “Volcker Rule” of the Dodd-Frank Act, INB transferred to available for sale and subsequently sold all (or $2.6 million of the then carrying value) of its investments in corporate TRUPs (which were non-investment grade and other than temporarily impaired by varying degrees since 2008) for a net gain of $1.5 million, which also contributed the improvement in our net earnings in 2013.

Comparison of Financial Condition at December 31, 2013 and 2012

General

Total assets at December 31, 2013 decreased to $1.57 billion from $1.67 billion at December 31, 2012, reflecting decreases of $60 million in security investments and $36 million in cash and short-term investments.

Cash and Cash Equivalents

Cash and cash equivalents decreased to $25 million at December 31, 2013 from $60 million at December 31, 2012. They include interest-bearing and noninterest-bearing cash balances with banks and other short-term investments. The level of cash and cash equivalents fluctuates based on various factors, including our liquidity needs, loan demand, deposit flows, calls of securities, repayments of borrowed funds and alternative investment opportunities. See the section “Liquidity and Capital Resources” in this report for a discussion of our liquidity and funding commitments.

Time Deposits with Banks

Time deposits with banks increased to $5.4 million at December 31, 2013 from $5.2 million at December 31, 2012. These deposits had a weighted-average yield of 1.12% and remaining maturity of 1.7 years as December 31, 2013.

Securities Available for Sale

At December 31, 2013 and 2012, we had securities available for sale with a carrying value of approximately $1.0 million. The investment represented approximately 91,700 and 90,000 shares, respectively, of an intermediate bond fund that holds securities that are deemed to be qualified under the Community Reinvestment Act.

Securities Held to Maturity

Securities held to maturity decreased to $384 million at December 31, 2013 from $444 million at December 31, 2012, reflecting calls of securities exceeding new purchases. Securities are classified as held to maturity (“HTM”) and are carried at amortized cost when INB has the intent and ability to hold them to maturity. INB invests primarily in U.S. government agency debt obligations to emphasize safety and liquidity. See note 2 to the financial statements included in this report and the discussion under the caption entitled “Security Investment Activities” in Item 1 “Business” of this report for information on the HTM portfolio.

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Investments in Federal Reserve Bank of New York and Federal Home Loan Bank of New York Stock

In order for INB to be a member of the FRB and FHLB, INB must maintain an investment in the capital stock of each entity, which amounted to $5.9 million and $2.3 million, respectively, at December 31, 2013. The FRB stock has historically paid a dividend of 6%, while the FHLB stock dividend fluctuates quarterly and was most recently at the rate of 4%. The total required investment fluctuates based on INB’s capital level for the FRB stock and INB’s loans and outstanding FHLB borrowings for the FHLB stock.

Loans Receivable, Net of Unearned Fees

Loans receivable, net of unearned fees, amounted to $1.13 billion at December 31, 2013, compared to $1.11 billion at December 31, 2012. The $20 million increase in loans receivable reflected $302.7 million of new loans and $2.2 million of recoveries of prior charge offs, largely offset by $243.8 million of payoffs, $35.7 million of amortization, $1.9 million of chargeoffs and a $3.0 million transfer to REO. New originations were comprised of $204 million of commercial real estate loans, $59 million of multifamily loans and $36 million of loans secured by investor owned 1-4 family condominiums. New loans in 2013 had a weighted-average rate, term and loan-to-value ratio of 4.53%, 6.8 years and 60%, respectively, compared to 4.87%, 5.8 years and 56%, respectively, for new loans in 2012. Nearly all of the new loans in both periods had fixed interest rates. Loans paid off in 2013 and 2012 had a weighted-average rate of 5.85% and 6.15%, respectively. At December 31, 2013, the loan portfolio was comprised 75% of loans secured by commercial real estate, 19% secured by multifamily properties and 6% by investor owned 1-4 family condominiums. For additional information on and discussion of our loan portfolio, including a discussion of our recent lending trends, see the section entitled “Lending Activities” in Item 1 “Business” and note 3 to the financial statements in this report.

Impaired Loans

Our impaired loans at December 31, 2013 amounted to $57 million, compared to $66 million at December 31, 2012. At December 31, 2013, impaired loans were comprised of 6 nonaccrual loans totaling $35.9 million, one accruing loan of $7.8 million and 6 loans classified as accruing troubled debt restructured loans or “TDRs” totaling $13.4 million. At December 31, 2012, impaired loans consisted of 14 nonaccrual loans totaling $45.9 million and 9 accruing TDRs totaling $20.1 million.

The allowance for loan losses (discussed below) included specific reserves for our impaired loans denoted above at each date (totaling $6.1 million and $5.9 million, respectively). At December 31, 2013, with respect to all of our impaired loans, we had obtained current appraisals of the underlying collateral as follows: 1% dated within the preceding 3 months; 23% dated within the preceding 4-6 months; 20% dated within the preceding 7-9 months; 46% dated within the preceding 10-12 months; and 10% dated over 12 months prior, which was due to one appraisal (for a $5.3 million impaired substandard loan) that was ordered in December 2013 and was not received until February 2014. Our policy is to obtain externally prepared appraisals for all of our substandard-rated impaired loans at least annually.

For additional information on and discussion of our impaired loans see the section entitled “Asset Quality” in Item 1 “Business” and note 3 to the financial statements in this report.

Allowance for Loan Losses

The allowance for loan losses was $27.8 million, or 2.47% of total loans, at December 31, 2013, compared to $28.1 million, or 2.54%, at December 31, 2012. The net decrease in the allowance of $0.3 million was due to $2.2 million of cash recoveries of prior chargeoffs and a $0.5 million credit for loan losses, largely offset by $1.9 million of chargeoffs. The need for a provision or credit for loan losses is based on our quarterly reviews of the adequacy of the allowance for loan losses, which took into consideration, among other factors, the change in our total loans outstanding, recoveries of prior loan charge offs, the quantity and specific review of our substandard loans outstanding, and any credit rating upgrades and downgrades in the loan portfolio.

The charge offs for 2013 were primarily comprised of $1.7 million associated with one nonaccrual loan based on management’s judgment that the estimated market value of the underlying collateral property may not be adequate to support the ultimate collection of the entire principal balance of the loan.

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This loan, which is on a retail property located in Waterbury, Connecticut, had an unpaid principal balance of $4.4 million and a net carrying value of $2.7 million (after the partial charge off) as of December 31, 2013. The borrower continues to make monthly payments on this loan and interest income is being recognized on a cash basis. The remaining chargeoffs of $0.2 million were comprised of $0.1 million associated with a loan transferred to foreclosed real estate and $0.1 million related to one TDR loan that was paid off at a discount to carrying value.

For additional information on and discussion of the allowance for loan losses, see the caption entitled “Allowance for Loan Losses” in Item 1 “Business” and note 4 to the financial statements in this report. For a discussion of the criteria used to determine the adequacy of the allowance for loan losses, see the section entitled “Critical Accounting Policies.”

Foreclosed Real Estate or REO

REO, net of a valuation allowance, decreased to $10.7 million at December 31, 2013, from $15.9 million at December 31, 2012. For additional information on and discussion of REO, see the section entitled “Asset Quality” in Item 1 “Business” and note 6 to the financial statements in this report.

All Other Assets

The following table sets forth a list of our other assets:

	At December 31,
($ in thousands)	2013		2012
Accrued interest receivable	$	4,861	$	5,191
Loan fees receivable		2,298		3,108
Income tax receivable		1,165		405
Premises and equipment, net		4,056		3,878
Deferred income tax asset		18,362		29,234
Deferred debenture offering costs, net		742		779
Investment in unconsolidated subsidiaries		1,702		1,702
Deferred issuance costs from brokered CDs		430		269
Prepaid deposit insurance assessments		21		6,116
All other		585		1,331
	$	34,222	$	52,013

Accrued interest receivable fluctuates based on the level of interest-earning assets and the timing of interest payments received.

Loan fees receivable are fees due to us in accordance with the terms of our mortgage loans. Such amounts are generally due upon the full repayment of the loan. These fees are recorded as deferred income at the time a loan is originated and is then amortized to interest income over the life of the loan as a yield adjustment. The decrease was due to payments exceeding fees charged on new loan originations.

Premises and equipment increased as new purchases exceeded normal depreciation and amortization for the year.

The deferred income tax asset relates to the unrealized benefit for net temporary differences between our financial statement carrying amounts of existing assets and liabilities and their respective tax bases that will result in future income tax deductions. Such items are normally comprised of the allowance for loan losses, valuation allowance for real estate losses and capitalized real estate expenses, all of which will become tax deductible when actual chargeoffs are incurred, and our net operating loss carryforward that can be used to offset future taxable income. The decrease in the deferred tax asset was primarily attributable to the utilization in 2013 of a large portion of our net operating loss carryforward. See note 14 to the financial statements in this report for further information on the deferred tax asset.

Deferred debenture offering costs consist primarily of underwriters’ commissions and are amortized over the terms of the debentures. The net decrease was due to normal amortization.

The investment in unconsolidated subsidiaries consists of IBC’s equity investment in its wholly owned business trusts, Intervest Statutory Trust II, III, IV and V.

Deferred issuance costs from brokered deposits increased due to new issuances, partially offset by amortization. These costs are being amortized to interest expense over the life of the deposits.

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Prepaid deposit insurance assessments decreased due to a cash refund from the FDIC of unused premiums. In December 31, 2009, all insured depository institutions were required to prepay three years of estimated premiums in order to recapitalize the Deposit Insurance Fund. INB prepaid a total of $15.8 million of premiums which was recorded as a prepaid asset and was charged to expense accordingly during the periods to which it related (based on actual premiums assessed by the FDIC). The remaining unused premium was refunded to all depository institutions in June 2013 and INB received its unused portion of $5.6 million on June 28, 2013.

Deposits

Total deposits at December 31, 2013 decreased to $1.28 billion from $1.36 billion at December 31, 2012, primarily reflecting decreases of $55 million in certificate of deposit accounts (CDs) and $28 million in money market deposit accounts. At December 31, 2013, CDs totaled $882 million, and checking, savings and money market accounts aggregated to $400 million. The same categories of deposit accounts totaled $937 million and $426 million, respectively, at December 31, 2012. CDs represented 69% of total deposits at December 31, 2013 and 2012. At December 31, 2013 and 2012, CDs included $91 million and $78 million of brokered deposits, respectively. For additional information on and discussion of deposits, see the sections entitled “Sources of Funds” in Item 1 and “Liquidity and Capital Resources” in Item 7 and of this report.

Borrowed Funds and Related Interest Payable

Borrowed funds and related accrued interest payable decreased to $57.6 million at December 31, 2013 from $62.9 million at December 31, 2012, reflecting the payment, in the second quarter of 2013, of accrued interest payable. For additional information on and discussion of borrowed funds, see notes 8 through 10 to the financial statements in this report, as well as the sections entitled “Sources of Funds” in Item 1 and “Liquidity and Capital Resources” in Item 7 of this report.

All Other Liabilities

The following table sets forth the composition of our other liabilities:

	At December 31,
($ in thousands)	2013		2012
Accrued interest payable on deposits	$	1,508		2,379
Mortgage escrow funds payable		18,879		17,743
Official checks outstanding		7,335		7,003
All other liabilities		3,281		2,171
	$	31,003	$	29,296

Accrued interest payable on deposits fluctuates based on total deposits and the timing of interest payments. The decrease was due to a lower level of deposits. Mortgage escrow funds payable fluctuate based on the level of loans outstanding and other factors and represent advance payments made to us by borrowers for property taxes and insurance that we remit to third parties when due. Official checks outstanding represent checks issued by INB in the normal course of business which fluctuate based on banking activity. All other liabilities are comprised mainly of accrued expenses as well as fees received in connection with loan commitments that have not yet been funded.

Stockholders’ Equity

Stockholders’ equity decreased to $197 million at December 31, 2013 from $211 million at December 31, 2012, reflecting primarily the repurchase of Preferred Stock and payment of $5.1 million of accumulated preferred dividends, partially offset by earnings (before preferred dividend requirements) of $14.5 million. See notes 10 and 11 to the financial statements in this report for a further discussion.

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Comparison of Results of Operations for the Years Ended December 31, 2013 and 2012.

Selected information regarding our results of operations follows:

	For the Year Ended December 31,
($ in thousands)	2013			2012			Change
Interest and dividend income	$	63,616		$	77,284		$	(13,668	)
Interest expense		27,110			38,067			(10,957	)
Net interest and dividend income		36,506			39,217			(2,711	)
Credit for loan losses		(550	)		—			(550	)
Noninterest income		4,946			6,194			(1,248	)
Noninterest expenses:
Provision for real estate losses		1,105			4,068			(2,963	)
Real estate activities (income) expense, net		(836	)		2,146			(2,982	)
Operating expenses		15,584			16,668			(1,084	)
Earnings before provision for income taxes		26,149			22,529			3,620
Provision for income taxes		11,655			10,307			1,348
Net earnings		14,494			12,222			2,272
Preferred dividend requirements and discount amortization (1)		(1,057	)		(1,801	)		744
Net earnings available to common stockholders	$	13,437		$	10,421		$	3,016
Diluted earnings per common share	$	0.61		$	0.48		$	0.13

(1) See note 10 to the financial statements in this report.

Net Interest and Dividend Income

Net interest and dividend income is our primary source of earnings and is influenced by the amount, distribution and repricing characteristics of our interest-earning assets and interest-bearing liabilities, as well as by the relative levels and movements of interest rates. Net interest and dividend income is the difference between interest income earned on our interest-earning assets, such as loans and securities, and interest expense paid on our interest-bearing liabilities, such as deposits and borrowings.

Net interest and dividend income decreased to $36.5 million in 2013 from $39.2 million in 2012. The $2.7 million decrease reflected a smaller average balance sheet, partially offset by an improved net interest margin. The smaller balance sheet contributed to a significant increase in INB’s regulatory capital ratios (prior to a total of $31 million of cash dividends paid by INB to IBC in June and August 2013 to fund the repurchase and redemption of IBC’s preferred stock), but negatively impacted our total net interest and dividend income.

In 2013, our total average interest-earning assets decreased by $187 million from 2012, reflecting decreases of $57 million in average loans and $130 million in average total securities and overnight investments. At the same time, average deposits and borrowed funds decreased by $223 million and $9 million, respectively, while our average stockholders’ equity increased by $2 million. We also had a $47 million decrease in average noninterest-earning assets in 2013 (comprised mainly of cash on hand), which was used to partially fund the net decrease in interest-bearing liabilities.

Our net interest margin improved to 2.39% in 2013 from 2.29% in 2012. The margin benefited from a higher ratio of interest-earning assets to interest-bearing liabilities (or a $44 million increase in net interest-earning assets) and a 6 basis point increase in our interest rate spread. The higher interest rate spread was due to lower rates paid on deposits and the run off of higher-cost maturing CDs and borrowings, largely offset by payoffs of higher yielding loans and calls of higher yielding security investments, coupled with the re-investment of a large portion of these cash inflows into new loans and securities at lower market interest rates.

Overall, our average cost of funds decreased by 40 basis points to 2.00% in 2013, from 2.40% in 2012, while our average yield on interest-earning assets decreased at a slower pace or by 34 basis points to 4.17% in 2013, from 4.51% in 2012.

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The following table provides information on average assets, liabilities and stockholders’ equity; yields earned on interest-earning assets; and rates paid on interest-bearing liabilities for the periods indicated. The yields and rates shown are based on a computation of income/expense (including any related fee income or expense) for each year divided by average interest-earning assets/interest-bearing liabilities during each year. Average balances are derived from daily balances. Net interest margin is computed by dividing net interest and dividend income by the average of total interest-earning assets during each year. The interest rate spread is the difference between the yield earned on interest-earning assets and the rate paid on interest-bearing liabilities. The net interest margin is greater than the interest rate spread due to the additional income earned on those assets funded by non-interest-bearing liabilities, demand deposits and stockholders’ equity.

	For the Year Ended December 31,
	2013								2012
	Average			Interest		Yield/			Average			Interest		Yield/
($ in thousands)	Balance			Inc./Exp.		Rate			Balance			Inc./Exp.		Rate
Interest-earning assets:
Commercial real estate loans	$	817,323		$	44,656		5.46	%	$	865,576		$	52,784		6.10	%
Multifamily loans		205,610			10,452		5.08			246,537			14,610		5.93
1-4 family loans		61,300			3,506		5.72			26,021			1,524		5.86
Land loans		6,588			386		5.86			9,706			666		6.86
All other loans		1,408			74		5.26			1,849			95		5.14
Total loans (1)		1,092,229			59,074		5.42			1,149,689			69,679		6.06
U.S. government agencies securities		333,008			2,977		0.89			480,919			6,272		1.30
Residential mortgage-backed securities		77,763			996		1.28			61,630			738		1.20
State and municipal securities (1)		532			7		1.32			312			4		1.28
Corporate securities (1)		3,016			22		0.73			4,243			52		1.23
Mutual funds and other equity securities		1,011			21		2.08			38			1		2.63
FRB and FHLB stock		8,228			450		5.47			8,635			492		5.70
Total securities		423,558			4,473		1.06			555,777			7,559		1.36
Other interest-earning assets		10,972			69		0.63			8,273			46		0.56
Total interest-earning assets		1,526,759		$	63,616		4.17	%		1,713,739		$	77,284		4.51	%
Noninterest-earning assets		78,676								125,988
Total assets	$	1,605,435							$	1,839,727
Interest-bearing liabilities:
Interest checking deposits	$	15,753		$	65		0.41	%	$	13,032		$	65		0.50	%
Savings deposits		9,725			29		0.30			9,294			34		0.37
Money market deposits		376,468			1,530		0.41			424,949			2,142		0.50
Certificates of deposit		898,052			23,806		2.65			1,075,350			33,590		3.12
Total deposit accounts		1,299,998			25,430		1.96			1,522,625			35,831		2.35
FHLB advances		295			1		0.34			9,087			388		4.27
Debentures - capital securities		56,702			1,679		2.96			56,702			1,848		3.26
Total borrowed funds		56,997			1,680		2.95			65,789			2,236		3.40
Total interest-bearing liabilities		1,356,995			27,110		2.00	%		1,588,414			38,067		2.40	%
Noninterest-bearing deposits		5,096								4,503
Noninterest-bearing liabilities		37,709								43,163
Preferred stockholder’s equity		14,457								24,419
Common stockholders’ equity		191,178								179,228
Total liabilities and stockholders’ equity	$	1,605,435							$	1,839,727
Net interest and dividend income/spread				$	36,506		2.17	%				$	39,217		2.11	%
Net interest-earning assets/margin (2)	$	169,764					2.39	%	$	125,325					2.29	%
Ratio of total interest-earning assets to total interest-bearing liabilities		1.13	x							1.08	x
Return on average assets		0.90	%							0.66	%
Return on average common equity		7.58	%							6.82	%
Noninterest expenses to average assets (3)		0.97	%							0.91	%
Efficiency ratio (4)		38	%							37	%
Average stockholders’ equity to average assets		12.81	%							11.07	%

(1) Includes average nonaccrual loans of $40 million in 2013 and $52 million in 2012. Interest not recorded on such loans totaled $0.1 million in 2013 and $0.6 million in 2012. Total loan fees, net of direct origination costs, amortized and included in interest income amounted to $1.6 million in 2013 and $2.2 million in 2012. Interest income on corporate securities was recognized on a cash basis as described in note 2 to the financial statements in this report. Income from state and municipal securities was taxable.

(2) Net interest margin is reported exclusive of income from loan prepayments, which is reported as a component of noninterest income. Inclusive of income from loan prepayments, the margin would compute to 2.56% and 2.59% for 2013 and 2012, respectively.

(3) Noninterest expenses for this ratio excludes provisions for loan and real estate losses and real estate activities (income) expenses, net.

(4) Defined as noninterest expenses (excluding the provisions for loan and real estate losses and real estate activities (income) expense, net) as a percentage of net interest and dividend income plus noninterest income.

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The following table provides information regarding changes in interest and dividend income and interest expense. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (change in rate multiplied by prior volume), (2) changes in volume (change in volume multiplied by prior rate) and (3) changes in rate-volume (change in rate multiplied by change in volume).

	For the Year Ended December 31, 2013 vs. 2012
	Increase (Decrease) Due To Change In:
($ in thousands)	Rate			Volume			Rate/Volume			Total
Interest-earning assets:
Loans	$	(7,767	)	$	(3,540	)	$	702		$	(10,605	)
Securities		(1,965	)		(1,713	)		592			(3,086	)
Other interest-earning assets		6			15			2			23
Total interest-earning assets		(9,726	)		(5,238	)		1,296			(13,668	)
Interest-bearing liabilities:
Interest checking deposits		(12	)		14			(2	)		—
Savings deposits		(7	)		2			—			(5	)
Money market deposits		(382	)		(242	)		12			(612	)
Certificates of deposit		(5,054	)		(5,532	)		802			(9,784	)
Total deposit accounts		(5,455	)		(5,758	)		812			(10,401	)
FHLB advances		(357	)		(375	)		345			(387	)
Debentures - capital securities		(170	)		—			1			(169	)
Total borrowed funds		(527	)		(375	)		346			(556	)
Total interest-bearing liabilities		(5,982	)		(6,133	)		1,158			(10,957	)
Net change in interest and dividend income	$	(3,744	)	$	895		$	138		$	(2,711	)

Provision for Loan Losses

We determine on a quarterly basis the need for a provision or (credit) for loan losses based on our review of the adequacy of the allowance for loan losses. A more detailed discussion of the factors and estimates we use in determining the adequacy of the allowance for loan losses can be found under the caption “Critical Accounting Policies” in this report.

For 2013, our reviews resulted in a net credit for loan losses of $0.5 million, compared to no credit or provision for loan losses in 2012. The credit for 2013 was primarily a function of $2.2 million of cash recoveries of prior charge offs exceeding current charge offs of $1.9 million and the positive impact of an improvement in the qualitative factors we use in the determination of the general component of the allowance for loan losses, partially offset by the impact of an increase in our loan portfolio during 2013 (which generally requires the need to increase the allowance). See note 16 to the financial statements in this report for a detailed discussion of the above recoveries.

Noninterest Income

Noninterest income decreased by $1.3 million to $4.9 million in 2013 and is summarized as follows:

	For the Year Ended December 31,
($ in thousands)	2013			2012
Customer service fees	$	372		$	473
Income from mortgage lending activities and all other fees (1)		1,467			1,169
Income from the early repayment of mortgage loans (2)		2,590			5,134
Gain on sale of securities available for sale		1,481			—
Impairment writedowns on investments securities (3)		(964	)		(582	)
	$	4,946		$	6,194

(1) Consists mostly of fees from expired loan commitments and loan servicing, maintenance and inspection charges.

(2) Consists of the recognition of unearned fees associated with such loans at the time of payoff and the receipt of prepayment penalties and interest in certain cases.

(3) Consists of other than temporary impairment charges on trust preferred security investments (which are discussed in more detail in note 2 to the financial statements in this report).

The decrease in noninterest income was primarily due to a $2.2 million net decrease in total income from loan prepayments and other lending fees, and a $0.4 million increase in security impairment charges, partially offset by a $1.5 million gain from the sale of impaired investment securities. See note 2 to the financial statements in this report for a discussion of the above gain and impairment charges. At December 31, 2013, we had no securities considered impaired.

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Noninterest Expenses

The provision for real estate losses decreased to $1.1 million in 2013, from $4.1 million in 2012. The provisions are a result of our periodic review of the estimated market values of the properties we own through foreclosure, which required a lower level of provisions in 2013. The provisions for each year were a function of lower estimated values on several properties owned during the reporting periods. See the section entitled “Asset Quality” in Item 1 “Business” of this report for a list of real estate owned and their related net carrying values.

Real estate activities (income) expense, net amounted to ($0.8) million of net income in 2013, compared to $2.1 million of net expense in 2012. This category comprises expenses (net of rental and other income generated from the property) such as real estate taxes, insurance, utilities and other charges, required in protecting our interest in real estate acquired through foreclosure and various properties collateralizing our nonaccrual loans. The net income for 2013 was largely due to $0.9 million of gains from the sale of four properties and $1.6 million of cash recoveries of expenses associated with previously owned properties. Exclusive of these income items, net expenses would have been $1.7 million in 2013, or $0.4 million less as compared to 2012 due to a lower level of real estate owned.

Operating expenses are summarized as follows:

	For the Year Ended December 31,				Change
($ in thousands)	2013		2012
Salaries and employee benefits	$	7,458	$	7,122	$	336
Stock compensation expense for employees and directors		823		1,194		(371	)
Occupancy and equipment, net		2,184		2,059		125
FDIC insurance		1,451		2,352		(901	)
Professional fees and services		1,407		1,576		(169	)
General insurance		618		579		39
Data processing		355		370		(15	)
Director and committee fees		353		413		(60	)
Stationery, printing, supplies, postage and delivery		287		266		21
Loss on early extinguishment of debt		—		177		(177	)
All other expenses		648		560		88
	$	15,584	$	16,668	$	(1,084	)

Salaries and employee benefits increased primarily due to normal salary increases and cost of increased staff ($0.5 million) and a higher cost of employee benefits ($0.1 million), partially offset by a higher level of direct fee income ($0.2 million) from increased loan origination volume. Direct fee income offsets our direct loan origination costs, which include only that portion of our payroll costs, including fringe benefits, directly related to time spent performing the necessary activities to originate a specific loan. We employed 81 people at December 31, 2013 versus 78 at December 31, 2012. Our efficiency ratio, which is a measure of our ability to control expenses, was 38% for 2013, compared to 37% for 2012.

Stock compensation expense decreased primarily due to the impact of a stock award made in January 2012 to our non-employee directors which had a one-year vesting period and therefore had a greater impact on expense in 2012 versus the stock award made in 2013, which had a three-year vesting period. For additional information on our outstanding equity awards, see note 13 to the financial statements in this report as well as the “Comparison of Results of Operations for the Years Ended December 31, 2012 and 2011”.

Occupancy and equipment expense increased due to a higher level of rent expense for our Rockefeller center office. Professional fees and services expense decreased primarily due to a lower level of OCC regulatory assessment fees resulting from an improved regulatory risk rating in 2013. FDIC insurance expense decreased due to a smaller balance sheet and an improved FDIC risk assessment rating in 2013. The loss on early extinguishment of debt in 2012 represented a prepayment penalty associated with the early retirement of FHLB advances totaling to $7.0 million (repaid with cash on hand prior to their stated maturity).

Provision for Income Taxes

We recorded a provision for income tax expense of $11.7 million on pre-tax income of $26.1 million in 2013, compared to a provision of $10.3 million on pre-tax income of $22.5 million in 2012. Our effective tax rate (inclusive of state and local taxes) was 45% in 2013 and 46% in 2012.

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The provision for income tax expense reflected the partial utilization of our deferred tax asset. For additional information on our deferred tax asset, see note 14 to the financial statements in this report.

Preferred Dividend Requirements and Discount Amortization

The decrease in this line item reflected the repurchase and redemption of IBC’s Preferred Stock during June and August of 2013. These shares were retired during 2013.

Comparison of Results of Operations for the Years Ended December 31, 2012 and 2011.

Selected information regarding our results of operations follows:

	For the Year Ended December 31
($ in thousands)	2012			2011			Change
Interest and dividend income	$	77,284		$	92,837		$	(15,553	)
Interest expense		38,067			50,540			(12,473	)
Net interest and dividend income		39,217			42,297			(3,080	)
Provision for loan losses		—			5,018			(5,018	)
Noninterest income		6,194			4,308			1,886
Noninterest expenses:
Provision for real estate losses		4,068			3,349			719
Real estate activities expense, net		2,146			1,619			527
Operating expenses		16,668			15,861			807
Earnings before provision for income taxes		22,529			20,758			1,771
Provision for income taxes		10,307			9,512			795
Net earnings		12,222			11,246			976
Preferred dividend requirements and discount amortization (1)		(1,801	)		(1,730	)		(71	)
Net earnings available to common stockholders	$	10,421		$	9,516		$	905
Diluted earnings per common share	$	0.48		$	0.45		$	0.03

(1) See note 10 to the financial statements in this report.

Net Interest and Dividend Income

Net interest and dividend income is our primary source of earnings and is influenced by the amount, distribution and repricing characteristics of our interest-earning assets and interest-bearing liabilities as well as by the relative levels and movements of interest rates. Net interest and dividend income is the difference between interest income earned on our interest-earning assets, such as loans and securities, and interest expense paid on our interest-bearing liabilities, such as deposits and borrowings.

Our net interest and dividend income decreased to $39.2 million in 2012 from $42.3 million in 2011. The $3.1 million decrease largely reflected a planned reduction in the size of INB’s balance sheet. In 2012, our total average interest-earning assets decreased by $222 million from 2011, reflecting decreases of $109 million in average loans and $113 million in average total securities and overnight investments. At the same time, average deposits and borrowed funds decreased by $185 million and $12 million, respectively, while our average stockholders’ equity increased by $13 million. The reduction in the balance sheet positively impacted our regulatory capital ratios, but negatively impacted our total net interest and dividend income.

Our net interest margin increased to 2.29% in 2012 from 2.18% in 2011. The margin benefited from an improved interest rate spread, partially offset by a $25 million decrease in net average interest-earning assets due to a higher level of cash on hand. The interest rate spread improved by 14 basis points due to a steady reduction in the rates we paid on deposits and the run off of higher-cost maturing CDs and borrowings, largely offset by payoffs of higher yielding loans and calls of higher yielding security investments, coupled with the re-investment of a large portion of these cash inflows into new loans and securities at lower market interest rates. Overall, our average cost of funds decreased by 43 basis points to 2.40% in 2012, from 2.83% in 2011, while our average yield on interest-earning assets decreased at a slower pace or by 29 basis points to 4.51% in 2012, from 4.80% in 2011.

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The following table provides information on average assets, liabilities and stockholders’ equity; yields earned on interest-earning assets; and rates paid on interest-bearing liabilities for the periods indicated. The yields and rates shown are based on a computation of income/expense (including any related fee income or expense) for each year divided by average interest-earning assets/interest-bearing liabilities during each year. Average balances are derived from daily balances. Net interest margin is computed by dividing net interest and dividend income by the average of total interest-earning assets during each year. The interest rate spread is the difference between the yield earned on interest-earning assets and the rate paid on interest-bearing liabilities. The net interest margin is greater than the interest rate spread due to the additional income earned on those assets funded by non-interest-bearing liabilities, demand deposits and stockholders’ equity.

	For the Year Ended December 31,
	2012								2011
	Average			Interest		Yield/			Average			Interest		Yield/
($ in thousands)	Balance			Inc./Exp.		Rate			Balance			Inc./Exp.		Rate
Interest-earning assets:
Commercial real estate loans	$	865,576		$	52,784		6.10	%	$	905,082		$	58,469		6.46	%
Multifamily loans		246,537			14,610		5.93			333,478			21,425		6.42
1-4 family loans		26,021			1,524		5.86			6,336			381		6.01
Land loans		9,706			666		6.86			11,822			826		6.99
All other loans		1,849			95		5.14			1,736			84		4.84
Total loans (1)		1,149,689			69,679		6.06			1,258,454			81,185		6.45
U.S. government agencies securities		480,919			6,272		1.30			651,602			11,046		1.70
Residential mortgage-backed securities		61,630			738		1.20			—			—		—
State and municipal securities		312			4		1.28			—			—		—
Corporate securities (1)		4,243			52		1.23			4,478			48		1.07
Mutual funds and other equity securities (1)		38			1		2.63			—			—		—
FRB and FHLB stock		8,635			492		5.70			9,528			539		5.66
Total securities		555,777			7,559		1.36			665,608			11,633		1.75
Other interest-earning assets		8,273			46		0.56			11,806			19		0.16
Total interest-earning assets		1,713,739		$	77,284		4.51	%		1,935,868		$	92,837		4.80	%
Noninterest-earning assets		125,988								88,089
Total assets	$	1,839,727							$	2,023,957
Interest-bearing liabilities:
Interest checking deposits	$	13,032		$	65		0.50	%	$	10,381		$	79		0.76	%
Savings deposits		9,294			34		0.37			9,285			58		0.62
Money market deposits		424,949			2,142		0.50			432,729			3,669		0.85
Certificates of deposit		1,075,350			33,590		3.12			1,254,755			43,776		3.49
Total deposit accounts		1,522,625			35,831		2.35			1,707,150			47,582		2.79
FHLB advances		9,087			388		4.27			21,574			885		4.10
Debentures - capital securities		56,702			1,848		3.26			56,702			2,072		3.65
Mortgage note payable		—			—		—			22			1		4.55
Total borrowed funds		65,789			2,236		3.40			78,298			2,958		3.78
Total interest-bearing liabilities		1,588,414			38,067		2.40	%		1,785,448			50,540		2.83	%
Noninterest-bearing deposits		4,503								4,293
Noninterest-bearing liabilities		43,163								43,262
Preferred stockholder’s equity		24,419								24,041
Common stockholders’ equity		179,228								166,913
Total liabilities and stockholders’ equity	$	1,839,727							$	2,023,957
Net interest and dividend income/spread				$	39,217		2.11	%				$	42,297		1.97	%
Net interest-earning assets/margin (2)	$	125,325					2.29	%	$	150,420					2.18	%
Ratio of total interest-earning assets to total interest-bearing liabilities		1.08	x							1.08	x
Return on average assets		0.66	%							0.56	%
Return on average common equity		6.82	%							6.74	%
Noninterest expenses to average assets (3)		0.91	%							0.78	%
Efficiency ratio (4)		37	%							34	%
Average stockholders’ equity to average assets		11.07	%							9.43	%

(1) Includes average nonaccrual loans of $52 million in 2012 and $51 million in 2011. Interest not recorded on such loans totaled $0.6 million in 2012 and $0.8 million in 2011. Total loan fees, net of direct origination costs, amortized and included in interest income amounted to $2.2 million in 2012 and $2.8 million in 2011. Interest income on corporate securities was recognized on a cash basis as described in note 2 to the financial statements in this report. Income from state and municipal securities was taxable.

(2) Net interest margin is reported exclusive of income from loan prepayments, which is reported as a component of noninterest income. Inclusive of income from loan prepayments, the margin would compute to 2.59% and 2.31% for 2012 and 2011, respectively.

(3) Noninterest expenses for this ratio excludes provisions for loan and real estate losses and real estate activities (income) expenses, net.

(4) Defined as noninterest expenses (excluding the provisions for loan and real estate losses and real estate activities (income) expense, net) as a percentage of net interest and dividend income plus noninterest income.

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The following table provides information regarding changes in interest and dividend income and interest expense. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (change in rate multiplied by prior volume), (2) changes in volume (change in volume multiplied by prior rate) and (3) changes in rate-volume (change in rate multiplied by change in volume).

	For the Year Ended December 31, 2012 vs. 2011
	Increase (Decrease) Due To Change In:
($ in thousands)	Rate			Volume			Rate/Volume			Total
Interest-earning assets:
Loans	$	(4,912	)	$	(7,094	)	$	500		$	(11,506	)
Securities		(2,595	)		(2,956	)		1,477			(4,074	)
Other interest-earning assets		47			(6	)		(14	)		27
Total interest-earning assets		(7,460	)		(10,056	)		1,963			(15,553	)
Interest-bearing liabilities:
Interest checking deposits		(27	)		20			(7	)		(14	)
Savings deposits		(23	)		—			(1	)		(24	)
Money market deposits		(1,515	)		(66	)		54			(1,527	)
Certificates of deposit		(4,643	)		(6,261	)		718			(10,186	)
Total deposit accounts		(6,208	)		(6,307	)		764			(11,751	)
FHLB advances		37			(512	)		(22	)		(497	)
Debentures - capital securities		(221	)		—			(3	)		(224	)
Mortgage note payable		(1	)		(1	)		1			(1	)
Total borrowed funds		(185	)		(513	)		(24	)		(722	)
Total interest-bearing liabilities		(6,393	)		(6,820	)		740			(12,473	)
Net change in interest and dividend income	$	(1,067	)	$	(3,236	)	$	1,223		$	(3,080	)

Provision for Loan Losses

There was no required provision for loan losses in 2012, compared to a provision of $5.0 million in 2011. The decrease was based on our review of the adequacy of the allowance for loan losses and was primarily attributable to fewer loans outstanding and fewer credit rating downgrades in 2012 compared to 2011. A detailed discussion of the factors and estimates we use in determining the adequacy of the allowance for loan losses can be found under the caption “Critical Accounting Policies” in this report.

Noninterest Income

Noninterest income increased by $1.9 million to $6.2 million in 2012 and is summarized as follows:

	For the Year Ended December 31,
($ in thousands)	2012			2011
Customer service fees	$	473		$	441
Income from mortgage lending activities and all other fees (1)		1,169			1,552
Income from the early repayment of mortgage loans (2)		5,134			2,516
Impairment writedowns on investments securities (3)		(582	)		(201	)
	$	6,194		$	4,308

(1) Consists mostly of fees from expired loan commitments and loan servicing, maintenance and inspection charges.

(2) Consists of the recognition of unearned fees associated with such loans at the time of payoff and the receipt of prepayment penalties and interest in certain cases.

(3) Consists of other than temporary impairment charges on trust preferred security investments (which are discussed in more detail in note 2 to the financial statements in this report).

The increase in noninterest income was primarily due to a $2.6 million increase in loan prepayment income partially offset by a $0.4 million increase in security impairment charges.

Noninterest Expenses

The provision for real estate losses amounted to $4.1 million in 2012, compared to $3.3 million in 2011. The provisions are a result of our periodic market valuations of the properties we own through foreclosure, which required a higher level of provisions in 2012. The provisions are a function of lower estimated values on several properties we owned through foreclosure. Decreases in the estimated fair value of real estate acquired through foreclosure are recorded as an increase to the corresponding valuation allowance and a charge to the provision for real estate losses. See the section entitled “Asset Quality” in Item 1 “Business” of this report for a list of real estate owned and their related net carrying values.

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Real estate activities expenses increased to $2.1 million in 2012 from $1.6 million in 2011, primarily reflecting a higher level of expenses (primarily increased repairs, maintenance and insurance costs) associated with several properties owned through foreclosure. Additionally, the total expense for 2011 was reduced by a $0.2 million gain recognized from the transfer of one loan to foreclosed real estate (due to the collateral property’s then estimated fair value being greater than the loan’s outstanding balance).

Operating expenses are summarized as follows:

	For the Year Ended December 31,				Change
($ in thousands)	2012		2011
Salaries and employee benefits	$	7,122	$	6,619	$	503
Stock compensation expense for employees and directors		1,194		326		868
Occupancy and equipment, net		2,059		1,779		280
FDIC insurance		2,352		3,045		(693	)
Professional fees and services		1,576		1,657		(81	)
General insurance		579		560		19
Data processing		370		416		(46	)
Director and committee fees		413		415		(2	)
Stationery, printing, supplies, postage and delivery		266		253		13
Loss on early extinguishment of debt		177		—		177
All other expenses		560		791		(231	)
	$	16,668	$	15,861	$	807

Salaries and employee benefits increased due to the impact of several new officer positions ($0.3 million), normal salary increases ($0.5 million) and an increased cost of providing employee benefits ($0.1 million), partially offset by a higher level of direct fee income ($0.4 million) recognized due to higher loan origination volume. We employed 78 people as of December 31, 2012, versus 75 at December 31, 2011.

Stock compensation expense increased as a result of stock awards described below. On January 19, 2012, we awarded a total of 465,400 shares of restricted common stock under our shareholder-approved equity incentive plan as follows: a total of 175,000 shares to our executive officers; a total of 240,000 shares to our non-employee directors; and a total of 50,400 shares to our other officers and employees. For the executive officers, the 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 awards vest 100% on the first anniversary of the grant (which accounted for $0.7 million of the year over year increase in stock compensation expense). For the other officers and employees, the awards vest in three equal installments, with one third on each of the first three anniversaries of the grant date. The grant date fair value for each 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. Such amount is required to be recognized as stock compensation expense over the related vesting periods. There were no equity compensation awards made in 2011. For additional information on outstanding awards, see note 13 to the financial statements in this report.

Occupancy and equipment expense increased due to a higher level of rent expense for our Rockefeller center office. FDIC insurance expense decreased primarily due to a lower level of deposits outstanding. The loss on early extinguishment of debt represented a prepayment penalty associated with the early retirement of FHLB advances totaling to $7.0 million (repaid with cash on hand prior to their stated maturity). All other expenses decreased due to a lower level of Federal Reserve Bank and other correspondent banking fees and charges.

Our efficiency ratio was 37% for 2012, compared to 34% for 2011.

Provision for Income Taxes

We recorded a provision for income tax expense of $10.3 million on pre-tax income of $22.5 million in 2012, compared to a provision of $9.5 million on pre-tax income of $20.8 million in 2011. Our effective tax rate (inclusive of state and local taxes) was 46% in 2012 and 2011. The provision for income tax expense reflected the partial utilization of our deferred tax asset. For additional information on our deferred tax asset, see note 14 to the financial statements in this report.

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Off-Balance Sheet and Other Financing Arrangements

We are a party to financial instruments with off-balance sheet risk in the normal course of our business to meet the financing needs of our customers. For a further information on and discussion of these financial instruments, see note 18 to the financial statements in this report.

Liquidity and Capital Resources

General. Liquidity risk involves the risk of being unable to fund our assets with the appropriate duration and rate-based liabilities, as well as the risk of not being able to meet unexpected cash needs. We manage our liquidity position on a daily basis to assure that funds are available to meet our operating requirements, loan and investment commitments, deposit withdrawals and debt service obligations. Our liquidity management process is designed to identify, measure, monitor, and control liquidity and funding risk. The primary tools we use for measuring and managing liquidity risk include cash flow projections, stress testing and contingency funding plans.

Our primary sources of funds consist of the following: retail deposits obtained through INB’s branch offices and the mail; principal repayments of loans; maturities and calls of securities; borrowings through FHLB advances or the federal funds market; brokered deposits; and cash flow provided by our operating activities. For additional detail concerning our actual cash flows, see the statements of cash flows in this report.

Intervest National Bank. INB’s lending business is dependent on its ability to generate a positive interest rate spread between the yields earned on its loans and the rates offered on its deposits. INB relies heavily on certificates of deposit (time deposits) as its main source of funds and needs to pay competitive interest rates to attract and retain deposits to fund its loan originations. The stability of deposits as a funding source is affected by numerous factors, including returns available to our depositors on alternative investments, safety and FDIC insurance limits, the quality of our customer service and other competitive forces.

At December 31, 2013, INB had cash and short-term investments totaling $23 million and approved commitments to lend of $20 million (which excludes an additional $42 million of potential new loan commitments that were in process as of December 31, 2013), most of which are anticipated to be funded during 2014.

Deposits. Since early 2010 through the better part of 2013, INB has steadily lowered its overall deposit rates offered for its deposit products to encourage deposit outflow and reduce the overall size of its balance sheet in order to increase its regulatory capital ratios. In 2013, INB experienced net deposit outflow of $80 million, consisting of a $67 million net decrease in non-brokered CDs and a $25 million net reduction in money market and checking deposit accounts, partially offset by a $12 million net increase in brokered CDs.

At December 31, 2013, total deposits amounted to $1.28 billion consisting of CDs totaling $882 million, and checking, savings and money market accounts aggregating to $400 million. CDs represented 69% of total deposits and CDs of $100,000 or more totaled $473 million and included $91 million of brokered CD deposits. Brokered CD deposits had a weighted-average remaining term and stated interest rate of 3.0 years and 3.01%, respectively, at December 31, 2013, and $23 million mature by December 31, 2014. At December 31, 2013, $307 million, or 35% of total CDs (inclusive of brokered deposits), mature within one year. INB expects to replace its brokered deposits as they mature with new ones and to retain or replace a significant portion of its remaining maturing non-brokered CDs.

INB began to re-access the brokered deposit market in July 2013 and anticipates using this vehicle for additional deposits as market conditions warrant. In the fourth quarter of 2013, INB also began utilizing the national CD market as an additional source of CDs. Depositors in this market are institutional, non-consumer entities such as credit unions, banking institutions, public entities, CD brokers and some private corporations or non-profit organizations. INB currently accepts these types of deposits from financial instructions only. INB normally offers interest rates on these deposits that are slightly lower than those offered in its local area for retail deposits. At December 31, 2013, INB’s national rate CDs totaled $23.7 million and had a weighted average rate and term of 1.22% and 3.04 years, respectively. INB is also planning to introduce in 2014 other deposit products such as remote deposit capture and landlord-tenant security deposits in effort to increase its non-CD deposit accounts.

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INB’s current objective is to maintain its deposit rates at levels to promote a stable deposit base that can be adjusted to meet its cash flow needs. INB has historically targeted its loan-to-deposit ratio in a range from 75% to 85%. This ratio stood at 84% as of December 31, 2013. Because INB is no longer subject to the Formal Agreement with its regulator, the OCC, and INB’s capital ratios now well exceed the levels for INB to be considered a well-capitalized institution, INB expects to increase its deposits and loans during 2014. We cannot assure you that any of the forgoing plans or objectives will be successful or will result in an increase in deposits or loans.

Loans and Securities. At December 31, 2013, INB had $121 million, or 11%, of its loan portfolio (excluding nonaccrual loans) scheduled to mature within one year. INB expects to extend or refinance a portion of these maturing loans. During 2014, approximately $66 million of securities in the portfolio could potentially be called or repaid assuming market interest rates remain at or near the levels they are as of December 31, 2013. A large portion of the resulting proceeds would then be reinvested into similar securities and potentially at lower rates. At the time of purchase, securities with callable features routinely have higher yields than non-callable securities with the same maturity. However, the callable features or the expiration of the non-callable period of the security will most likely result in the early call of securities in a declining or flat rate environment, which results in re-investment risk of the proceeds.

Borrowed Funds. At December 31, 2013 and 2012, INB had no borrowed funds outstanding.

Credit lines. At December 31, 2013, INB had available collateral consisting of investment securities and certain loans that could be pledged to support an aggregate of approximately $403 million in borrowings from the FHLB and FRB. INB also had access to overnight unsecured lines of credit from two banks totaling $24 million. At December 31, 2013, this total borrowing capacity of $427 million represented approximately 60% of INB’s deposits that are considered sensitive (money-market accounts and all certificate of deposit accounts (CDs), inclusive of brokered CDs, maturing within one year). In the event that any of INB’s existing lines of credit were not accessible or were limited, INB could designate all or a portion of its un-pledged U.S. government agency investment securities portfolio as available for sale and sell such securities as needed to provide liquidity.

Capital Resources. As discussed in note 19 to the financial statements in this report, at December 31, 2013, INB’s regulatory capital ratios exceeded those required to be categorized as a well-capitalized institution. INB does not expect to need additional capital during 2014.

Intervest Bancshares Corporation. IBC is a separate entity from INB and must provide for its own liquidity to meet its debt service and operating expense requirements. IBC’s sources of funds historically have been derived from the following: interest income from short-term investments and limited loan portfolio; monthly dividends from INB; and a monthly management fee from INB for providing INB with certain administrative services. IBC’s historical sources of working capital have been derived primarily from the issuance, from time to time, of its capital stock through public and private offerings, and the direct issuance of other subordinated debentures to the public.

At December 31, 2013, IBC had cash and short-term investments totaling $2.6 million, of which $2.3 million was available for use (inclusive of $1.2 million on deposit with INB). IBC relies on cash dividends received from INB to fund interest payments due on IBC’s outstanding debt as well as for IBC’s payment of cash dividends on its capital stock, if and when declared by IBC’s Board of Directors.

As discussed in Item 1 “Business” of this report under the section “Supervision and Regulation”, since January 2011, IBC has been subject to a written agreement with the FRB and the operating restrictions contained therein. Among other things, IBC is required to obtain regulatory approval from the FRB to accept dividend payments from INB and IBC also cannot take any payments representing a reduction in capital from INB or make any distributions of interest, principal or other sums on IBC’s subordinated debentures or trust preferred securities without prior approval from the FRB. Further, IBC may not incur, increase or guarantee any debt or purchase or redeem any shares of its stock without prior approval of the FRB. We believe we have taken all necessary actions to promptly address the requirements of the written agreement and that IBC is in compliance with such agreement as of the date of filing of this report. IBC has been informed by the FRB that it is reviewing the need for such agreement.

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In June and August 2013, having obtained all the necessary approvals from the FRB, IBC accepted cash dividend payments of $12.25 million and $18.75 million, respectively, from INB and used those funds, along with a portion of IBC’s cash on hand, to pay accrued interest on its outstanding debt and to purchase and retire its Preferred Stock through two separate transactions. See notes 9 and 10 to the financial statements in this report for discussions regarding (i) IBC’s successful bid and repurchase on June 24, 2013 of 6,250 of its 25,000 shares of then outstanding Preferred Stock, as well as the payment of accrued interest payable on its outstanding debt and (ii) IBC’s redemption on August 15, 2013 of the remaining 18,750 shares of the Preferred Stock held by unrelated third parties. The repurchase and redemption of the Preferred Stock included the payment of all preferred dividends then in arrears totaling $5.1 million.

Because IBC remains subject to the written agreement with the FRB described above, in September 2013, after having paid all accrued interest on its outstanding debt in connection with its repurchase of Preferred Stock, IBC again exercised its right under the indentures for its trust preferred securities to defer interest payments on that outstanding debt. The regularly scheduled interest payments on IBC’s debt continue to be accrued and are recorded as interest expense in our financial statements. Accrued interest payable on IBC’s debt at December 31, 2013 amounted to $0.9 million. The interest payments can only resume at such time as IBC is permitted to resume payment by its regulator. The deferral of interest payments does not constitute a default under the indentures governing the trust preferred securities.

Capital Resources. As discussed in note 19 to the financial statements in this report, IBC’s regulatory capital ratios at December 31, 2013 exceeded its minimum requirements and IBC does not expect to need additional capital during 2014.

Other. We consider our current liquidity and sources of funds sufficient to satisfy our outstanding lending commitments and maturing liabilities. We are not aware of any trends, demands, commitments or uncertainties other than those discussed above in this section or elsewhere in this report that are expected to have a material impact on our future operating results, liquidity or capital resources. However, there can be no assurances that adverse conditions will not arise in the credit and capital markets or from the restrictions placed or that may be placed on us by our regulators that would adversely impact our liquidity and ability to raise funds to meet our operations and satisfy our outstanding lending commitments and maturing liabilities or raise new working capital if needed. Additional information concerning securities held to maturity, loans, deposits, borrowings and preferred stock, including interest rates and maturity dates thereon, can be found in notes 2, 3, 7, 8, 9 and 10 to the financial statements in this report, as well as in Item 1 “Business” of this report.

Contractual Obligations

The table below summarizes our contractual obligations as of December 31, 2013 due within the periods shown.

			Amounts Due In
($ in thousands)	Total		2014		2015 and 2016		2017 and 2018		2019 and Later
Deposits with stated maturities	$	881,779	$	307,122	$	338,279	$	224,649	$	11,729
Deposits with no stated maturities		400,453		400,453		—		—		—
Subordinated debentures - capital securities		56,702		—		—		—		56,702
Mortgage escrow payable and official checks outstanding		26,214		26,214		—		—		—
Unfunded loan commitments and lines of credit (1)		20,263		20,263		—		—		—
Operating lease payments		15,940		1,540		3,075		3,011		8,314
Accrued interest payable on deposits		1,508		1,508		—		—		—
Accrued interest payable on all borrowed funds		868		868		—		—		—
Death benefit payments		174		174		—		—		—
	$	1,403,901	$	758,142	$	341,354	$	227,660	$	76,745

(1) Since some of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

Regulatory Capital and Regulatory Matters

For a detailed analysis of our regulatory capital requirements and actual capital, see note 19 to the financial statements in this report. IBC is also subject to a formal agreement with its primary regulator as discussed in more detail in the section “Supervision and Regulation” in Item 1 “Business” and in note 19 to the financial statements in this report.

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Asset and Liability Management

We have interest rate risk that arises from differences in the repricing of our interest-earning assets and interest-bearing liabilities within a given time period. The primary objective of our asset/liability management strategy is to limit, within established board approved policy guidelines, the adverse effect of changes in interest rates on our net interest income and capital. We have never engaged in trading or hedging activities, nor invested in interest rate derivatives or entered into interest rate swaps.

In order to manage interest rate risk, INB uses a third party vendor to prepare quarterly asset and liability management reports using an earnings simulation model to quantify the effects of various interest rate scenarios on INB’s projected net interest and dividend income over specified periods, and the related impacts on its balance sheet and capital. These computations begin with our internally prepared gap analysis which is then further adjusted for additional assumptions regarding balance sheet growth and composition, and the specific pricing and repricing and maturity characteristics of INB’s assets and liabilities. Gap analysis measures the difference between interest-earning assets and interest-bearing liabilities that mature or reprice within a given time period. There are numerous assumptions that are made by us to compute the gap and to run the earnings simulation model. A change in any of these assumptions could materially alter the results of both.

An asset or liability is normally considered to be interest-rate sensitive if it will reprice or mature within one year or less. The interest-rate sensitivity gap is the difference between interest-earning assets and interest-bearing liabilities scheduled to mature or re-price within one year. A gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities. Conversely, a gap is considered negative when the opposite is true. In a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to increase net interest income. In a period of falling interest rates, a negative gap would tend to increase net interest income, while a positive gap would tend to adversely affect net interest income. If the repricing of our assets and liabilities were equally flexible and moved concurrently, the impact of any increase or decrease in interest rates on our net interest income would be minimal.

A simple interest rate gap analysis by itself may not be an accurate indicator of how net interest income will be affected by changes in interest rates for the following reasons. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market interest rates, while interest rates on other types may lag behind changes in market rates. Callable features of certain assets and liabilities, in addition to the foregoing, may also cause actual experience to vary from the analysis. In addition, certain assets with adjustable rates may have features generally referred to as “interest rate caps and floors,” which limit changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, asset prepayment and early deposit withdrawal levels also could deviate significantly from those assumed in calculating the interest-rate gap. The amount of loan prepayments cannot be predicted with accuracy and we experience reinvestment risk associated with the investment of the resulting proceeds. The ability of many borrowers to service their debts also may decrease in the event of an interest-rate increase, and the behavior of depositors may be different from those assumed in the gap analysis.

As discussed elsewhere in this report, the amount of fixed-rate loans in our loan portfolio has increased over the last several years and such loans constituted approximately 99%, or $1.12 billion, of our loan portfolio at December 31, 2013. We also have loans (approximately 1% or $7.2 million at December 31, 2013) in the portfolio that have terms that call for predetermined increases in the interest rate at various times over the life of the loan. Included in our fixed-rate loans above is approximately $90 million of loans (originated mostly in 2012 and 2013) whereby the borrower has the option prior to maturity and with the payment of a specified fee, to extend the loan for a new term at an interest rate per annum equal to the greater of the old rate or a new rate based on a fixed spread (ranging from 250 to 300 basis points) over a specified index, subject to meeting our underwriting requirements.

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The future repricing of our loans that have predetermined rate increases or the aforementioned options may not be at the same magnitude as general changes in market rates. Our entire loan portfolio had a short weighted average life of approximately 4.6 years at December 31, 2013.

At December 31, 2013, the gap analysis that follows indicated that our interest-bearing liabilities that were scheduled to mature or reprice within one year exceeded our interest-earning assets that were scheduled to mature or reprice within one year. This one-year interest rate sensitivity gap amounted to a negative $338 million, or a negative 21.6% of total assets, at December 31, 2013. As a result of the negative one-year gap, the composition of our balance sheet at December 31, 2013 was considered “liability-sensitive,” indicating that our interest-bearing liabilities would generally reprice with changes in interest rates more rapidly than our interest-earning assets.

The table below summarizes our interest-earning assets and interest-bearing liabilities as of December 31, 2013, scheduled to mature or reprice within the periods shown.

($ in thousands)	0-3 Months			4-12 Months			Over 1-5 Years			Over 5 Years			Total
Loans (1)	$	36,352		$	89,219		$	657,944		$	312,132		$	1,095,647
Loans - performing nonaccrual TDRs (1)		1,000			9,005			23,179			—			33,184
Securities held to maturity (2)		221,435			50,860			105,485			6,157			383,937
Securities available for sale (2)		965			—			—			—			965
Short-term investments		8,011			—			—			—			8,011
FRB and FHLB stock		2,360			—			—			5,884			8,244
Interest-earning time deposits with banks		200			2,175			2,995			—			5,370
Total rate-sensitive assets	$	270,323		$	151,259		$	789,603		$	324,173		$	1,535,358
Deposit accounts (3):
Interest checking	$	17,831		$	—		$	—		$	—		$	17,831
Savings		10,027			—			—			—			10,027
Money market		367,384			—			—			—			367,384
Certificates of deposit		69,561			237,561			562,928			11,729			881,779
Total deposits		464,803			237,561			562,928			11,729			1,277,021
Debentures (1)		56,702			—			—			—			56,702
Accrued interest on all borrowed funds (1)		868			—			—			—			868
Total borrowed funds		57,570			—			—			—			57,570
Total rate-sensitive liabilities	$	522,373		$	237,561		$	562,928		$	11,729		$	1,334,591
GAP (repricing differences)	$	(252,050	)	$	(86,302	)	$	226,675		$	312,444		$	200,767
Cumulative GAP	$	(252,050	)	$	(338,352	)	$	(111,677	)	$	200,767		$	200,767
Cumulative GAP to total assets		(16.1	)%		(21.6	)%		(7.1	)%		12.8	%		12.8	%

Significant assumptions used in preparing the preceding gap table follow:

(1) Loans with predetermined rate increases and floating-rate borrowings are included in the period in which their interest rates are next scheduled to adjust rather than in the period in which they mature. Fixed-rate loans, including those with options to extend are scheduled according to their contractual maturities. Deferred loan fees and the effect of possible loan prepayments are excluded from the analysis. Nonaccrual loans of $2.7 million are also excluded from the table.

(2) Securities are scheduled according to the earlier of their next callable date or the date on which the interest rate is scheduled to change. A large number of the securities have predetermined interest rate increases or “steps up” to a specified rate on one or more predetermined dates. Generally, the security becomes eligible for redemption by the issuer at the date of the first scheduled step-up.

(3) Interest checking, savings and money market deposits are regarded as 100% readily accessible withdrawable accounts and certificates of deposit are scheduled according to their contractual maturity dates. This assumption contributes significantly to the liability sensitive position reported per the one-year gap analysis. However, if such deposits were treated differently, the one-year gap would then change accordingly. It should be noted that depositors may not necessarily immediately withdraw funds in the event deposit rates offered by INB did not change as quickly and uniformly as changes in general market rates.

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The table that follows summarizes the results of certain scenarios of our earnings simulation model as of December 31, 2013. The model takes into account our gap analysis as further adjusted by additional assumptions, including deposit decay factors for both rate and non-rate sensitive deposits. Furthermore, in determining the assumed rates offered on our deposit accounts in the model, we use internally developed beta factors that utilize historical data based on a specific time frames for both rising and declining interest rate environments.

	Rate Shock Scenario
($ in thousands)	Base Net interest and Dividend Income		100 Basis Point Decrease (1)			200 Basis Point Increase (1)			300 Basis Point Increase (2)
Next 12 months	$	40,507	$	40,071		$	38,136		$	33,370
% change				-1.08	%		-5.85	%		-17.62	%
Next 13-24 months	$	41,319	$	37,950		$	37,085		$	35,098
% change				-8.15	%		-10.25	%		-15.06	%
2 Year Cumulative	$	81,826	$	78,021		$	75,221		$	68,468
% change				-4.65	%		-8.07	%		-16.32	%

(1) The model for this scenario covers a 24 month horizon and assumes interest rate changes are gradually ramped up or down over a 12 month horizon using various assumptions based upon a parallel yield curve shift and are subsequently sustained at those levels for the remainder of the simulation horizon.

(2) The model for this scenario utilizes an instantaneous parallel rate shock and is maintained at those levels for the entire simulation horizon.

A sudden and substantial change in interest rates may adversely impact our net interest and dividend income to a larger extent than noted above if interest rates on our assets and liabilities do not change at the same speed, to the same extent, or on the same basis, as those assumed in the model.

Recent Accounting Standards Update

See note 1 the financial statements in this report for a discussion of this topic.

Impact of Inflation and Changing Prices

Our financial statements and related financial data presented in this report have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Because virtually all of our assets and liabilities are monetary in nature, changes in interest rates have a more significant impact on our performance than do the effects of changes in the general rate of inflation and in prices. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss from adverse changes in market prices and interest rates. Our market risk arises primarily from interest rate risk inherent in our lending, security investing, deposit-taking and borrowing activities. We do not engage in and accordingly have no risk related to trading accounts, commodities, interest rate hedges or foreign exchange. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on-and off-balance sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about the fair value of financial instruments which reflect changes in market prices and rates, can be found in note 20 to the financial statements included in this report. We also actively monitor and manage our interest rate risk exposure as discussed under the caption “Asset and Liability Management” in this report.

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Item 8. Financial Statements and Supplementary Data

Financial Statements

The following are included in this item:

- Management’s Report on Internal Control over Financial Reporting (page 66)

- Report of Independent Registered Public Accounting Firm on Internal Control (page 67)

Supplementary Data

Other financial statement schedules and inapplicable periods with respect to schedules listed above are omitted because the conditions requiring their filing do not exist or the information required thereby is included in our financial statements filed, including the notes thereto.

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Management’s Report on Internal Control Over Financial Reporting

Board of Directors and Stockholders

Intervest Bancshares Corporation

New York, New York:

The management of Intervest Bancshares Corporation and its subsidiary (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control structure contains monitoring mechanisms and actions are taken to correct deficiencies identified.

There are inherent limitations in the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.

Management assessed the effectiveness of the Company’s internal control over financial reporting, including safeguarding of assets, as of December 31, 2013. This assessment was based on criteria for effective internal control over financial reporting, including safeguarding of assets, described in “Internal Control – Integrated Framework (1992),” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 2013, the Company maintained effective internal control over financial reporting, including safeguarding of assets.

Hacker, Johnson & Smith, P.A., P.C., the Company’s independent registered public accounting firm that audited the consolidated financial statements of the Company included in the accompanying Annual Report on Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2013.

/s/ Lowell S. Dansker

Lowell S. Dansker, Chairman and Chief Executive Officer

(Principal Executive Officer)

March 3, 2014

/s/ John J. Arvonio

John J. Arvonio, Chief Financial and Accounting Officer

(Principal Financial Officer)

March 3, 2014

66

Report of Independent Registered Public Accounting Firm on Internal Control

Board of Directors and Stockholders

Intervest Bancshares Corporation

New York, New York:

We have audited Intervest Bancshares Corporation and Subsidiary’s (the “Company”) internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management assessment report (see prior page). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of December 31, 2013 and 2012 and for each of the years in the three-year period ended December 31, 2013 of the Company and our report dated March 3, 2014 expressed an unqualified opinion on those financial statements.

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

Hacker, Johnson & Smith, P.A., P.C.

Tampa, Florida

March 3, 2014

67

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Intervest Bancshares Corporation

New York, New York:

We have audited the accompanying consolidated balance sheets of Intervest Bancshares Corporation and Subsidiary (the “Company”) as of December 31, 2013 and 2012 and the related consolidated statements of earnings, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2014 expressed an unqualified opinion thereon.

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

Hacker, Johnson & Smith, P.A., P.C.

Tampa, Florida

March 3, 2014

68

Intervest Bancshares Corporation and Subsidiary

Consolidated Balance Sheets

	At December 31,
($ in thousands, except par value)	2013			2012
ASSETS
Cash and due from banks	$	16,689		$	57,641
Federal funds sold and other short-term investments		8,011			2,754
Total cash and cash equivalents		24,700			60,395
Time deposits with banks		5,370			5,170
Securities available for sale, at estimated fair value		965			1,000
Securities held to maturity (estimated fair value of $378,507 and $442,166, respectively)		383,937			443,777
Federal Reserve Bank and Federal Home Loan Bank stock, at cost		8,244			8,151
Loans receivable (net of allowance for loan losses of $27,833 and $28,103, respectively)		1,099,689			1,079,363
Accrued interest receivable		4,861			5,191
Loan fees receivable		2,298			3,108
Premises and equipment, net		4,056			3,878
Foreclosed real estate (net of valuation allowance of $2,017 and $5,339, respectively)		10,669			15,923
Deferred income tax asset		18,362			29,234
Other assets		4,645			10,602
Total assets	$	1,567,796		$	1,665,792
LIABILITIES
Deposits:
Noninterest-bearing demand deposit accounts	$	5,211		$	5,130
Interest-bearing deposit accounts:
Checking (NOW) accounts		17,831			15,185
Savings accounts		10,027			9,601
Money market accounts		367,384			395,825
Certificate of deposit accounts		881,779			936,878
Total deposit accounts		1,282,232			1,362,619
Long-term debt - subordinated debentures (capital securities)		56,702			56,702
Accrued interest payable on long term debt		868			6,228
Accrued interest payable on deposits		1,508			2,379
Mortgage escrow funds payable		18,879			17,743
Official checks outstanding		7,335			7,003
Other liabilities		3,281			2,171
Total liabilities		1,370,805			1,454,845
Commitments and contingencies (notes 5, 9, 16, 17 and 18)
STOCKHOLDERS’ EQUITY
Preferred stock ($1.00 par value; 300,000 shares authorized; 25,000 shares issued and outstanding at December 31, 2012)		—			25
Additional paid-in-capital, preferred		—			24,975
Preferred stock discount		—			(376	)
Common stock ($1.00 par value; 62,000,000 shares authorized; 21,918,623 and 21,589,589 shares issued and outstanding, respectively)		21,919			21,590
Additional paid-in-capital, common		88,043			85,726
Unearned compensation on restricted common stock awards		(1,898	)		(715	)
Retained earnings		88,959			79,722
Accumulated other comprehensive loss		(32	)		—
Total stockholders’ equity		196,991			210,947
Total liabilities and stockholders’ equity	$	1,567,796		$	1,665,792

See accompanying notes to consolidated financial statements.

69

Intervest Bancshares Corporation and Subsidiary

Consolidated Statements of Earnings

	Year Ended December 31,
($ in thousands, except per share data)	2013			2012			2011
INTEREST AND DIVIDEND INCOME
Loans receivable	$	59,074		$	69,679		$	81,185
Securities		4,473			7,559			11,633
Other interest-earning assets		69			46			19
Total interest and dividend income		63,616			77,284			92,837
INTEREST EXPENSE
Deposits		25,430			35,831			47,582
Subordinated debentures - capital securities		1,679			1,848			2,072
FHLB advances and all other borrowed funds		1			388			886
Total interest expense		27,110			38,067			50,540
Net interest and dividend income		36,506			39,217			42,297
(Credit) provision for loan losses		(550	)		—			5,018
Net interest and dividend income after (credit) provision for loan losses		37,056			39,217			37,279
NONINTEREST INCOME
Income from the early repayment of mortgage loans		2,590			5,134			2,516
Income from mortgage lending activities		1,467			1,169			1,507
Customer service fees		372			473			441
Impairment write downs on investment securities		(964	)		(582	)		(201	)
Gain from sale of securities available for sale		1,481			—			—
All other		—			—			45
Total noninterest income		4,946			6,194			4,308
NONINTEREST EXPENSES
Salaries and employee benefits		7,458			7,122			6,619
Stock compensation for employees and directors		823			1,194			326
Occupancy and equipment, net		2,184			2,059			1,779
FDIC insurance		1,451			2,352			3,045
Professional fees and services		1,407			1,576			1,657
General insurance		618			579			560
Data processing		355			370			416
Director and committee fees		353			413			415
Stationery, printing, supplies, postage and delivery		287			266			253
Real estate activities (income) expense, net		(836	)		2,146			1,619
Provision for real estate losses		1,105			4,068			3,349
Loss on early extinguishment of debt		—			177			—
All other		648			560			791
Total noninterest expenses		15,853			22,882			20,829
Earnings before provision for income taxes		26,149			22,529			20,758
Provision for income taxes		11,655			10,307			9,512
Net earnings		14,494			12,222			11,246
Preferred stock dividend requirements and discount amortization		1,057			1,801			1,730
Net earnings available to common stockholders	$	13,437		$	10,421		$	9,516
Basic earnings per common share	$	0.61		$	0.48		$	0.45
Diluted earnings per common share	$	0.61		$	0.48		$	0.45
Cash dividends per common share	$	—		$	—		$	—

See accompanying notes to consolidated financial statements.

70

Intervest Bancshares Corporation and Subsidiary

Consolidated Statements of Comprehensive Income

	Year Ended December 31,
($ in thousands)	2013			2012		2011
Net earnings	$	14,494		$	12,222	$	11,246
Other Comprehensive Loss:
Net unrealized holding losses on available-for-sale securities		(56	)		—		—
Credit for income taxes related to unrealized losses on available-for-sale securities		24			—		—
Other comprehensive loss, net of tax		(32	)		—		—
Total comprehensive income, net of tax	$	14,462		$	12,222	$	11,246

See accompanying notes to consolidated financial statements.

71

Intervest Bancshares Corporation and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity

	Year Ended December 31,
($ in thousands)	2013			2012			2011
PREFERRED STOCK
Balance at beginning of year	$	25		$	25		$	25
Repurchase and redemption of preferred stock		(25	)		—			—
Balance at end of year		—			25			25
ADDITIONAL PAID-IN-CAPITAL, PREFERRED
Balance at beginning of year		24,975			24,975			24,975
Repurchase and redemption of preferred stock		(24,975	)		—			—
Balance at end of year		—			24,975			24,975
PREFERRED STOCK DISCOUNT
Balance at beginning of year		(376	)		(762	)		(1,148	)
Amortization of preferred stock discount		376			386			386
Balance at end of year		—			(376	)		(762	)
COMMON STOCK
Balance at beginning of year		21,590			21,125			21,126
Issuance of 466,200 and 465,400 shares of restricted stock		466			466			—
Issuance of 17,267 and 100 shares upon exercise of stock options		17			—			—
Forfeitures of 154,433, 1,200 and 1,200 shares of restricted stock		(154	)		(1	)		(1	)
Balance at end of year		21,919			21,590			21,125
ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of year		85,726			84,765			84,705
Issuance of shares of restricted stock		1,999			884			—
Issuance of shares upon exercise of stock options		44			—			—
Forfeitures of shares of restricted stock		(348	)		(2	)		(2	)
Excess income tax benefit from vesting of restricted stock and exercise of stock options		579			—			—
Compensation expense related to stock option awards		43			79			62
Balance at end of year		88,043			85,726			84,765
UNEARNED COMPENSATION - RESTRICTED COMMON STOCK
Balance at beginning of year		(715	)		(483	)		(749	)
Issuance of 466,200 and 465,400 shares of restricted stock		(2,465	)		(1,350	)		—
Amortization of unearned compensation to stock compensation expense		1,282			1,118			266
Balance at end of year		(1,898	)		(715	)		(483	)
RETAINED EARNINGS
Balance at beginning of year		79,722			67,886			57,026
Net earnings		14,494			12,222			11,246
Cash dividends declared and paid on preferred stock		(5,068	)		—			—
Discount from repurchase of preferred stock		187			—			—
Preferred stock discount amortization		(376	)		(386	)		(386	)
Balance at end of year		88,959			79,722			67,886
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of year		—			—			—
Net change in accumulated other comprehensive loss, net of tax		(32	)		—			—
Balance at end of year		(32	)		—			—
Total stockholders’ equity at end of year	$	196,991		$	210,947		$	197,531
Total preferred stockholder’s equity at end of year	$	—		$	24,624		$	24,238
Total common stockholders’ equity at end of year		196,991			186,323			173,293
Total stockholders’ equity at end of year	$	196,991		$	210,947		$	197,531
RECONCILIATION OF COMMON SHARES OUTSTANDING
Total shares outstanding at beginning of year		21,589,589			21,125,289			21,126,489
Issuance of shares upon exercise of stock options		17,267			100			—
Issuance (forfeitures) of shares of restricted stock, net		311,767			464,200			(1,200	)
Total common shares outstanding at end of year		21,918,623			21,589,589			21,125,289

See accompanying notes to consolidated financial statements.

72

Intervest Bancshares Corporation and Subsidiary

Consolidated Statements of Cash Flows

`

	Year Ended December 31,
($ in thousands)	2013			2012			2011
OPERATING ACTIVITIES
Net earnings	$	14,494		$	12,222		$	11,246
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		353			345			357
Provisions for loan and real estate losses		555			4,068			8,367
Deferred income tax expense		10,896			9,602			8,243
Stock compensation expense		823			1,194			326
Amortization of deferred debenture offering costs		37			37			37
Amortization of premiums (accretion) of discounts and deferred loan fees, net		635			395			(1,448	)
Net gain from sale of securities available for sale		(1,481	)		—			—
Impairment writedowns on investment securities		964			582			201
Net (gains) losses from sales of or transfers of loans to foreclosed real estate		(963	)		93			(188	)
Net gain from sale of premises		—			—			(44	)
Net loss from early extinguishment of debt		—			177			—
Net decrease in loan fees receivable		810			1,080			1,282
Net (decrease) increase in accrued interest payable on borrowed funds		(5,360	)		1,867			2,099
Net increase (decrease) in official checks outstanding		332			2,003			(1,605	)
Net change in all other assets and liabilities		8,507			3,506			17,244
Net cash provided by operating activities		30,602			37,171			46,117
INVESTING ACTIVITIES
Purchases of time deposits with banks		(200	)		(3,700	)		(1,470	)
Purchases of securities available for sale		(21	)		(1,000	)		—
Proceeds from sale of securities available for sale		4,050			—			—
Purchases of securities held to maturity		(76,124	)		(438,671	)		(894,680	)
Maturities and calls of securities held to maturity		130,209			692,193			807,038
(Purchases) redemptions of FRB and FHLB stock, net		(93	)		1,098			406
(Originations) repayments of loans receivable, net		(20,007	)		53,643			161,592
Proceeds from sales of foreclosed real estate		4,912			8,749			—
Proceeds from sales of premises		—			—			379
Purchases of premises and equipment		(531	)		(119	)		(184	)
Net cash provided by investing activities		42,195			312,193			73,081
FINANCING ACTIVITIES
Net decrease in deposits		(80,387	)		(299,405	)		(104,059	)
Net increase (decrease) in mortgage escrow funds payable		1,136			(1,927	)		(1,039	)
Net decrease in FHLB advances - original terms of more than 3 months		—			(17,500	)		(8,000	)
Principal repayments of mortgage note payable		—			—			(148	)
Repurchase and redemption of preferred stock		(24,813	)		—			—
Cash dividends paid to preferred stockholders		(5,068	)		—			—
Proceeds from issuance of common stock upon exercise of stock options		61			—			—
Excess tax benefit from exercise of stock options and vesting of restricted stock		579			—			—
Net cash used in financing activities		(108,492	)		(318,832	)		(113,246	)
Net (decrease) increase in cash and cash equivalents		(35,695	)		30,532			5,952
Cash and cash equivalents at beginning of year		60,395			29,863			23,911
Cash and cash equivalents at end of year	$	24,700		$	60,395		$	29,863
SUPPLEMENTAL DISCLOSURES
Cash paid for interest	$	33,304		$	37,503		$	49,342
Cash paid for (received from refunds of) income taxes, net		940			734			(10,340	)
Loans transferred to foreclosed real estate		3,040			4,689			4,375
Loans originated to finance sales of foreclosed real estate		3,240			4,134			—
Preferred stock dividend requirements and amortization of related discount		1,801			1,801			1,730
Securities held to maturity transferred to securities available for sale		2,569			—			—

See accompanying notes to consolidated financial statements.

73

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

1. Description of Business and Summary of Significant Accounting Policies

Intervest Bancshares Corporation (IBC) is a bank holding company incorporated in 1993 under the laws of the State of Delaware and its common stock trades on the Nasdaq Global Select Market under the symbol IBCA. IBC is the parent company of Intervest National Bank (INB) and IBC owns 100% of its capital stock. IBC’s primary purpose is the ownership of INB. It does not engage in any other business activities other than, from time to time, a limited amount of real estate mortgage lending, including the participation in loans originated by INB. IBC also may issue debt and equity securities as needed to raise funds for working capital purposes.

IBC also owns 100% of the capital stock of four statutory business trusts (Intervest Statutory Trust II, III, IV and V, the “Trusts”), all of which are unconsolidated entities for financial statement purposes. The Trusts do not conduct business and were formed prior to 2006 for the sole purpose of issuing and administering trust preferred securities and lending the proceeds to IBC.

References to “we,” “us” and “our” in this report refer to IBC and INB on a consolidated basis, unless otherwise specified. The offices of IBC and INB’s headquarters and full-service banking office are located on the entire fourth floor of One Rockefeller Plaza in New York City, New York, 10020-2002. The main telephone number is 212-218-2800.

Our business is banking and real estate lending conducted through INB’s operations. INB is a nationally chartered commercial bank that opened for business on April 1, 1999 and accounts for 99% of our consolidated assets. In addition to its headquarters and full-service banking office in Rockefeller Plaza in New York City, INB has a total of six full-service banking offices in Pinellas County, Florida - four in Clearwater, one in Clearwater Beach and one in South Pasadena. INB also has an ownership interest in a number of limited liability companies whose sole purpose is to own title to real estate that INB may acquire through foreclosure. INB conducts a personalized commercial and consumer banking business that attracts deposits from the general public. It also provides internet banking services through its web site www.intervestnatbank.com. INB solicits deposit accounts from individuals, small businesses and professional firms located throughout its primary market areas in New York and Florida through the offering of a variety of deposit products and providing online and telephone banking. INB’s web site also attracts deposit customers from both within and outside its primary market areas. INB uses these deposits, together with funds generated from its operations, principal repayments of loans and securities and other sources, to originate mortgage loans secured by commercial and multifamily real estate and to purchase investment securities.

Principles of Consolidation, Basis of Presentation and Use of Estimates

The consolidated financial statements in this report (which may also be referred to as “financial statements” throughout this report) include the accounts of IBC and its subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior year amounts to conform to the current year’s presentation. Our accounting and reporting policies conform to Generally Accepted Accounting Principles (“GAAP”) and to general practices within the banking industry.

In preparing the consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of our assets, liabilities and disclosure of our contingent liabilities as of the date of the consolidated 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 require assumptions about highly uncertain matters.

74

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

1. Description of Business and Summary of Significant Accounting Policies, Continued

Cash Equivalents

For purposes of reporting cash flows, our cash equivalents include cash and balances due from banks, federal funds sold (generally sold for one-day periods) and other short-term investments that have maturities of three months or less from the time of purchase.

Securities

General. Investments in debt securities for which we have the ability and intent to hold until maturity are classified as held to maturity (“HTM”) and are carried at cost, adjusted for accretion of discounts and amortization of premiums, which are recognized into interest income using the effective interest method over their contractual lives. Securities that are held for indefinite periods of time which we intend to use as part of our asset/liability management strategy, or that may be sold in response to changes in interest rates or other factors, are classified as available for sale (“AFS”) and are carried at fair value. Unrealized gains and losses on securities available for sale, net of related income taxes, are reported as a separate component of comprehensive income. Realized gains and losses from sales of securities are determined using the specific identification method. We do not purchase securities for the purpose of engaging in trading activities.

Impairment. We evaluate our security investments for other than temporary impairment (“OTTI”) at least quarterly or more frequently when conditions warrant such evaluation. Impairment is assessed at the individual security level. We consider an investment security to be impaired if, after a review of available evidence, the full collection of our principal investment and interest over the life of the security is no longer probable. The assessment for and the amount of impairment requires the exercise of considerable judgment by us and is entirely an estimate and not a precise determination.

Our impairment evaluation process considers factors such as the expected cash flows of the security, severity, length of time and anticipated recovery period of the cash shortfalls, recent events specific to the issuer, including investment downgrades by rating agencies and current and anticipated economic and regulatory conditions of its industry, and the issuer’s financial condition, capital strength and near-term prospects. We also consider our intent and ability to retain the security for a period of time sufficient to allow for a recovery in fair value, or until maturity. Among the factors that we consider in determining our intent and ability to retain the security is a review of our capital adequacy, interest rate risk position and liquidity. If it is deemed that OTTI has occurred, the security is written down to a new cost basis and the resulting loss is charged to operations as a component of noninterest income.

INB is a member of the Federal Home Loan Bank of New York (FHLB) and Federal Reserve Bank of New York (FRB) and is required hold a certain level capital stock of each entity based on various criteria. These investments are carried at cost and are also periodically reviewed for OTTI.

Loans Receivable

General. Loans for which we have the intent and ability to hold for the foreseeable future or until maturity or satisfaction are carried at their outstanding principal net of chargeoffs, the allowance for loan losses, unamortized discounts and deferred loan fees or costs. Loan origination and commitment fees, net of certain costs, are deferred and amortized to interest income as an adjustment to the yield of the related loans over the contractual life of the loans using the interest method. When a loan is paid off or sold, or if a commitment expires unexercised, any unamortized net deferred amount is credited or charged to operations.

Loans are placed on nonaccrual status when principal or interest becomes 90 days or more past due or earlier in certain cases unless the loan is well secured and in the process of collection. Past due status is based on contractual terms of the loan. When a loan is placed on nonaccrual status, all interest accrued but not collected is reversed against interest income and amortization of net deferred fee income is discontinued. Interest payments received on loans in nonaccrual status are recognized as income on a cash basis unless future collections of principal are doubtful, in which case the payments received are applied as a reduction of principal.

75

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

1. Description of Business and Summary of Significant Accounting Policies, Continued

Loans Receivable, Continued

Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. For loans that have been partially charged off, if the remaining book balance of the loan is deemed fully collectible, interest income is recognized on a cash basis but limited to that which would have been accrued on the recorded balance at the contractual rate. Any cash interest received over this limit is recorded as recoveries of prior charge offs until these chargeoffs have been fully recovered.

Segments. We consider our loan portfolio to be comprised of two segments - (i) real estate loans (which is comprised of loans secured by commercial real estate and multifamily (5 or more units) real estate, loans secured by vacant land and loans secured by 1-4 family real estate) and (ii) all other loans (which is comprised of personal and business loans, both secured and unsecured). Each segment has different risk characteristics and methodologies for assessing risk.

Commercial and multifamily real estate loans are generally considered to have more credit risk than traditional single family residential loans because these loans tend to involve larger loan balances and their repayment is typically dependent upon the successful operation and management of the underlying real estate. Included in this category are loans we originate on vacant or substantially vacant properties and owner-occupied properties, all of which typically have limited or no income streams and depend upon other sources of cash flow from the borrower for repayment, which add an additional element of risk. Our land loans normally have no income streams and depend upon other sources of cash flow from the borrower for repayment. Our 1-4 family loans consist almost entirely of loans secured by individual condominium dwelling units. We normally make these loans to investors who purchase multiple condo units that remain unsold after a condo conversion or the unsold units in a new condo development. The units are normally rented for a number of years until the economy improves and the units can be sold as was the original intention. Nearly all of these loans are in our Florida market. Although these loans are classified necessarily as loans secured by 1-4 family real estate as required by regulatory guidance, they are underwritten in accordance with our multifamily underwriting polices and their risk characteristics are essentially the same as our multifamily real estate lending and we risk weight them for regulatory capital purposes at 100%. All the above loans require ongoing evaluation and monitoring since they may be affected to a greater degree by adverse conditions in the real estate markets or the economy or changes in government regulation.

Our real estate loans typically provide for periodic payments of interest and principal during the term of the loan, with the remaining principal balance and any accrued interest due at the maturity date. Most of these loans provide for balloon payments at maturity, which means that a substantial part of or the entire original principal amount is due in one lump sum payment at maturity. If the net revenue from the property is not sufficient to make all debt service payments due on the loan or, if at maturity or the due date of any balloon payment, the owner of the property fails to raise the funds (through refinancing the loan, sale of the property or otherwise) to make the lump sum payment, we could sustain a loss on our loan. As part of our written policies for real estate loans, loan-to-value ratios (the ratio that the original principal amount of the loan bears to the lower of the purchase price or appraised value of the property securing the loan at the time of origination) on loans originated by us typically do not exceed 80% and in practice, rarely exceed 75%. Debt service coverage ratios (the ratio of the net operating income generated by the property securing the loan to the required debt service) on multi-family and commercial real estate loans originated typically are not less than 1.2 times. As noted earlier, we may originate mortgage loans on vacant or substantially vacant properties and vacant land for which there is limited or no cash flow being generated by the operation of the underlying real estate. We may also require personal guarantees from the principals of our borrowers as additional security, although loans are often originated on a limited recourse basis. In originating loans, we consider the ability of the net operating income generated by the real estate to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and our lending experience with the borrower. Our loans are not insured or guaranteed by governmental agencies. In the event of a default, our ability to recover our investment is dependent upon the market value of the mortgaged property.

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Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

1. Description of Business and Summary of Significant Accounting Policies, Continued

Loans Receivable, Continued

The “all other loans” segment is comprised of a small number of business and consumer loans that are extended for various purposes, including lines of credit, personal loans, and personal loans collateralized by deposit accounts. Repayment of consumer loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to businesses and consumers are extended after a credit evaluation, including the creditworthiness of the borrower, the purpose of the credit, and the secondary source of repayment. Risk is mitigated somewhat by the fact that the loans are of smaller individual amounts.

Risk ratings. We categorize our loans into various risk categories (discussed below) based on an individual analysis of each loan’s quantitative factors and other relevant information, including: an analysis of the underlying collateral’s appraised value and its actual cash flows, with emphasis on projected or normalized cash flows in cases where the collateral currently has no or inadequate cash flows to service the debt; the ability of the borrowers to service their debt from other sources, including whether they have personally guaranteed the loan and the strength of that guaranty, which takes into account a review of their current personal financial information; credit and loan underwriting documentation; and other available pertinent information about the borrower or the collateral, such as an annual property inspection. All of our loans are assigned a risk grade upon based on the timely review, interpretation of and conclusions on the above data as received by us.

Loans are normally classified as pass credits until they become past due or management becomes aware of deterioration in cash flows and or the credit worthiness of the collateral or the borrower based on the information we collect and monitor. All of our pass-rated loans our generally reviewed annually to determine if they are appropriately classified. Loans rated substandard or special mention are reviewed at least quarterly or more often in some cases to determine if they are appropriately classified. Further, during the renewal process of any maturing loan, as well as if any loan becomes past due, the loan’s risk rating is also reviewed for appropriateness.

Our internally assigned risk grades and a general summary of the factors that determine the ratings are as follows:

Pass – Loan is normally current and its primary source of repayment is satisfactory, with secondary sources adequate and very likely to be realized if necessary. This category also contains loans where the underlying collateral is not producing cash flows or is producing in-adequate cash flows to service the loan’s required payments (such as in cases where the collateral is a vacant or substantially vacant building or land) and such payments are being made by the borrower’s other sources of funds. In many cases, the borrower or its principals has guaranteed the loan and or deposited escrow funds with us to cover the loan’s contractual payments for a portion of the loan term.

Special Mention – Loan is normally current but has one or more potential weaknesses that deserve close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the loan’s repayment prospects or our credit position at some future date.

Substandard – Loan is inadequately protected by the current worth and paying capacity of the borrower or of the underlying collateral. Such loans have a well-defined weakness or weaknesses that jeopardize the full repayment of the loan. These loans have the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

Doubtful – Loan has all the weaknesses inherent in one classified substandard with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss – Loan is considered uncollectible and of such little value that continuance as an asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be occur in the future.

77

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

1. Description of Business and Summary of Significant Accounting Policies, Continued

Loans Receivable, Continued

Restructured Loans (TDRs). A TDR is a loan that we have restructured, for 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. In order to be considered a TDR, we must conclude that the restructuring was to a borrower who is experiencing financial difficulties and the restructured loan constitutes a “concession”. We define a concession as a modification of existing terms granted to a borrower for economic or legal reasons related to the borrower’s financial difficulties. Concessions include modifying the original loan terms to reduce or defer cash payments required as part of the loan agreement, including but not limited to: a reduction of the stated interest rate for the remaining original life of the debt; an extension of the maturity date or dates at an interest rate lower than the current market rate for new debt with similar risk characteristics, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest owed on the 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 TDR.

In determining whether the borrower is experiencing financial difficulties, we consider, among other things, whether the borrower is in default on its existing loan, or is in an economic position where it is probable the borrower will be in default on its loan in the foreseeable future without a modification, including whether, without the modification, the borrower cannot obtain sufficient funds from other sources at an effective interest rate equal to the current market rate for similar debt for a non-troubled debtor. TDR loans are reviewed for specific impairment in accordance with our allowance for loan loss methodology with respect to impaired loans. A TDR that is on nonaccrual status is returned to an accrual status if ultimate collectability of the entire contractual principal is assured and the borrower has demonstrated satisfactory payment performance either before or after the restructuring, usually consisting of a six-month period.

Impaired Loans. Loans are deemed to be impaired when, based upon current information and events, it is probable that we will be unable to collect both principal and interest due according to the loan’s contractual terms. We consider a variety of factors in determining whether a loan is impaired, including (i) any notice from the borrower that the borrower will be unable to repay all principal and interest amounts contractually due under the loan agreement, (ii) any delinquency in the principal and/or interest payments other than minimal delays or shortfalls in payments, and (iii) other information known by us that would indicate the full repayment of principal and interest is not probable. We generally consider delinquencies of 60 days or less to be minimal delays, and accordingly we do not consider such delinquent loans to be impaired in the absence of other indications.

Our impaired loans normally consist of loans on nonaccrual status and TDRs. Generally, 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 and confirmed as a loss. The net carrying amount of an impaired loan (net of the valuation allowance) does not at any time exceed the recorded investment in the loan.

Allowance for Loan Losses and Loan Chargeoffs

The allowance for loan losses, which includes a valuation allowance for impaired loans, is netted against loans receivable and is increased by provisions charged to operations and decreased by chargeoffs (net of recoveries). The adequacy of the allowance is evaluated at least quarterly with consideration given to various factors beginning with our historical lending loss rate for each major loan type (exclusive of the impact of any transaction that is unusual and deemed not reflective of normal charge-off history).

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Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

1. Description of Business and Summary of Significant Accounting Policies, Continued

Allowance for Loan Losses and Loan Chargeoffs, Continued

The historical loss rate is then adjusted either upward or downward based on a review of the following qualitative factors and their estimated impact to the historical loss rate: (i) the size of our loans; (ii) concentrations of our loans; (iii) changes in the quality of our review of specific problem loans, including loans on nonaccrual status, and estimates of fair value of the underlying properties; (iv) changes in the volume of our past due loans, nonaccrual loans and adversely classified assets. (iv) specific problem loans and estimates of fair value of the related collateral; (v) adverse situations which may affect our borrowers’ ability to repay; (vi) changes in national, regional and local economic and business conditions and other developments that may affect the collectability of our loan portfolio, including impacts of political, regulatory, legal and competitive changes on the portfolio; (vii) changes to our lending policies and procedures, underwriting standards, risk selection (loan volumes and loan terms) and to our collection, loan chargeoff and recovery practices; and (viii) changes in the experience, ability and depth of our lending management and other relevant staff.

We fully or partially charge off an impaired loan when such amount has been deemed uncollectible and confirmed as a loss. In the case of impaired collateral dependent loans, we normally charge-off the portion of the loan’s recorded investment that exceeds the appraised value (net of estimated selling costs) of its underlying collateral. The remaining portion of the valuation allowance that we have provided and maintain on all of our impaired loans for the difference between the net appraised value and our internal estimate of fair value of the collateral is charged off only when such amount has been confirmed as a loss, either through the receipt of future appraisals or through our quarterly evaluation of the factors described below.

Consistent with regulatory guidance, we normally maintain a specific valuation allowance on each of our impaired loans. We believe it is prudent to do so because the process of estimating real estate values is imprecise and subject to changing market conditions which could cause fluctuations in estimated values. Estimates are subjective in nature, involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in any of the market assumptions could cause fair value estimates to deviate substantially. Furthermore, commercial real estate markets and national and local economic conditions remain weak; unemployment rates and vacancy rates in retail and office properties continue to be high; and the timing of the resolution of impaired loans in many cases remains uncertain, which increases the negative impact to the portfolio from further declines in real estate values.

Regulatory guidelines require that the appraised value of collateral should be used as a starting point for determining its estimated fair value. An institution should also consider other factors and events in the environment that may affect the current fair value of the collateral since the appraisal was performed. The institution’s experience with whether the appraised values of impaired collateral-dependent loans are actually realized should also be taken into account. In addition, the timing of when the cash flows are expected to be received from the underlying collateral could affect the fair value of the collateral if the timing was not contemplated in the appraisal. The consideration of all the above generally results in the appraised value of the collateral being greater than the institution’s estimate of the collateral’s fair value, less estimated costs to sell. As a consequence, an institution may necessarily still have a specific reserve on an impaired loan (whether or not a charge off has been taken) for the amount by which the institution’s estimated fair value of the collateral, less estimated costs to sell, is believed to be lower than its appraised value. As a result, we maintain a specific valuation allowance on all of our impaired loans for the reasons described above.

We estimate the fair value of the properties that collateralize our impaired loans based on a variety of information, including third party appraisals and our management’s judgment of other factors. Our internal policy is to obtain externally prepared appraisals as follows (i) for all impaired loans; (ii) for all restructured or renewed loans; (iii) upon classification or downgrade of a loan; (iv) upon completion of foreclosure and acquisition of the collateral property; and at least annually thereafter for all impaired and substandard rated loans and real estate owned through foreclosure.

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Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

1. Description of Business and Summary of Significant Accounting Policies, Continued

Allowance for Loan Losses and Loan Chargeoffs, Continued

In addition, we also consider the knowledge and experience of our two senior lending officers (our Chairman and INB’s President) and INB’s Chief Credit Officer related to values of properties in our lending markets. They take into account various information, including: discussions with real estate brokers and interested buyers, local and national real estate market data provided by third parties; the consideration of the type, condition, location, demand for and occupancy of the specific collateral property and current economic and real estate market conditions in the area the property is located in assessing our internal estimates of fair value.

Our regulators, as an integral part of their examination process, also periodically review our allowances for loan and real estate losses. Accordingly, we may be required to take chargeoffs and/or recognize additions to these allowances based on the regulators’ judgment concerning information available to them during their examination. There were no changes to our methodology for the allowance for loan loss during the reporting periods in this report.

Premises and Equipment

Land is carried at cost. Buildings, leasehold improvements and furniture, fixtures and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful life of the asset. Leasehold improvements are amortized using the straight-line method over the terms of the related leases, or the useful life of the asset, whichever is shorter. Maintenance, repairs and minor improvements are expensed as incurred, while major improvements are capitalized.

Deferred Debenture Offering Costs

Costs relating to offerings of our debentures consisting primarily of underwriters’ commissions are amortized over the life of the debentures. At December 31, 2013, these costs totaled approximately $0.7 million, net of accumulated amortization of $0.4 million. At December 31, 2012, these costs totaled approximately $0.8 million, net of accumulated amortization of $0.3 million.

Foreclosed Real Estate and Valuation Allowance For Real Estate Losses

Real estate that we acquire through loan foreclosure or similar proceedings is held for sale. At the time we acquire the property, the related loan is transferred from the loan portfolio to foreclosed real estate at the estimated fair value of the property less estimated selling costs. Such amount becomes the new cost basis of the property. Adjustments made to reduce the carrying value at the time of transfer are charged to the allowance for loan losses.

We may periodically adjust the carrying values of the real estate to reflect decreases in its estimated fair value through a charge to earnings (recorded as a provision for real estate losses) and an increase to the valuation allowance for real estate losses. As the properties are sold, the valuation allowance associated with the property, if any, is charged off. We determine the estimated fair value of foreclosed real estate at least quarterly by performing market valuations of the properties, which normally consist of obtaining externally prepared appraisals at least annually for every property, as well as performing reviews of economic and real estate market conditions in the local area where the property is located, including taking into consideration discussions with real estate brokers and interested buyers, in order to determine if a valuation allowance is needed to reflect any decrease in the estimated fair value of the property since acquisition.

Revenue and expenses from the operations of foreclosed real estate are included in the caption “Real Estate Activities” in the consolidated statements of earnings. This line item is comprised of real estate taxes, repairs and maintenance, insurance, utilities, legal fees and other charges (net of any rental income earned from the operation of the property) that are required in protecting our interest in real estate acquired through foreclosure and various properties collateralizing our nonaccrual loans.

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Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

1. Description of Business and Summary of Significant Accounting Policies, Continued

Stock-Based Compensation

We recognize the cost of our employee and director services received in exchange for awards of our equity instruments (such as restricted stock and stock options grants) based on the grant-date fair value of the awards. Compensation cost related to the awards is recognized on a straight-line basis over the requisite service period, which is normally the vesting period of the grants. The fair value of options granted is estimated using the Black-Scholes option-pricing model based on various assumptions that are described in note 13. The fair value of restricted stock grants is based on the closing market value of the stock as reported on the Nasdaq Stock Market on the grant date.

Advertising Costs

Advertising costs are expensed as incurred and amounted to $23,000 in 2013, $17,000 in 2012 and $26,000 in 2011.

Income Taxes

Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to our taxable income or loss. Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates, applicable to future years, to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. Certain tax benefits attributable to stock options, restricted stock and warrants are credited to additional paid-in-capital. Accruals of interest and penalties related to unrecognized tax benefits are recognized in income tax expense.

Uncertain tax positions are recognized if it is more likely (a likelihood of more than 50 percent) than not that the tax position will be realized or sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. At December 31, 2013, we were not aware of any uncertain tax positions that would have a material effect on our financial statements.

Earnings Per Common Share

Basic earnings per common share is calculated by dividing net earnings available to common stockholders by the weighted-average number of shares of all common stock outstanding during the reporting period. Unvested restricted stock is deemed to be issued and outstanding. Diluted earnings per common share is calculated by dividing net earnings available to common stockholders by the weighted-average number of shares of common stock and dilutive potential common stock shares that may be outstanding in the future. Potential common stock shares consist of shares that may arise from outstanding dilutive common stock warrants and options (the number of which is computed using the “treasury stock method”).

When applying the treasury stock method, we add: the assumed proceeds from stock option and warrant exercises; the tax benefit that would have been credited to additional paid-in capital assuming exercise of non-qualified stock options and warrants and the unamortized compensation costs related to unvested shares of stock options and warrants. We then divide this sum by our average stock price for the period to calculate shares assumed to be repurchased. The excess of the number of shares issuable over the number of shares assumed to be repurchased is added to basic weighted average common shares to calculate diluted earnings per common share.

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Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

1. Description of Business and Summary of Significant Accounting Policies, Continued

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net earnings. However, certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the stockholders’ equity section of the consolidated balance sheet, such items along with net earnings, are components of comprehensive income.

Off-Balance Sheet Financial Instruments

We enter into off-balance sheet financial instruments consisting of commitments to extend credit, unused lines of credit and from time to time standby letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded or related fees are received.

Recent Accounting Standards Update

In July 2012, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (ASU) 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment,” which, among other things, gives an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. We adopted this ASU on January 1, 2013, and since we do not have intangible assets, it had no impact on our financial statements.

In January 2013, the FASB issued ASU No. 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” which limits the scope of the new balance sheet offsetting disclosures in ASU 2011-11 to derivatives, repurchase agreements, and securities lending transactions to the extent that they are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or similar agreement. We adopted this ASU on February 1, 2013 and it had no impact on our financial statements.

In February 2013, the FASB Issued ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which requires entities to present information about reclassification adjustments from accumulated other comprehensive income in their annual financial statements in a single note or on the face of the financial statements. We adopted this ASU on March 1, 2013 and it had no impact on our financial statements.

In February 2013, the FASB Issued ASU No. 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date”. ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for obligations within the scope of this ASU, which is effective January 1, 2014. Upon adoption, we do not expect this ASU to impact our financial statements.

In July 2013, the FASB issued ASU No. 2013-10, “Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes”. ASU No. 2013-10 permits the use of the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge account purposes. The amendment is effective prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. The adoption of ASU No. 2013-10 did have an impact on our financial statements.

In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which among other things, require an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as denoted within the ASU. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We are currently evaluating the impact of ASU 2013-11 on our financial statements.

82

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

2. Securities Held to Maturity and Available for Sale

The carrying value (amortized cost) and estimated fair value of securities held to maturity (“HTM”) 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 December 31, 2013
U.S. government agencies (1)		161	$	305,906	$	410	$	4,947	$	301,369		0.94	%	3.0 Yrs	3.8 Yrs
Residential mortgage-backed (2)		57		77,500		130		1,017		76,613		1.79	%	4.3 Yrs	14.7 Yrs
State and municipal		1		531		—		6		525		1.25	%	3.2 Yrs	3.3 Yrs
		219	$	383,937	$	540	$	5,970	$	378,507		1.11	%	3.3Yrs	6.0 Yrs
At December 31, 2012
U.S. government agencies (1)		165	$	355,244	$	1,109	$	233	$	356,120		0.87	%	1.6 Yrs	4.6 Yrs
Residential mortgage-backed (2)		48		84,279		651		72		84,858		1.76	%	3.3 Yrs	17.3 Yrs
State and municipal		1		533		—		3		530		1.25	%	4.2 Yrs	4.3 Yrs
Corporate (3)		8		3,721		—		3,063		658		2.11	%	20.3 Yrs	20.9 Yrs
		222	$	443,777	$	1,760	$	3,371	$	442,166		1.05	%	2.0 Yrs	7.1 Yrs

(1) Consisted of debt obligations of U.S. government sponsored agencies (GSEs) - Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB), Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC), which 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. FNMA and FHLMC are under U.S. government conservatorship.

(2) At December 31, 2013, consisted of $13.6 million of Government National Mortgage Association (GNMA) pass-through certificates, $45.6 million of FNMA participation certificates and $18.3 million of FHLMC participation certificates, compared to $18.7 million, $40.0 million and $25.6 million, respectively, at December 31, 2012. 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 and FHLMC certificates have an implied guarantee by such agency as to principal and interest payments.

(3) Consisted of variable-rate pooled trust preferred securities backed by obligations of companies in the banking industry. Amortized cost at December 2012 is reported net of other than temporary impairment (“OTTI”) charges of $4.2 million. During 2013, an additional $1.0 million of OTTI charges were recorded. In December 2013, these securities were transferred to available for sale and subsequently sold.

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

($ in thousands)	Number of Securities		Less Than Twelve Months				Twelve Months or Longer				Total
			Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
At December 31, 2013
U.S. government agencies		130	$	233,930	$	4,791	$	7,344	$	156	$	241,274	$	4,947
Residential mortgage-backed		41		48,862		987		3,284		30		52,146		1,017
State and municipal		1		525		6		—		—		525		6
		172	$	283,317	$	5,784	$	10,628	$	186	$	293,945	$	5,970
At December 31, 2012
U.S. government agencies		53	$	129,365	$	233	$	—	$	—	$	129,365	$	233
Residential mortgage-backed		14		24,481		72		—		—		24,481		72
State and municipal		1		530		3		—		—		530		3
Corporate		8		—		—		658		3,063		658		3,063
		76	$	154,376	$	308	$	658	$	3,063	$	155,034	$	3,371

At December 31, 2013, all of the securities were investment grade rated. The securities had either fixed interest rates or had predetermined scheduled interest rate increases and nearly all had 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.

83

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

2. Securities Held to Maturity and Available for Sale, Continued

At December 31, 2013 and 2012, INB, which owned the HTM portfolio, also had the ability and intent to hold all of the 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. Accordingly, we viewed all the gross unrealized losses related to the HTM portfolio as of those dates to be temporary for the reasons noted above.

Except for corporate securities, the estimated fair values disclosed in this footnote for HTM securities were obtained from a third-party pricing service that used Level 2 inputs. For corporate securities, estimated fair value relied on a complex valuation model that factored in numerous assumptions and data, including anticipated discounts related to illiquid trading markets, credit and interest rate risk, which are Level 3 inputs.

The following table is a summary of the carrying value (amortized cost) and estimated fair value of HTM securities at December 31, 2013, by remaining period to contractual maturity (ignoring earlier call dates, if any). The amounts reported in the table also did not consider the effects of possible prepayments or unscheduled repayments. Accordingly, actual maturities may differ from contractual maturities shown in the table.

($ in thousands)	Amortized Cost		Estimated Fair Value		Wtd-Avg Yield
Due in one year or less	$	12,329	$	12,394		1.27	%
Due after one year through five years		262,878		259,611		0.90
Due after five years through ten years		56,507		54,962		1.38
Due after ten years		52,223		51,540		1.87
	$	383,937	$	378,507		1.11	%

Prior to December 13, 2013, INB also owned corporate securities that were also classified as HTM. The investments consisted of mezzanine-class, variable-rate pooled trust preferred securities backed by debt obligations of companies in the banking industry. At the time of purchase in 2006 and 2007, these securities were investment grade rated, but subsequently their credit standing slowly deteriorated due to various factors, all of which severely reduced the demand for these securities, depressed their market values and rendered their trading market inactive. As a result and based on various assumptions and present value analyses of projected cash flows, the securities were deemed to be other than temporarily impaired (OTTI) to varying degrees. A total of $5.2 million of credit losses (or OTTI charges) were recorded on these securities since the end of 2008.

The table below provides a roll forward of credit losses recognized on the corporate securities for the periods indicated.

	For the Year Ended December 31,
($ in thousands)	2013		2012		2011
Balance at beginning of period	$	4,233	$	3,651	$	3,450
Additional credit losses on debt securities for which OTTI was previously recognized		964		582		201
Balance at end of period	$	5,197	$	4,233	$	3,651

In December 2013, INB no longer had the intention or ability to hold the corporate securities to maturity (due to their non-investment grade status as well as a new regulatory rule (the “Volcker Rule” issued by federal regulators in December 2013 pursuant to the Dodd-Frank Act) that likely would have required INB to sell the securities). Consequently, the securities were transferred to available for sale from HTM and subsequently sold in December 2013.

The table below provides information ($ in thousands) regarding the corporate securities as of the date of sale.

Original Cost Basis	Cumulative Cash Payments Applied to Cost			Cumulative OTTI Charges			Net Carrying Value		Net Proceeds from Sale		Net Gain on Sale
$8,029	$	(263	)	$	(5,197	)	$	2,569	$	4,050	$	1,481

At December 31, 2013 and 2012, the carrying value (estimated fair value) of securities available for sale amounted to approximately $1.0 million. The investment represented approximately 91,700 and 90,000 shares, respectively, of an intermediate bond fund that holds securities that are deemed to be qualified under the Community Reinvestment Act.

84

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

3. Loans Receivable

Major classifications of loans receivable are summarized as follows:

	At December 31, 2013					At December 31, 2012
($ in thousands)	# of Loans		Amount			# of Loans		Amount
Loans Secured By Real Estate:
Commercial loans		394	$	838,766			376	$	852,213
Multifamily loans		138		210,270			142		208,699
One to four family loans		20		72,064			13		41,676
Land loans		5		9,178			7		7,167
		557		1,130,278			538		1,109,755
All Other Loans:
Business loans		19		1,061			18		949
Consumer loans		12		211			12		359
		31		1,272			30		1,308
Loans receivable, gross		588		1,131,550			568		1,111,063
Deferred loan fees				(4,028	)				(3,597	)
Loans receivable, net of deferred fees				1,127,522					1,107,466
Allowance for loan losses				(27,833	)				(28,103	)
Loans receivable, net			$	1,099,689				$	1,079,363

Loans 90 days past due and still accruing interest - At December 31, 2013, there were three loans totaling $4.1 million, compared to two loans totaling $4.4 million at December 31, 2012. These loans had matured and were in the process of being extended as of those dates. The borrowers were making the required monthly loan payments.

Loans on nonaccrual status - At December 31, 2013 and 2012, there were $35.9 million and $45.9 million of loans, respectively, on nonaccrual status, which included restructured loans (or “TDRs”) of $33.2 million and $36.3 million, respectively. All the TDRs were current and performing in accordance with their restructured terms but were maintained on nonaccrual status based on regulatory guidance.

TDRs on accrual status - At December 31, 2013 and 2012, there were $13.5 million and $20.1 million of TDR loans, respectively, classified as accruing TDRs.

All of our nonaccrual loans and TDR loans were considered impaired loans. At December 31, 2013, we also had one performing and accruing loan of $7.8 million that was classified as impaired.

The tables below summarize certain information regarding our impaired loans as follows:

($ in thousands)	Recorded Investment by State (1)																Specific Valuation Allowance (2)		Total Unpaid Principal (3)		# of Loans
At December 31, 2013 Type	NY		FL		VA		GA		CT		OH		SD		Total
Retail	$	8,223	$	9,005	$	7,828	$	—	$	2,719	$	1,000	$	—	$	28,775	$	3,052	$	36,216		7
Office Building		—		14,937		—		8,695		—		—		—		23,632		1,947		23,632		3
Multifamily		—		3,128		—		—		—		—		—		3,128		594		3,128		2
Land		—		—		—		—		—		—		1,625		1,625		500		1,625		1
Totals	$	8,223	$	27,070	$	7,828	$	8,695	$	2,719	$	1,000	$	1,625	$	57,160	$	6,093	$	64,601		13

($ in thousands)	Recorded Investment by State (1)												Specific Valuation Allowance (2)		Total Unpaid Principal (3)		# of Loans
At December 31, 2012 Type	NY		FL		NJ		OH		SD		Total
Retail	$	11,837	$	9,005	$	—	$	1,000	$	—	$	21,842	$	1,966	$	27,596		6
Office Building		—		17,988		883		—		—		18,871		583		19,621		3
Warehouse		950		—		—		—		—		950		28		950		1
Mixed-use commercial		8,632		—		500		—		—		9,132		1,248		9,421		4
Multifamily		—		12,577		—		—		—		12,577		1,542		14,225		6
Land		515		—		—		—		2,086		2,601		521		2,601		3
Totals	$	21,934	$	39,570	$	1,383	$	1,000	$	2,086	$	65,973	$	5,888	$	74,414		23

(1) Represents unpaid principal less partial principal charge offs and interest received and applied as a reduction of principal in certain cases.

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

All impaired loans at the dates indicated in the table had a specific valuation allowance.

(3) Represents contractual unpaid principal balance (shown for informational purposes only). The borrowers are obligated to pay such amounts.

However, the ultimate collection by us of such amounts in this column is not assured.

85

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

3. Loans Receivable, Continued

Other information related to our impaired loans is summarized as follows:

	For the Year Ended December 31,
($ in thousands)	2013		2012		2011
Average recorded investment in nonaccrual loans	$	40,345	$	52,199	$	51,356
Total cash basis interest income recognized on nonaccrual loans		2,265		2,660		2,437
Average recorded investment in accruing TDR loans		13,918		12,289		5,417
Total interest income recognized on accruing TDR loans under modified terms		734		739		299

Age analysis of our loan portfolio by segment at December 31, 2013 is summarized as follows:

($ in thousands)	Total Portfolio		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	$	802,863	$	796,980	$	1,796	$	—	$	4,087	$	5,883	$	—
Multifamily		210,270		209,426		844		—		—		844		—
One to four family		72,064		72,064		—		—		—		—		—
Land		9,178		9,178		—		—		—		—		—
All other		1,272		1,271		1		—		—		1		—
Total accruing loans		1,095,647		1,088,919		2,641		—		4,087		6,728		—
Nonaccrual Loans (1):
Commercial real estate		35,903		35,903		—		—		—		—		35,903
Total nonaccrual loans		35,903		35,903		—		—		—		—		35,903
Total loans	$	1,131,550	$	1,124,822	$	2,641	$	—	$	4,087	$	6,728	$	35,903

Age analysis of our loan portfolio by segment at December 31, 2012 is summarized as follows:

($ in thousands)	Total Portfolio		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	$	816,357	$	799,130	$	12,836	$	—	$	4,391	$	17,227	$	—
Multifamily		198,942		198,942		—		—		—		—		—
One to four family		41,676		41,676		—		—		—		—		—
Land		6,882		4,221		2,661		—		—		2,661		—
All other		1,308		1,308		—		—		—		—		—
Total accruing loans		1,065,165		1,045,277		15,497		—		4,391		19,888		—
Nonaccrual Loans (1):
Commercial real estate		35,856		32,701		—		—		3,155		3,155		35,856
Multifamily		9,757		7,261		—		—		2,496		2,496		9,757
Land		285		285		—		—		—		—		285
Total nonaccrual loans		45,898		40,247		—		—		5,651		5,651		45,898
Total loans	$	1,111,063	$	1,085,524	$	15,497	$	—	$	10,042	$	25,539	$	45,898

(1) The amount of nonaccrual loans in the current column included $33.2 million of TDRs at December 31, 2013 and $36.3 million of TDRs at December 31, 2012 for which payments were 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 collectible.

86

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

3. Loans Receivable, Continued

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

($ in thousands)	Pass		Special Mention		Substandard (1)		Total
At December 31, 2013
Commercial real estate	$	772,900	$	3,522	$	62,344	$	838,766
Multifamily		204,298		2,369		3,603		210,270
One to four family		72,064		—		—		72,064
Land		7,553		—		1,625		9,178
All other		1,272		—		—		1,272
Total loans	$	1,058,087	$	5,891	$	67,572	$	1,131,550
Allocation of allowance for loan losses	$	20,720	$	169	$	6,944	$	27,833
At December 31, 2012
Commercial real estate	$	775,136	$	17,041	$	60,036	$	852,213
Multifamily		193,738		2,384		12,577		208,699
One to four family		41,676		—		—		41,676
Land		4,566		—		2,601		7,167
All other		1,308		—		—		1,308
Total loans	$	1,016,424	$	19,425	$	75,214	$	1,111,063
Allocation of allowance for loan losses	$	20,037	$	443	$	7,623	$	28,103

(1) Substandard loans consisted of $35.9 million of nonaccrual loans, $13.1 million of accruing TDRs and $18.6 million of other performing loans at December 31, 2013, compared to $45.9 million of nonaccrual loans, $20.1 million of accruing TDRs and $9.2 million of other performing loans at December 31, 2012. At December 31, 2013, we also had one accruing TDR for $0.4 million which was rated pass.

The geographic distribution of the loan portfolio by state follows:

($ in thousands)	At December 31, 2013					At December 31, 2012
	Amount		% of Total			Amount		% of Total
New York	$	670,052		59.2	%	$	717,141		64.5	%
Florida		321,812		28.4			286,619		25.8
North Carolina		22,611		2.0			14,256		1.3
Georgia		18,799		1.7			11,752		1.1
Pennsylvania		16,898		1.5			10,270		0.9
New Jersey		15,650		1.4			26,425		2.4
Kentucky		11,930		1.1			7,512		0.7
Virginia		11,491		1.0			11,758		1.1
South Carolina		9,223		0.8			5,853		0.5
Connecticut		8,429		0.7			11,216		1.0
Tennessee		5,843		0.5			770		0.1
Michigan		5,599		0.5			450		0.0
Ohio		4,703		0.4			2,260		0.2
Indiana		2,820		0.2			1,098		0.1
All other states		5,690		0.5			3,683		0.3
	$	1,131,550		100.0	%	$	1,111,063		100.0	%

Information regarding loans restructured during 2013 and 2012 is as follows:

		Number		Recorded Investment
($ in thousands)		of Loans		Pre-Modification		Post-Modification
In 2013	- Commercial real estate - extended maturity date		2	$	9,159	$	9,159
In 2012	- Commercial real estate - extended maturity date		1	$	5,010	$	5,010
	- Multifamily - extended maturity date		1		1,805		1,805
	- Land - extended maturity date		2		520		520
			4	$	7,335	$	7,335

During 2013, there was one TDR in the amount of $3.0 million that defaulted in March 2013 and it was subsequently paid off in June 2013. During 2013, one TDR in the amount of $1.9 million matured. The loan was re-financed by INB and transferred to a performing non-TDR category since the borrower was no longer experiencing financial difficulties. For 2012, there were no TDRs that defaulted or TDRs transferred to a non-TDR loan category.

87

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

3. Loans Receivable, Continued

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

($ in thousands)	At December 31, 2013		At December 31, 2012
Performing - nonaccrual status	$	33,184	$	36,291
Performing - accrual status		13,429		20,076
	$	46,613	$	56,367
Commercial real estate	$	41,860	$	43,685
Multifamily		3,128		10,081
Land		1,625		2,601
	$	46,613	$	56,367
New York	$	8,223	$	18,478
Florida		27,070		33,920
New Jersey		—		883
Georgia		8,695		—
Ohio		1,000		1,000
South Dakota		1,625		2,086
	$	46,613	$	56,367

4. Allowance for Loan Losses

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

($ in thousands)	Commercial Real Estate			Multifamily			One to Four Family		Land			All Other			Total
Balance at December 31, 2010	$	21,919		$	11,234		$	122	$	1,553		$	12		$	34,840
Loan chargeoffs		(7,186	)		(2,412	)		—		—			—			(9,598	)
Loan recoveries		90			65			—		—			—			155
Provision (credit) for loan losses		4,333			(39	)		210		516			(2	)		5,018
Balance at December 31, 2011	$	19,156		$	8,848		$	332	$	2,069		$	10		$	30,415
Loan chargeoffs		(2,588	)		(564	)		—		—			—			(3,152	)
Loan recoveries		507			333			—		—			—			840
Provision (credit) for loan losses		1,976			(1,736	)		788		(1,026	)		(2	)		—
Balance at December 31, 2012	$	19,051		$	6,881		$	1,120	$	1,043		$	8		$	28,103
Loan chargeoffs		(1,932	)		(6	)		—		—			—			(1,938	)
Loan recoveries		1,053			682			—		483			—			2,218
Provision (credit) for loan losses		231			(2,460	)		1,897		(218	)		—			(550	)
Balance at December 31, 2013	$	18,403		$	5,097		$	3,017	$	1,308		$	8		$	27,833

The following table sets forth the balances of our loans receivable by segment and impairment evaluation and the allowance for loan losses associated with such loans at December 31, 2013.

($ in thousands)	Commercial Real Estate		Multifamily		One to Four Family		Land		All Other		Total
Loans:
Individually evaluated for impairment	$	52,407	$	3,128	$	—	$	1,625	$	—	$	57,160
Collectively evaluated for impairment		786,359		207,142		72,064		7,553		1,272		1,074,390
Total loans	$	838,766	$	210,270	$	72,064	$	9,178	$	1,272	$	1,131,550
Allowance for loan losses:
Individually evaluated for impairment (1)	$	4,999	$	594	$	—	$	500	$	—	$	6,093
Collectively evaluated for impairment		13,404		4,503		3,017		808		8		21,740
Total allowance for loan losses	$	18,403	$	5,097	$	3,017	$	1,308	$	8	$	27,833

(1) See note 3 to financial statements in this report.

88

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

4. Allowance for Loan Losses, Continued

The following table sets forth the balances of our loans receivable by segment and impairment evaluation and the allowance for loan losses associated with such loans at December 31, 2012.

($ in thousands)	Commercial Real Estate		Multifamily		One to Four Family		Land		All Other		Total
Loans:
Individually evaluated for impairment	$	50,795	$	12,577	$	—	$	2,601	$	—	$	65,973
Collectively evaluated for impairment		801,418		196,122		41,676		4,566		1,308		1,045,090
Total loans	$	852,213	$	208,699	$	41,676	$	7,167	$	1,308	$	1,111,063
Allowance for loan losses:
Individually evaluated for impairment (1)	$	3,825	$	1,542	$	—	$	521	$	—	$	5,888
Collectively evaluated for impairment		15,226		5,339		1,120		522		8		22,215
Total allowance for loan losses	$	19,051	$	6,881	$	1,120	$	1,043	$	8	$	28,103

(1) See note 3 to financial statements in this report.

5. Premises and Equipment, Lease Commitments, Rental Expense and Sublease Income

Premises and equipment is as follows:

	At December 31,
($ in thousands)	2013			2012
Land	$	1,264		$	1,264
Buildings		5,214			5,020
Leasehold improvements		1,786			1,632
Furniture, fixtures and equipment		1,713			1,770
Total cost		9,977			9,686
Less accumulated deprecation and amortization		(5,921	)		(5,808	)
Net book value	$	4,056		$	3,878

The offices of IBC and INB’s headquarters and full-service banking office are located in leased premises on the entire fourth floor of One Rockefeller Plaza in New York City, with such lease expiring in March 2024. In addition, INB leases its Belcher Road and Mandalay Avenue branch offices in Florida, with such leases expiring in September 2022 and January 2016, respectively. All the leases above contain operating escalation clauses related to taxes and operating costs based upon various criteria and are accounted for as operating leases. INB owns all of its remaining offices in Florida and also leases a portion of the space in its office buildings in Florida that is not used for banking operations to other companies under leases that have expiration dates at various times through August 2017.

Depreciation and amortization of premises and equipment is reflected as a component of noninterest expense in the consolidated statements of earnings and amounted to $0.4 million in 2013, 2012 and 2011.

Future minimum annual lease payments and sublease income due under non-cancelable leases at December 31, 2013 are as follows:

	Minimum Rentals
($ in thousands)	Lease Expense (1)		Sublease Income (2)
In 2014	$	1,540	$	276
In 2015		1,569		245
In 2016		1,506		229
In 2017		1,504		153
In 2018		1,507		—
Thereafter		8,314		—
	$	15,940	$	903

(1) Rent expense under operating leases aggregated to $1.6 million in 2013, $1.5 million in 2012 and $1.2 million in 2011.

(2) Rent income aggregated to $0.4 million in 2013, 2012 and 2011.

89

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

6. Foreclosed Real Estate and Valuation Allowance for Real Estate Losses

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

	At December 31, 2013				At December 31, 2012
($ in thousands)	# of Properties		Amount (1)		# of Properties		Amount (1)
Commercial real estate		2	$	3,984		2	$	2,790
Multifamily		1		6,685		3		12,000
Land		—		—		1		1,133
Real estate acquired through foreclosure		3	$	10,669		6	$	15,923

(1) Reported net of any associated valuation allowance.

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

	For the Year Ended December 31,
($ in thousands)	2013			2012			2011
Valuation allowance at beginning of year	$	5,339		$	6,037		$	2,688
Provision for real estate losses charged to expense		1,105			4,068			3,349
Real estate chargeoffs:
Commercial real estate		(256	)		(2,280	)		—
Multifamily		(3,157	)		—			—
Land		(1,014	)		(2,486	)		—
Total real estate chargeoffs		(4,427	)		(4,766	)		—
Valuation allowance at end of year	$	2,017		$	5,339		$	6,037

7. Deposits

Scheduled maturities of certificates of deposit accounts (CDs) are as follows:

	At December 31, 2013					At December 31, 2012
($ in thousands)	Amount		Wtd-Avg Stated Rate			Amount		Wtd-Avg Stated Rate
Within one year	$	307,122		1.97	%	$	519,236		2.92	%
Over one to two years		167,323		1.92			181,698		2.79
Over two to three years		170,956		1.92			89,049		2.74
Over three to four years		106,700		2.50			60,119		3.02
Over four years		129,678		2.06			86,776		2.93
	$	881,779		2.03	%	$	936,878		2.89	%

CDs of $100,000 or more totaled $473 million at December 31, 2013 and $463 million at December 31, 2012 and included brokered CDs of $91 million and $78 million, respectively. At December 31, 2013, all CDs of $100,000 or more (inclusive of brokered CDs) by remaining maturity were as follows: $143 million due within one year; $75 million due over one to two years; $107 million due over two to three years; $67 million due over three to four years; and $81 million due thereafter. At December 31, 2013, brokered CDs had a weighted average rate of 3.01% and their remaining maturities were as follows: $23 million due within one year; $5 million due over one to two years; $13 million due over two to three years; $29 million due over three to four years and $21 million due over four years.

Interest expense on deposit accounts is as follows:

	For the Year Ended December 31,
($ in thousands)	2013		2012		2011
Interest checking accounts	$	65	$	65	$	79
Savings accounts		29		34		58
Money market accounts		1,530		2,142		3,669
Certificates of deposit accounts		23,806		33,590		43,776
	$	25,430	$	35,831	$	47,582

We have deposit accounts from affiliated companies, our directors, our executive officers and members of their immediate families and related business interests of approximately $3.7 million at December 31, 2013 and $3.4 million at December 31, 2012.

90

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

8. FHLB Advances and Lines of Credit

At December 31, 2013, INB had $24 million of unsecured credit lines that were cancelable by the lender at any time. As a member of the FHLB and the FRB, INB can borrow from these institutions on a secured basis. At December 31, 2013, INB had available collateral consisting of investment securities and certain loans that could be pledged to support additional total borrowings of approximately $403 million from the FHLB and FRB, if needed.

The following is a summary of certain information regarding INB’s borrowings in the aggregate:

	At or For the Year Ended December 31,
($ in thousands)	2013			2012			2011
Balance at year end	$	—		$	—		$	17,500
Maximum amount outstanding at any month end during the year	$	—		$	13,500		$	25,500
Average outstanding balance for the year	$	295		$	9,087		$	21,574
Weighted-average interest rate paid for the year		0.38	%		4.27	%		4.10	%
Weighted-average interest rate at year end		—			—			4.10	%

In November 2012, FHLB advances totaling $7.0 million were repaid with cash on hand prior to their stated maturity. A loss of $0.2 million from the early extinguishment of these advances was recorded. This loss represented a prepayment penalty associated with the early retirement of these advances.

9. Subordinated Debentures - Capital Securities

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

	At December 31, 2013							At December 31, 2012
($ in thousands)	Principal		Accrued Interest Payable		Interest Rate			Principal		Accrued Interest Payable		Interest Rate
Capital Securities II - debentures due September 17, 2033	$	15,464	$	275		3.19	%	$	15,464	$	1,661		3.26	%
Capital Securities III - debentures due March 17, 2034		15,464		261		3.03	%		15,464		1,577		3.10	%
Capital Securities IV - debentures due September 20, 2034		15,464		223		2.65	%		15,464		1,370		2.71	%
Capital Securities V - debentures due December 15, 2036		10,310		109		1.89	%		10,310		1,620		1.96	%
	$	56,702	$	868				$	56,702	$	6,228

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 (the “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, III and 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 December 31, 2013. There were no issuance costs for Capital Securities V.

Interest payments on the 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.

91

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

9. Subordinated Debentures - Capital Securities, Continued

Interest payments may be deferred at any time and from time to time during the term of the Debentures at IBC’s election for up to 20 consecutive quarterly periods, or 5 years, with no limitations on the number of deferral periods. IBC may elect, provided, however, no deferral period may extend beyond the maturity date of the Debentures. During an interest deferral period, interest will continue to accrue on the 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 Debentures. In February 2010, as required by its primary regulator, IBC exercised its right to defer interest payments as described above. In June 2013, IBC, with approval from its regulator, repaid all accrued interest payments in arrears as of that date on the Debentures. In September 2013, IBC again exercised its right to defer interest payments on the Debentures due to the restrictions of its written agreement with its regulator.

The Capital Securities are subject to mandatory redemption as follows: (i) in whole, but not in part, upon repayment of the 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 Debentures; and (ii) in whole or in part at any time contemporaneously with the optional redemption by IBC of the Debentures in whole or in part. Any redemption would be subject to the receipt of regulatory approvals.

10. Stockholders’ Equity and Redemption of Preferred Stock

Prior to May 24, 2012, IBC had two classes of authorized common stock - Class A and Class B. At IBC’s 2012 Annual Meeting of Stockholders held on May 24, 2012, stockholders approved an amendment and restatement of 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.”

IBC is 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.

From December 23, 2008 through June 24, 2013 a total of 25,000 shares of preferred stock were designated as Series A (the “Preferred Stock”) and were owned by the U.S. Department of the Treasury (the “Treasury”). The Preferred Stock was issued to the Treasury by IBC in connection with IBC’s participation in the Capital Purchase Program (the “CPP”) under the Treasury’s Troubled Asset Relief Program (“TARP”), together with a ten-year warrant (the “Warrant”) to purchase 691,882 shares of IBC’s common stock at an exercise price of $5.42 per share. In February 2010, IBC ceased the declaration and payment of dividends on the Preferred Stock as required by IBC’s primary regulator.

On June 6, 2013, the Treasury announced its intent to sell its investment in IBC’s Preferred Stock, along with similar investments the Treasury had made in five other financial institutions, primarily to qualified institutional buyers and certain institutional accredited investors. IBC obtained regulatory approvals allowing it to participate in the auction. Using a modified Dutch auction methodology that established a market price by allowing investors to submit bids at specified increments during the period from June 10 through June 13, 2013, the Treasury auctioned all of IBC’s 25,000 shares of Preferred Stock. IBC was the winning bidder on 6,250 shares of the Preferred Stock and the remaining 18,750 shares were purchased by unrelated third parties. The closing price of the auctioned shares was $970.00 per share.

92

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

10. Stockholders’ Equity and Redemption of Preferred Stock, Continued

On June 24, 2013, IBC completed the repurchase of 6,250 shares of the Preferred Stock from the Treasury and those shares were retired. The shares were repurchased for $6.1 million, plus an additional $1.2 million in accrued and unpaid dividends through June 24, 2013, for a total of $7.3 million.

On August 15, 2013, IBC redeemed the remaining 18,750 shares of the Preferred Stock held by the unrelated third parties for a purchase price equaling the stated liquidation value of $1,000 per share, plus accumulated and unpaid dividends earned through August 15, 2013. The total cost of redeeming these shares was $22.6 million, which included $3.9 million of accrued and unpaid dividends. IBC received all necessary regulatory approvals to complete the redemption. The Treasury continued to hold the Warrant as of December 31, 2013.

11. Asset and Dividend Restrictions

INB is required under FRB regulations to maintain reserves against its transaction accounts. At December 31, 2013 and 2012, balances maintained as reserves were approximately $1.0 million. The FRB pays interest on required and excess reserve balances based on a defined formula.

As a member of the FRB and FHLB, INB must maintain an investment in the capital stock of each entity. At December 31, 2013 and 2012, the total investment aggregated to $8.2 million. At December 31, 2013 and 2012, U.S. government agency security investments with a carrying value of approximately $27 million and $17 million, respectively, were pledged against lines of credit. At December 31, 2013 and 2012, certain mortgage loans totaling approximately $71 million and $105 million, respectively, were also pledged against lines of credit.

The payment of cash dividends by IBC to its common and preferred shareholders and the payment of cash dividends by INB to IBC are subject to various regulatory restrictions, as well as restrictions that may arise from any outstanding indentures and other capital securities. These restrictions take into consideration various factors such as whether there are sufficient net earnings, as defined, liquidity, asset quality, capital adequacy and economic conditions. Since February 2010, as required by the FRB, IBC’s primary regulator, IBC may not, without the prior approval of the FRB, pay dividends on or redeem its capital stock, pay interest on or redeem its trust preferred securities, or incur new debt. No cash common dividends were declared or paid in 2013, 2012 or 2011. See note 10 for a discussion of cash preferred dividends paid in 2013.

12. Profit Sharing Plans

We have a tax-qualified profit sharing plan for our employees in accordance with the provisions of Section 401(k) of the Internal Revenue Code, whereby our eligible employees meeting certain length-of-service requirements may make tax-deferred contributions up to certain limits. We made discretionary matching contributions of up to 4% of employee compensation, which vest to the employees over a five-year period. Total cash contributions to the plan aggregated to $164,000, $161,000 and $141,000 in 2013, 2012 and 2011, respectively, and were included in the line item “salaries and employee benefits” in the consolidated statements of earnings.

13. Common Stock Warrant, Options and Restricted Common Stock

IBC has shareholder-approved incentive plans, the 2006 Long Term Incentive Plan and the 2013 Equity Incentive Plan (together referred to as the “Plans”) 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 Plans is 2,250,000. At December 31, 2013, 789,003 shares of common stock were available for award under the Plans.

93

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

13. Common Stock Warrant, Options and Restricted Common Stock, Continued

A summary of selected information regarding option awards made under the Plans for the three-year period ended December 31, 2013 follows. There were no option awards made in 2013 or 2012:

($ in thousands, except per option amounts)	2011 Option Award
Date of award		12/08/11
Total options awarded		44,100
Exercise price of option	$	2.55
Estimated fair value per option (1)	$	1.67
Total estimated fair value of award	$	73,647
Assumptions used in Black-Scholes Model:
Expected dividend yield (2)		0	%
Expected stock volatility (3)		75	%
Risk-free interest rate (4)		1.13	%
Expected term in years (5)		6.0

(1) Fair value was estimated at the grant date of the award based on the Black-Scholes option-pricing model using the assumptions noted in the table above. The assumptions are subjective in nature, involve uncertainties and therefore, cannot be determined with precision. The Black-Scholes option pricing model also contains certain inherent limitations when applied to options which are not immediately exercisable and are not traded on public markets.

(2) No dividends were assumed to be declared and paid for shares underlying the option grants.

(3) Expected stock volatility is estimated based on an assessment of historical volatility of IBC’s common stock.

(4) Risk-free interest rate was derived from a U.S. Treasury security having a similar expected life as the option as of the grant date.

(5) Expected term (average life) was calculated using the “simplified method” as prescribed by the SEC guidance.

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

($ in thousands, except per share amounts)	Exercise Price Per Warrant/Option																					Wtd-Avg. Exercise
	$5.42 (1)			$17.10			$7.50			$4.02			$3.00			$2.55			Total			Price
Outstanding at December 31, 2010		691,882			118,140			122,290			71,710			41,400			—			1,045,422		$	6.79
Forfeited/expired (2)		—			(300	)		(900	)		(1,200	)		(1,500	)		—			(3,900	)	$	5.44
Options granted		—			—			—			—			—			44,100			44,100		$	2.55
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)		—			(1,200	)		(1,200	)		(1,600	)		(1,600	)		(1,800	)		(7,400	)	$	6.13
Exercised		—			—			—			—			(100	)		—			(100	)	$	3.00
Outstanding at December 31, 2012		691,882			116,640			120,190			68,910			38,200			42,300			1,078,122		$	6.63
Forfeited/expired (2)		—			(6,000	)		(6,200	)		(1,610	)		(2,100	)		(3,500	)		(19,410	)	$	8.80
Options exercised		—			—			—			(9,900	)		(3,700	)		(3,667	)		(17,267	)	$	3.49
Outstanding at December 31, 2013		691,882			110,640			113,990			57,400			32,400			35,133			1,041,445		$	6.64
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	%		100	%		100	%		67	%		99	%
Wtd-avg contractual remaining term (in years)		5.0			4.0			4.9			5.9			6.9			7.9			5.1
Intrinsic value at December 31, 2013 (4)	$	1,446			—		$	1		$	201		$	146		$	174		$	1,968

(1) This warrant is held by the U.S. Treasury as described in note 10 to the financial statements.

(2) Represent options forfeited or expired unexercised.

(3) The $2.55 options further vest and become 100% exercisable on December 8, 2014. Full vesting may occur earlier upon the occurrence of certain events as defined in the option agreement.

(4) Intrinsic value was calculated using the closing price of the common stock on December 31, 2013 of $7.51.

94

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

13. Common Stock Warrant, Options and Restricted Common Stock, Continued

A summary of selected information regarding restricted common stock awards made under the Plans for the three-year period ended December 31, 2013 follows:

($ in thousands, except per share amounts)	Stock Grant		Stock Grant		Stock Grant
Grant date of award		12/12/13		1/24/13		1/19/12
Total restricted shares of stock awarded (1)		135,500		330,700		465,400
Estimated fair value per share awarded (2)	$	7.21	$	4.50	$	2.90
Total estimated fair value of award	$	977	$	1,488	$	1,350
Awards scheduled to vest as follows:
January 2013		—		—		256,800
January 2014		75,417		49,566		133,455
January 2015		44,917		170,888		75,145
January 2016		15,166		110,246		—
		135,500		330,700		465,400

(1) The December 2013 awards were made to five executive officers vesting in five installments over a three-year period. These awards replaced certain awards that were forfeited during 2013 in connection with the requirements of TARP.

The January 2013 awards were made as follows: a total of 182,000 shares to five executive officers (vesting 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); a total of 80,000 shares to eight non-employee directors and 68,700 shares to other officers and employees (vesting in three equal installments, with one third vesting on each of the first three anniversary dates of the grant).

The January 2012 awards were made as follows: a total of 175,000 shares to five executive officers (vesting 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); a total of 240,000 shares to six non-employee directors (vesting 100% on the first anniversary of the grant); and a total of 50,400 shares to other officers and employees (vesting in three equal installments, with one third on each of the first three anniversary dates of the grant).

(2) Fair value of each award was estimated as of the grant date based on the closing market price of the common stock on the grant date.

A summary of activity in outstanding restricted common stock and related information follows:

	Price Per Share
	$2.35			$2.90			$4.50			$7.21		Total
Outstanding at December 31, 2010		319,300			—			—			—		319,300
Shares forfeited		(1,200	)		—			—			—		(1,200	)
Outstanding at December 31, 2011		318,100			—			—			—		318,100
Shares granted		—			465,400			—			—		465,400
Shares forfeited		(600	)		(600	)		—			—		(1,200	)
Outstanding at December 31, 2012		317,500			464,800			—			—		782,300
Shares vested and no longer restricted		(264,150	)		(256,600	)		—			—		(520,750	)
Shares granted		—			—			330,700			135,500		466,200
Shares forfeited		(53,350	)		(49,883	)		(51,200	)		—		(154,433	)
Outstanding at December 31, 2013 (1) (2)		—			158,317			279,500			135,500		573,317

(1) All outstanding shares of restricted common stock at December 31, 2013 were unvested and subject to forfeiture.

Shares issued at $2.90 will vest as follows: 101,034 on January 19, 2014 and 57,283 on January 19, 2015.

Shares issued at $4.50 will vest as follows: 47,667 on January 24, 2014, 138,667 on January 24, 2015 and 93,166 on January 24, 2016.

Shares issued at $7.21 will vest as follows: 46,250 on January 2, 2014; 29,167 on January 19, 2014; 14,584 on January 19, 2015; 30,333 on January 24, 2015; and 15,166 on January 24, 2016.

(2) Vesting is subject to the grantee’s continued employment with us or, in the case of non-employee directors, the grantee’s continued service as our director on the vesting 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 IBC, as defined in the restricted stock agreements. The record holder of IBC’s restricted shares of common stock 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.

95

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

13. Common Stock Warrant, Options and Restricted Common Stock, Continued

Stock-based compensation expense is recognized on a straight-line basis over the vesting period of the awards and totaled $0.8 million, $1.2 million and $0.3 million in 2013, 2012 and 2011, respectively. As required by GAAP, stock-based compensation expense is recorded as an expense and a corresponding increase to our stockholders’ equity as additional paid-in capital. At December 31, 2013, pre-tax compensation expense related to all nonvested awards of options and restricted stock not yet recognized totaled $1.9 million and such amount is expected to be recognized in the future over a weighted-average period of approximately 1.9 years.

Our income taxes payable for 2013 was reduced by the excess income tax benefit associated with the vesting of restricted common stock awards and the exercise of stock option awards (calculated as the difference between the fair market value of the stock at the vesting date versus the grant date in the case of stock awards and the difference between the fair market value of the stock at the exercise date versus the exercise price per share in the case of options, multiplied by our effective income tax rate). The net tax benefit amounted to $0.6 million and is required to be recorded as an increase to our paid-in capital. There was no such tax benefit for 2012 and 2011.

14. Income Taxes

We file a consolidated federal income tax return and combined state and city income tax returns in New York. INB files a state income tax return in Florida. All returns are filed on a calendar year basis. Our income tax returns that have been filed and are no longer subject to examination by taxing authorities are for years prior to 2010. Our Federal returns for 2008, 2009 and 2010 were audited by the Internal Revenue Service. This audit was completed in 2013 and no adjustments were proposed. As of December 31, 2013, our New York State returns for 2010, 2011 and 2012 were being audited and we are not aware of any proposed adjustments as of the date of filing of this report.

Allocation of our federal, state and local income tax expense between current and deferred portions is as follows:

($ in thousands)	Current		Deferred		Total
Year Ended December 31, 2013:
Federal	$	420	$	9,130	$	9,550
State and Local		339		1,766		2,105
	$	759	$	10,896	$	11,655
Year Ended December 31, 2012:
Federal	$	370	$	7,751	$	8,121
State and Local		335		1,851		2,186
	$	705	$	9,602	$	10,307
Year Ended December 31, 2011:
Federal	$	958	$	6,670	$	7,628
State and Local		311		1,573		1,884
	$	1,269	$	8,243	$	9,512

The components of the deferred tax expense are as follows:

	For the Year Ended December 31,
($ in thousands)	2013			2012			2011
NOL and AMT credit carryforwards	$	7,353		$	8,084		$	8,138
Allowances for loan losses and real estate losses		1,597			1,315			484
Capitalized real estate expenses and nonaccrual interest		36			1,011			(232	)
Impairment writedowns on investment securities		1,857			(282	)		(86	)
Deferred compensation and benefits		285			(355	)		(48	)
Depreciation		(234	)		(166	)		(16	)
Deferred income		2			(5	)		3
	$	10,896		$	9,602		$	8,243

96

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

14. Income Taxes, Continued

The tax effects of the temporary differences that give rise to the deferred tax asset are as follows:

	At December 31,
($ in thousands)	2013		2012
NOL and AMT credit carryforwards	$	3,061	$	10,414
Allowances for loan losses and real estate losses		12,814		14,411
Capitalized real estate expenses and nonaccrual interest		1,152		1,188
Impairment writedowns on investment securities		—		1,857
Unrealized losses on securities available for sale		24		—
Deferred compensation and benefits		852		1,137
Depreciation		454		220
Deferred income		5		7
Total deferred tax asset	$	18,362	$	29,234

Our deferred tax asset in the table above arises from 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 any unused net operating loss carryforwards (NOLs) and Federal AMT credit carry forwards, all of which can be applied against and reduce our future taxable income and tax liabilities. At December 31, 2013, our remaining unused state and local NOLs amounted to approximately $30 million, which are available for state and local income tax purposes. The NOLs expire in 2030.

We have determined that a valuation allowance for our 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 the asset will be fully realized. This conclusion is based on our taxable earnings history and our future projections of taxable income which indicate 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.

The reconciliation between the statutory federal income tax rate and our effective income tax rate is as follows:

	For the Year Ended December 31,
	2013			2012			2011
Federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Increase resulting from:
State and local income tax rate, net of federal benefit		7.8			9.4			9.3
All other		1.8			1.4			1.5
Effective Income Tax Rate		44.6	%		45.8	%		45.8	%

As a Delaware corporation not earning income in Delaware, IBC is exempt from Delaware corporate income tax but is required to file an annual report with and pay an annual franchise tax to the State of Delaware. The tax is imposed as a percentage of the capital base of IBC and is reported in the line item “All other” in the noninterest expense section of our statements of earnings. Total annual franchise tax expense was $0.2 million in 2013, 2012 and 2011.

97

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

15. Earnings Per Common Share

Net earnings available 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:

	For the Year Ended December 31,
	2013		2012		2011
Basic Earnings Per Common Share:
Net earnings available to common stockholders	$	13,437,000	$	10,421,000	$	9,516,000
Weighted-Average number of common shares outstanding		21,894,030		21,566,009		21,126,187
Basic Earnings Per Common Share	$	0.61	$	0.48	$	0.45
Diluted Earnings Per Common Share:
Net earnings available to common stockholders	$	13,437,000	$	10,421,000	$	9,516,000
Weighted-Average number of common shares outstanding:
Common shares outstanding		21,894,030		21,566,009		21,126,187
Potential dilutive shares resulting from exercise of warrants /options (1)		99,596		2,187		—
Total average number of common shares outstanding used for dilution		21,993,626		21,568,196		21,126,187
Diluted Earnings Per Common Share	$	0.61	$	0.48	$	0.45

(1) All outstanding options/warrants to purchase shares of our common stock were considered for the Diluted EPS computations and only those that were dilutive (as determined by using the treasury stock method prescribed by GAAP) were included in the diluted earnings per share computations above. In 2013, 2012 and 2011, 224,630, 997,622 and 1,085,622 of options/warrants to purchase common stock, respectively, were not dilutive because the exercise price per share of each option/warrant was above the average market price of our common stock during these periods.

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 our legal counsel, we do 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.

In the first and second quarters of 2013, INB entered into settlement agreements with respect to certain litigation INB had pursued in connection with foreclosure actions it had commenced in 2010 on several of its loans. INB commenced the actions to collect, in one case, insurance proceeds, which it contended had been improperly paid to various third parties, and in another case, damages due to alleged legal malpractice when the loan was originated. As a result of these settlements, INB received net proceeds totaling $2.7 million and $0.1 million in the first and second quarters of 2013, respectively, which were recorded as $1.2 million of recoveries of prior loan charge offs and $1.6 million of recoveries of prior real estate expenses associated with two loans and underlying collateral property.

17. Contractual Death Benefit Payments

We are contractually obligated to pay through June 30, 2014 death benefits to the spouse of our former chairman, Jerome Dansker, pursuant to the terms of his employment agreements with IBC and its former subsidiary, IMC. At December 31, 2013, the remaining amount of death benefit payments payable totaled $0.2 million. In the event of the death of the former chairman’s spouse prior to June 30, 2014, any remaining unpaid payments will be paid by us in a lump sum to the spouse’s estate. We also have a ten-year employment and supplemental benefits agreement with our current Chairman, Mr. Lowell Dansker, which expires on June 30, 2014. Pursuant to the agreement, his annual base salary as of July 1, 2013, is $1.2 million and is subject to annual increases effective July 1st of each year of the term of the agreement based on various criteria. Mr. Dansker’s employment agreement also contains certain other provisions, including disability and death benefits and indemnification. In the event of Mr. Dansker’s disability, as defined in the agreement, or death, we would be obligated to pay to Mr. Dansker’s wife or his estate, as applicable, a specified amount over a period equal to the greater of (i) three years, and (ii) the number of months remaining in the stated term of the agreement. The specified amount is equal to a percentage, 50% in the case of disability and 25% in the case of death, of Mr. Dansker’s monthly base salary had the agreement continued in force and effect. No provision for this contingent liability has been made in the financial statements.

98

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

18. Off-Balance Sheet Financial Instruments

INB is party to financial instruments with off-balance sheet risk in the normal course of its business to meet the financing needs of its 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 INB. 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. Standby letters of credit are conditional commitments issued by INB to guarantee the performance of its 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. INB had no standby letters of credit outstanding at December 31, 2013 or 2012.

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

	At December 31,
($ in thousands)	2013		2012
Commitments to extend credit	$	19,386	$	19,154
Unused lines of credit		877		854
	$	20,263	$	20,008

19. Regulatory Capital and Regulatory Matters

General. IBC is subject to regulation, examination and supervision by the FRB. INB is subject to regulation, examination and supervision by the Federal Deposit Insurance Corporation (“FDIC”) and the Office of the Comptroller of the Currency (“OCC”). Both IBC and INB are subject to various minimum regulatory capital requirements. Failure to comply with these requirements can initiate mandatory and discretionary actions by the aforementioned regulators that, if undertaken, could have a material adverse effect on our financial condition, results of operations and business. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. These capital amounts are also subject to qualitative judgement by the regulators about components, risk weighting and other factors. Quantitative measures established by the regulations to ensure capital adequacy require us to maintain minimum amounts and ratios of total Tier 1 capital to risk-weighted assets, total Tier 1 capital to average assets and total regulatory capital to risk weighted assets, as defined by the regulations.

Capital Ratios. We believe that both IBC and INB met all capital adequacy requirements to which they were 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 regulatory capital requirements from December 31, 2013.

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

	INB						IBC Consolidated
	At December 31,						At December 31,
($ in thousands)	2013			2012			2013			2012
Tier 1 capital (1)	$	240,918		$	244,081		$	245,191		$	249,465
Tier 2 capital		15,479			15,566			15,517			15,620
Total risk-based capital (2)	$	256,397		$	259,647		$	260,708		$	265,085
Net risk-weighted assets for regulatory purposes	$	1,225,936		$	1,232,670		$	1,228,994		$	1,238,024
Average assets for regulatory purposes	$	1,581,713		$	1,690,329		$	1,586,416		$	1,696,410
Total capital to risk-weighted assets		20.91	%		21.06	%		21.21	%		21.41	%
Tier 1 capital to risk-weighted assets		19.65	%		19.80	%		19.95	%		20.15	%
Tier 1 capital to average assets		15.23	%		14.44	%		15.46	%		14.71	%

(1) IBC’s consolidated Tier 1 capital at both dates included $55 million of IBC’s outstanding qualifying trust preferred securities.

99

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

19. Regulatory Capital and Regulatory Matters, Continued

The table that follows presents information regarding our actual capital and minimum capital requirements.

	Actual Capital					Minimum Under Prompt Corrective Action Provisions					Minimum To Be “Well Capitalized” Under Prompt Corrective Action Provisions					Minimum Under Agreement With OCC
($ in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
IBC Consolidated at December 31, 2013:
Total capital to risk-weighted assets (1)	$	260,708		21.21	%	$	98,320		8.00	%		NA		NA			NA		NA
Tier 1 capital to risk-weighted assets (1)	$	245,191		19.95	%	$	49,160		4.00	%		NA		NA			NA		NA
Tier 1 capital to average assets (1)	$	245,191		15.46	%	$	63,457		4.00	%		NA		NA			NA		NA
IBC Consolidated at December 31, 2012:
Total capital to risk-weighted assets	$	265,085		21.41	%	$	99,042		8.00	%		NA		NA			NA		NA
Tier 1 capital to risk-weighted assets	$	249,465		20.15	%	$	49,521		4.00	%		NA		NA			NA		NA
Tier 1 capital to average assets	$	249,465		14.71	%	$	67,856		4.00	%		NA		NA			NA		NA
INB at December 31, 2013:
Total capital to risk-weighted assets	$	256,397		20.91	%	$	98,075		8.00	%	$	122,594		10.00	%		NA		NA
Tier 1 capital to risk-weighted assets	$	240,918		19.65	%	$	49,037		4.00	%	$	73,556		6.00	%		NA		NA
Tier 1 capital to average assets	$	240,918		15.23	%	$	63,269		4.00	%	$	79,086		5.00	%		NA		NA
INB at December 31, 2012:
Total capital to risk-weighted assets	$	259,647		21.06	%	$	98,614		8.00	%	$	123,267		10.00	%	$	147,920		12.00	%
Tier 1 capital to risk-weighted assets	$	244,081		19.80	%	$	49,307		4.00	%	$	73,960		6.00	%	$	123,267		10.00	%
Tier 1 capital to average assets	$	244,081		14.44	%	$	67,613		4.00	%	$	84,516		5.00	%	$	152,130		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 December 31, 2013 would have been 21.21%, 15.48% and 11.99%, respectively.

The table that follows presents additional information regarding our capital adequacy at December 31, 2013.

	INB Regulatory Capital						Consolidated Regulatory Capital
($ in thousands)	Actual		Required (1)		Excess		Actual		Required		Excess
Total capital to risk-weighted assets	$	256,397	$	122,594	$	133,803	$	260,708	$	98,320	$	162,388
Tier 1 capital to risk-weighted assets	$	240,918	$	73,556	$	167,362	$	245,191	$	49,160	$	196,031
Tier 1 capital to average assets	$	240,918	$	79,086	$	161,832	$	245,191	$	63,457	$	181,734

(1) Minimum amount required to be considered “Well-Capitalized.”

Formal Agreements and Regulatory Restrictions. Since January 2011, IBC has been operating under a written agreement with its primary regulator, the Federal Reserve Bank of New York (the “FRB”). The FRB agreement, among other things, requires IBC to use its financial and managerial resources to serve as a source of strength to INB. In addition, the FRB agreement requires IBC to obtain approval from the FRB to do any of the following: declare or pay dividends on its capital stock; take any payments from INB that represent a reduction in INB’s capital; make any distributions of interest, principal or other sums on IBC’s outstanding debt (subordinated debentures); and incur, increase or guarantee any debt or purchase or redeem any shares of IBC’s capital stock. IBC must also notify the FRB when appointing any new director or senior executive officer or changing responsibilities of any senior executive officer. IBC is also restricted in making certain severance and indemnification payments.

IBC believes that it has complied with all of the requirements of the above agreement. As of December 31, 2013, IBC remained subject to this written agreement with the FRB and all the restrictions contained therein, including those described above. The FRB has advised IBC that it is reviewing the need for such agreement.

100

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

19. Regulatory Capital and Regulatory Matters, Continued

From December 2010 through March 20, 2013, INB was also operating under a formal written agreement with its primary regulator, the Office of the Comptroller of the Currency (the “OCC”). INB’s agreement with the OCC required INB to take certain actions, including (1) creating a compliance committee to monitor and coordinate INB’s performance under the agreement and to submit periodic progress reports to the OCC, (2) develop strategic and capital plans covering at least three years, (3) complete an assessment of management and ensure effective management, and (4) develop programs related to: (i) loan portfolio management; (ii) criticized assets; (iii) loan review; (iv) credit concentrations; (v) accounting for other real estate owned; (vi) maintaining an adequate allowance for loan losses; (vii) liquidity risk management; and (viii) interest rate risk management. On March 21, 2013, INB received notification from the OCC that all of the actions taken by INB since December 2010 satisfied the OCC’s regulatory directives and the OCC terminated the agreement. Additionally, effective March 21, 2013, the OCC terminated its heightened regulatory capital requirements that had also been imposed on INB since February 2010. As a result, as of December 31, 2013, INB was no longer subject to any regulatory agreement or heightened capital requirements.

20. Fair Value Measurements

We use fair value measurements to record fair value adjustments to certain of our assets and to determine our fair value disclosures contained in this report.

At December 31, 2013 and 2012, we had no liabilities recorded at fair value and approximately $1.0 million of assets (comprised of securities available for sale) recorded at fair value on a recurring basis. From time to time, we are required to record at fair value other assets on a non-recurring basis, such as impaired loans and securities and real estate we own through foreclosure. These fair value adjustments generally involve the application of lower-of-cost-or-market accounting or writedowns of individual assets. All of our assets measured at fair value on a nonrecurring basis in this report used Level 3 inputs in the fair value measurements.

In accordance with GAAP, we group the fair value measurements of our assets and liabilities into three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value, as follows:

Level 1 – Fair value is based upon quoted prices for identical instruments traded in active markets. This level has the highest level of reliability;

Level 2 – Fair value is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market; and

Level 3 – Fair Value is generated from model-based techniques that use significant assumptions that generally are not observable in the marketplace. The assumptions used therein reflect our estimates of the assumptions that market participants would use in pricing the asset or liability, and cannot be assured that they would be identical. Valuation techniques for Level 3 include the use of discounted cash flow models.

The fair value results obtained through the use of Level 3 valuation techniques cannot be determined with precision. Moreover, any of the fair value estimates disclosed in this report may not be realized in an actual sale or immediate settlement of the asset or liability.

101

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

20. Fair Value Measurements, Continued

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

	Outstanding Carrying Value
	At December 31,
	2013		2012
($ in thousands)	Level 3		Level 3
Impaired loans (1) :
Commercial real estate	$	52,407	$	50,795
Multifamily		3,128		12,577
Land		1,625		2,601
Total impaired loans		57,160		65,973
Impaired securities (2)		—		3,721
Foreclosed real estate		10,669		15,923

	Accumulated Losses on
	Outstanding Balance				Total Losses (Gains) (3)
	At December 31,				For the Year Ended December 31,
($ in thousands)	2013		2012		2013			2012			2011
Impaired loans:
Commercial real estate	$	10,294	$	9,979	$	2,053		$	1,038		$	4,936
Multifamily		598		3,092		(966	)		(364	)		4,190
Land		500		521		(21	)		(488	)		1,009
Total impaired loans		11,392		13,592		1,066			186			10,135
Impaired securities		—		4,233		(517	)		582			201
Foreclosed real estate		2,017		5,339		142			4,161			3,161

(1) Outstanding carrying value excludes a specific valuation allowance included in the overall allowance for loan losses. See notes 3 and 4 to the financial statements.

(2) Comprised at December 31, 2012 of certain held-to maturity investments in trust preferred securities considered other than temporarily impaired. See note 2 to the financial statements.

(3) Represents total losses or (gains) recognized on all assets measured at fair value on a nonrecurring basis during the period indicated. The losses or (gains) for impaired loans represent the change (before net chargeoffs) during the period in the corresponding specific valuation allowance, while the losses (gains) for foreclosed real estate represent writedowns in carrying values subsequent to foreclosure (recorded as provisions for real estate losses) adjusted for any recoveries of prior write downs and (gains) or losses from the transfer/sale of properties during the period. The (gains) losses on securities represent the total of other than temporary impairment charges and net gains from sales, which are recorded as components of noninterest income. See note 2 to the financial statements in this report.

102

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

20. Fair Value Measurements, Continued

The following table presents information regarding the change in assets measured at fair value on a nonrecurring basis for the three-year period ended December 31, 2013.

	Impaired			Impaired			Foreclosed
($ in thousands)	Securities			Loans			Real Estate
Balance at December 31, 2010	$	4,580		$	56,555		$	27,064
Net new impaired loans		—			41,768			—
Principal repayments/sales		—			(18,198	)		—
Chargeoffs		—			(9,481	)		—
Ttransferred to foreclosed real estate		—			(4,375	)		4,375
Other than temporary impairment writedowns		(201	)		—			—
Writedowns of carrying value subsequent to foreclosure		—			—			(3,349	)
Gain on sales/transfers from loans		—			—			188
All other		(1	)		—			—
Balance at December 31, 2011	$	4,378		$	66,269		$	28,278
Net new impaired loans		—			19,875			—
Principal repayments/sales		(75	)		(12,330	)		(12,883	)
Chargeoffs		—			(3,152	)		—
Ttransferred to foreclosed real estate		—			(4,689	)		4,689
Other than temporary impairment writedowns		(582	)		—			—
Writedowns of carrying value subsequent to foreclosure		—			—			(4,068	)
Loss on sales		—			—			(93	)
Balance at December 31, 2012	$	3,721		$	65,973		$	15,923
Net new impaired loans		—			16,122			—
Principal repayments/sales		(4,238	)		(19,957	)		(8,152	)
Chargeoffs		—			(1,938	)		—
Ttransferred to foreclosed real estate		—			(3,040	)		3,040
Other than temporary impairment writedowns		(964	)		—			—
Writedowns of carrying value subsequent to foreclosure		—			—			(1,105	)
Gain on sales		1,481			—			963
Balance at December 31, 2013	$	—		$	57,160		$	10,669

We are required to disclose the estimated fair value of each class of our financial instruments for which it is practicable to estimate, which values are shown in the table that follows on the next page. The fair value of a financial instrument is the current estimated amount that would be exchanged between willing parties, other than in a forced liquidation. The fair value estimates are made at a specific point in time based on available information. A significant portion of our financial instruments, such as our mortgage loans, do not have an active marketplace in which they can be readily sold or purchased to determine fair value. Consequently, fair value estimates for such instruments are based on assumptions made by us that include the instrument’s credit risk characteristics and future estimated cash flows and prevailing interest rates. As a result, these fair value estimates are subjective in nature, involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Accordingly, changes in any of our assumptions could cause the fair value estimates to deviate substantially. Fair value estimates included in the table are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the fair value of assets that are not required to be recorded or disclosed at fair value, like our premises and equipment. Accordingly, the aggregate fair value amounts presented in the table that follows may not necessarily represent the underlying fair value of our Company. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates presented in the table.

103

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

20. Fair Value Measurements, Continued

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

	At December 31, 2013				At December 31, 2012
($ in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets:
Cash and cash equivalents (1)	$	24,700	$	24,700	$	60,395	$	60,395
Time deposits with banks (1)		5,370		5,370		5,170		5,170
Securities available for sale, net (1)		965		965		1,000		1,000
Securities held to maturity, net (2)		383,937		378,507		443,777		442,166
FRB and FHLB stock (3)		8,244		8,244		8,151		8,151
Loans receivable, net (3)		1,099,689		1,100,858		1,079,363		1,102,333
Accrued interest receivable (3)		4,861		4,861		5,191		5,191
Loan fees receivable (3)		2,298		1,808		3,108		2,547
Total Financial Assets	$	1,530,064	$	1,525,313	$	1,606,155	$	1,626,953
Financial Liabilities:
Deposits (3)	$	1,282,232	$	1,294,690	$	1,362,619	$	1,389,629
Borrowed funds plus accrued interest payable (3)		57,570		57,260		62,930		62,448
Accrued interest payable on deposits (3)		1,508		1,508		2,379		2,379
Commitments to lend (3)		408		408		386		386
Total Financial Liabilities	$	1,341,718	$	1,353,866	$	1,428,314	$	1,454,842
Net Financial Assets	$	188,346	$	171,447	$	177,841	$	172,111

(1) We consider these fair value measurements to be Level 1.

(2) We consider these fair value measurements to be Level 2, except for our corporate security investments held to maturity, which are considered to be Level 3.

(3) We consider these fair value measurements to be Level 3.

The following methods and assumptions were used to estimate the fair value of financial instruments.

Cash and Equivalents and Time Deposits with Banks - Carrying value approximated estimated fair value because of the relatively short time between the origination of the instrument and its expected realization.

Securities - Except for investments in corporate securities, the estimated fair value for our securities held to maturity and available for sale was obtained from third-party brokers who provided quoted prices derived from active markets for identical or similar securities. The estimated fair value of our corporate security investments, which did not have an active trading market, were obtained from a third-party pricing service, which used a complex valuation model that factored in numerous assumptions and data, including anticipated discounts related to illiquid trading markets, and credit and interest rate risk. The estimated fair value of our investments in FRB and FHLB stock approximated carrying value since the securities were redeemable at cost.

Loans Receivable - The estimated fair value of non-impaired loans was based on a discounted cash flow analysis using discount rates which we believe a third party would require as a reasonable rate of return for loans in our portfolio with similar terms and credit quality. The estimated fair value of impaired loans was approximated to be their net carrying value, net of any specific reserve, as of the dates indicated. We can make no assurance that our perception and quantification of the factors we used in determining the estimated fair value of our loans, including our estimate of perceived credit risk, would be viewed in the same manner as that of a potential investor. Therefore, changes in any of our assumptions could cause the fair value estimates of our loans to deviate substantially.

Deposits - The estimated fair value of deposits with no stated maturity, such as savings, money market, checking and noninterest-bearing demand deposit accounts approximated carrying value since these deposits are payable on demand. The estimated fair value of certificates of deposit (CDs) was based on a discounted cash flow analysis using a discount rate estimated from comparison to interest rates offered by INB as of the dates indicated for CDs with similar remaining maturities. We can make no assurance that this discount rate would be the same used by a potential purchaser. Therefore, any changes in the discount rate could cause their fair value to deviate substantially.

104

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

20. Fair Value Measurements, Continued

Borrowed Funds and Accrued Interest Payable - The estimated fair value of borrowed funds and related accrued interest payable was based on a discounted cash flow analysis. The discount rate used in the present value computation was estimated by comparison to what we believe to be our incremental borrowing rate for similar arrangements.

All Other Financial Assets and Liabilities - The estimated fair value of accrued interest receivable and accrued interest payable on deposits approximated their carrying values since these instruments have a relatively short time before they are realized or satisfied as the case may be. The estimated fair value of loan fees receivable is based on a discounted cash flow analysis using the same discount rate that was used to value non-impaired loans. The carrying amounts of commitments to lend approximated estimated fair value. Estimated fair value was based on fees charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter party’s credit standing.

21. Holding Company Financial Information

The following IBC (parent company only) condensed financial information should be read in conjunction with the other notes to the consolidated financial statements in this report.

Condensed Balance Sheets

	At December 31,
($ in thousands)	2013		2012
ASSETS
Cash and due from banks	$	319	$	46
Short-term investments		2,241		8,070
Total cash and cash equivalents		2,560		8,116
Loans receivable (net of allowance for loan losses of $50)		1,777		2,753
Investment in consolidated subsidiaries		240,918		254,815
Investment in unconsolidated subsidiaries - Intervest Statutory Trusts		1,702		1,702
Deferred income tax asset		6,800		5,748
Deferred debenture offering costs, net of amortization		742		779
All other assets		220		388
Total assets	$	254,719	$	274,301
LIABILITIES
Debentures payable - capital securities	$	56,702	$	56,702
Accrued interest payable on debentures		868		6,228
All other liabilities		158		424
Total liabilities		57,728		63,354
STOCKHOLDERS’ EQUITY
Preferred equity, net of preferred stock discount		—		24,624
Common equity		196,991		186,323
Total stockholders’ equity		196,991		210,947
Total liabilities and stockholders’ equity	$	254,719	$	274,301

105

Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

21. Holding Company Financial Information, Continued

Condensed Statements of Earnings

	For the Year Ended December 31,
($ in thousands)	2013			2012			2011
Interest income	$	129		$	264		$	475
Interest expense		1,679			1,848			2,072
Net interest expense		(1,550	)		(1,584	)		(1,597	)
Provision for loan losses		—			—			290
Noninterest income		5			5			8
Noninterest expenses		745			773			816
Loss before credit for income taxes		(2,290	)		(2,352	)		(2,695	)
Credit for income taxes		1,052			1,080			1,237
Net loss before earnings of subsidiary		(1,238	)		(1,272	)		(1,458	)
Equity in undistributed earnings of Intervest National Bank		15,732			13,494			12,704
Consolidated net earnings		14,494			12,222			11,246
Preferred stock dividend requirements and discount amortization (1)		1,057			1,801			1,730
Consolidated net earnings available to common stockholders	$	13,437		$	10,421		$	9,516

(1) Represents dividend requirements on preferred stock and amortization of related preferred stock discount.

Condensed Statements of Cash Flows

	For the Year Ended December 31,
($ in thousands)	2013			2012			2011
OPERATING ACTIVITIES
Consolidated net earnings	$	14,494		$	12,222		$	11,246
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Equity in earnings of subsidiary		(15,732	)		(13,494	)		(12,704	)
Cash dividends from subsidiary		31,000			—			—
(Decrease) increase in accrued interest payable on debentures		(5,360	)		1,867			2,099
All other, net change		(1,460	)		(1,116	)		(926	)
Net cash provided by (used in) operating activities		22,942			(521	)		(285	)
INVESTING ACTIVITIES
Return of capital from subsidiary		—			—			229
Net decrease in loans receivable		981			45			3,884
Purchase of premises and equipment		(154	)		—			—
Net cash provided by investing activities		827			45			4,113
FINANCING ACTIVITIES
Net (decrease) increase in mortgage escrow funds payable		(84	)		44			(217	)
Redemption of preferred stock		(24,813	)		—			—
Cash dividends paid to preferred stockholders		(5,068	)		—			—
Proceeds from issuance of common stock upon exercise of options		61			—			—
Excess tax benefit from exercise of options and vesting of restricted stock		579			—			—
Net cash (used in) provided by financing activities		(29,325	)		44			(217	)
Net (decrease) increase in cash and cash equivalents		(5,556	)		(432	)		3,611
Cash and cash equivalents at beginning of year		8,116			8,548			4,937
Cash and cash equivalents at end of year	$	2,560		$	8,116		$	8,548
SUPPLEMENTAL DISCLOSURES
Cash paid for interest	$	7,002		$	—		$	—
Cash paid for (received from refunds of) income taxes, net		—			—			(43	)
Transfer of loans from subsidiary		—			—			7,437
Transfer of all other net assets from subsidiary		—			—			1,030
Subsidiary’s compensation expense related to equity awards		823			1,194			326
Preferred dividend requirements and amortization of preferred stock discount		1,057			1,801			1,730

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Intervest Bancshares Corporation and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

22. Selected Quarterly Financial Data (Unaudited)

The following is a summary of our unaudited interim results of operations and other period-end selected information by quarter for the years ended December 31, 2013 and 2012.

	2013
($ in thousands, except per share amounts)	Q1			Q2			Q3		Q4
Interest and dividend income	$	16,249		$	15,623		$	15,624	$	16,120
Interest expense		7,245			7,048			6,794		6,023
Net interest and dividend income		9,004			8,575			8,830		10,097
(Credit) provision for loan losses		(1,000	)		(750	)		250		950
Net interest and dividend income after (credit) provision for loan losses		10,004			9,325			8,580		9,147
Noninterest income		743			702			901		2,600
Noninterest expenses:
Provision for real estate losses		629			76			250		150
Real estate expenses (income), net		(986	)		(346	)		212		284
Operating expenses		4,138			3,954			3,862		3,630
Earnings before provision for income taxes		6,966			6,343			5,157		7,683
Provision for income taxes		3,075			2,804			2,300		3,476
Net earnings		3,891			3,539			2,857		4,207
Preferred dividend requirements and discount amortization		462			326			269		—
Net earnings available to common stockholders	$	3,429		$	3,213		$	2,588	$	4,207
Basic earnings per common share	$	0.16		$	0.14		$	0.12	$	0.19
Diluted earnings per common share		0.16			0.14			0.12		0.19
Cash dividends paid per common share		—			—			—		—
Total assets	$	1,627,787		$	1,596,639		$	1,584,239	$	1,567,796
Total cash, short-term investments and security investments		507,665			512,573			461,197		423,216
Total loans, net of unearned fees		1,081,482			1,056,191			1,100,277		1,127,522
Total deposits		1,318,215			1,293,175			1,298,403		1,282,232
Total borrowed funds and related accrued interest payable		63,373			56,760			57,165		57,570
Total stockholders’ equity		215,265			211,775			192,288		196,991
	2012
($ in thousands, except per share amounts)	Q1			Q2			Q3		Q4
Interest and dividend income	$	20,698		$	19,706		$	19,082	$	17,798
Interest expense		10,740			10,001			9,223		8,103
Net interest and dividend income		9,958			9,705			9,859		9,695
Provision for loan losses		—			—			—		—
Net interest and dividend income after provision for loan losses		9,958			9,705			9,859		9,695
Noninterest income		1,125			1,406			1,187		2,476
Noninterest expenses:
Provision for real estate losses		511			1,397			1,025		1,135
Real estate expenses, net		460			479			883		324
Operating expenses		4,164			4,149			4,160		4,195
Earnings before provision for income taxes		5,948			5,086			4,978		6,517
Provision for income taxes		2,694			2,326			2,300		2,987
Net earnings		3,254			2,760			2,678		3,530
Preferred dividend requirements and discount amortization		444			448			453		456
Net earnings available to common stockholders	$	2,810		$	2,312		$	2,225	$	3,074
Basic earnings per common share	$	0.13		$	0.11		$	0.10	$	0.14
Diluted earnings per common share		0.13			0.11			0.10		0.14
Cash dividends paid per common share		—			—			—		—
Total assets	$	1,909,052		$	1,862,110		$	1,751,880	$	1,665,792
Total cash, short-term investments and security investments		691,205			667,509			546,397		518,493
Total loans, net of unearned fees		1,155,437			1,137,780			1,155,171		1,107,466
Total deposits		1,599,653			1,554,615			1,432,209		1,362,619
Total borrowed funds and related accrued interest payable		72,064			72,528			69,487		62,930
Total stockholders’ equity		201,051			204,121			207,108		210,947

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Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable

Item 9A. Controls and Procedures

Our management evaluated, with the participation of our Principal Executive and Financial Officers, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of December 31, 2013. Based on such evaluation, the Principal Executive and Financial Officers have concluded that, as of December 31, 2013, our disclosure controls and procedures were effective. No changes in our internal control over financial reporting were identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

See “Management’s Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting Firm on Internal Control” included in Item 8.

Item 9B. Other Information

Not Applicable

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Directors. The information required by this item is contained under the section entitled “Proposal One: Election of Directors” in IBC’s definitive proxy statement for its 2014 Annual Meeting (the “Proxy Statement”) to be held in May 2014, which will be filed with the SEC within 120 days from December 31, 2013, and is incorporated herein by reference.

Executive Officers. The information required by this item is set forth at the end of Part I of this report under the caption “Executive Officers and Other Significant Employees.”

Section 16(a) Beneficial Ownership Reporting Compliance. The information required by this item is contained under the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement and is incorporated herein by reference.

Audit Committee and Audit Committee Financial Expert. The information required by this item regarding the Audit Committee of our Board of Directors, including information regarding audit committee financial experts serving on the Audit Committee, is contained in the section of the Proxy Statement entitled “Corporate Governance Principles and Board Matters” and is incorporated herein by reference.

Code of Business Conduct and Ethics. We have a written code of business conduct and ethics that applies to our directors, officers and employees, and we also have a written code of ethics for our principal executive and financial and accounting officers. Our Audit Committee has procedures for the submission of complaints or concerns regarding financial statement disclosures and other matters. A copy of these documents has been posted on our website at www.intervestbancsharescorporation.com. We intend to disclose future amendments to, or waivers from, our code of ethics by posting that information on our website within four business days following the date of such amendment or waiver.

Item 11. Executive Compensation

The information required by this item regarding the compensation of our named executive officers and our directors is contained in the sections entitled “Executive Compensation” and “Director Compensation” of the Proxy Statement and is incorporated herein by reference.

The information required by this item regarding compensation committee interlocks is contained in the Proxy Statement in the section entitled “Corporate Governance Principles and Board Matters - Compensation Committee Interlocks and Insider Participation” and is incorporated herein by reference.

108

The information required by this item regarding the report of the Compensation Committee of our Board of Directors is contained in the Proxy Statement under the caption “Executive Compensation - Report of the Compensation Committee of the Board of Directors” and is incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is contained in the sections entitled “Security Ownership of Certain Beneficial Owners and Management” and “Stock Option Exercises, Grants and Outstanding Equity Awards” of the Proxy Statement and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is contained in the sections entitled “Corporate Governance Principles and Board Matters” and “Certain Relationships and Related Transactions” of the Proxy Statement and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information required by this item is contained in the section entitled “Independent Public Accountants” of the Proxy Statement and is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Documents Filed as Part of this Report

(1) Financial Statements: See Part II, Item 8 “Financial Statements and Supplementary Data”.

(2) Financial Statement Schedules: See Part II, Item 8 “Financial Statements and Supplementary Data”.

(3) Exhibits: The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index which follows the signature page to this report and is incorporated herein by reference.

109

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INTERVEST BANCSHARES CORPORATION
(Registrant)
By:	/s/ Lowell S. Dansker	Date:	March 3, 2014
	Lowell S. Dansker,
	Chairman and Chief Executive Officer (Principal Executive Officer)

POWER OF ATTORNEY AND SIGNATURES

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Lowell S. Dansker and Stephen A. Helman and either of them (with full power in each to act alone), as true and lawful attorneys–in–fact, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any amendments to this Report on Form 10–K and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, hereby ratifying and confirming all that said attorney–in–fact, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10–K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Chairman, Chief Executive Officer and Director:
(Principal Executive Officer):
By:	/s/ Lowell S. Dansker	Date: March 3, 2014
	Lowell S. Dansker
Chief Financial and Accounting Officer:
(Principal Financial Officer):
By:	/s/ John J. Arvonio	Date: March 3, 2014
	John J. Arvonio
Vice President, Secretary and Director:
By:	/s/ Stephen A. Helman	Date: March 3, 2014
	Stephen A. Helman
Directors:
By:	/s/ Michael A. Callen	Date: March 3, 2014
	Michael A. Callen
By:	/s/ C. Wayne Crowell	Date: March 3, 2014
	C. Wayne Crowell
By:	/s/ Paul R. DeRosa	Date: March 3, 2014
	Paul R. DeRosa
By:	/s/ Wayne F. Holly	Date: March 3, 2014
	Wayne F. Holly
By:	/s/ Susan R. Katzke	Date: March 3, 2014
	Susan R. Katzke
By:	/s/ Lawton Swan, III	Date: March 3, 2014
	Lawton Swan, III
By:	/s/ Thomas E. Willett	Date: March 3, 2014
	Thomas E. Willett
By:	/s/ Wesley T. Wood	Date: March 3, 2014
	Wesley T. Wood

110

EXHIBIT INDEX

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	SEC File Number		Exhibit	Filing Date
3.1 *	Restated Certificate of Incorporation of IBC	8-K		000-23377	3.1		05/25/12
3.2 *	Bylaws of IBC as amended	8-K		000-23377	3.1		12/17/07
3.3 *	Certificate of designation of IBC preferred stock issued to U.S. Treasury dated December 18, 2008	8-K		000-23377	3.1		12/23/08
4.1 *	Form of Certificate for Shares of Common Stock of IBC	SB-2		033-82246	4.1		09/15/04
4.2 *	Warrant issued to U.S. Treasury to purchase Common Stock	8-K		000-23377	4.1		12/23/08
4.3 *	Form of Indenture between IBC and U.S Bank dated as of September 17, 2003	10-K		000-23377	4.9		03/19/04
4.4 *	Form of Indenture between IBC and U.S Bank dated as of March 17, 2004	10-Q		000-23377	4.10		11/12/04
4.5 *	Form of Indenture between IBC and Wilmington Trust dated as of September 20, 2004	10-Q		000-23377	4.11		11/12/04
4.6 *	Form of Indenture between IBC and Wilmington Trust dated as of September 21, 2006	10-Q		000-23377	4.1		11/02/06
10.1 +*	Employment Agreement between IBC and Lowell Dansker dated July 1, 2004	10-Q		000-23377	10.1		11/12/04
10.2+*	Employment Agreement between IMC and Jerome Dansker, dated as of July 1, 1995	S-11		033-96662	10.2		11/15/04
10.3 +*	IBC Long Term Incentive Plan	S-8		333-38651	4.4		11/13/06
10.4+*	Amendment to Lowell Dansker’s Employment Agreement dated June 21, 2007	8-K		000-23377	10.1		06/25/07
10.5 *	Securities purchase agreement between IBC and U.S. Treasury dated December 23, 2008	8-K		000-23377	10.1		12/23/08
10.6 *	Form of waiver dated as of December 23, 2008	8-K		000-23377	10.2		12/23/08
10.7+ *	Form of Non-Qualified Option Agreement	10-K		000-23377	10.11		03/02/10
10.8*	Formal Agreement between INB and The Comptroller of the Currency	8-K		000-23377	10.1		12/10/10
10.9+*	Form of Restricted Stock Award Agreement (Named Executive Officer)	8-K		000-23377	10.1		12/15/10
10.10+*	Form of Restricted Stock Award Agreement (Non-Employee Directors)	8-K		000-23377	10.2		12/15/10
10.11*	Formal Agreement between IBC and Federal Reserve Bank of New York	8-K		000-23377	10.1		01/20/11
10.12+*	IBC 2013 Equity Incentive Plan	DEF-14A		000-23377	Appendix A		04/11/13
10.13+*	Form of Restricted Stock Award Agreement (Named Executive Officer)	8-K		000-23377	10.1		01/23/12
10.14+*	Form of Restricted Stock Award Agreement (Non-Employee Directors)	8-K		000-23377	10.2		01/23/12
10.15+*	Form of Restricted Stock Award Agreement (Employees)	8-K		000-23377	10.3		01/23/12
10.16+*	Form of Restricted Stock Award Agreement (Named Executive Officer)	8-K		000-23377	10.1		01/28/13
10.17+*	Form of Restricted Stock Award Agreement (Non-Employee Directors)	8-K		000-23377	10.2		01/28/13
10.18+*	Form of Restricted Stock Award Agreement (Employees)	8-K		000-23377	10.3		01/28/13
10.19+*	Form of Restricted Stock Award Agreement (Named Executive Officer and Directors)	8-K		000-23377	10.1		01/27/14
10.20+*	Form of Stock Appreciation Right Award Agreement (Named Executive Officers)	8-K		000-23377	10.2		01/27/14
12.0	Computation of ratios of earnings to fixed charges				Filed herewith
14.1 *	Code of Business Conduct	10-K		000-23377	14.1		03/28/05
14.2 *	Code of Ethics	10-K		000-23377	14.2		03/28/05
14.3 *	Procedures for Submissions Regarding Questionable Accounting, Internal Accounting Controls and Auditing Matters	10-K		000-23377	14.3		03/12/07
21.0	Subsidiaries				Filed herewith
23.0	Consent of Independent Registered Public Accounting Firm				Filed herewith
24.0	Power of Attorney (included herein on the signature page)
31.0	Certification of principal executive officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002				Filed herewith
31.1	Certification of principal financial officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002				Filed herewith
32.0	Certification of principal executive and financial officers pursuant to Section 906 of The Sarbanes-Oxley Act of 2002				Filed herewith
99.1	Certification of principal executive officer pursuant to Section 11 of The EESA of 2008				Filed herewith
99.2	Certification of principal financial officer pursuant to Section 11 of The EESA of 2008				Filed herewith
101	The following materials from Intervest Bancshares Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Earnings; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Cash Flows; and (v) related financial statement footnotes.				Filed herewith

* Previously filed. + Denotes management contract or compensatory plan or arrangement.

111