U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
Commission File No. 000-23377
INTERVEST BANCSHARES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3699013
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation)
10 Rockefeller Plaza, Suite 1015
New York, New York 10020-1903
--------------------------------------------------------------------
(Address of principal executive offices)
(212) 218-2800
--------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
YES XX NO
--- ----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Title of Each Class: Shares Outstanding:
- ------------------- ------------------
Class A Common Stock, $1.00 par
value per share 3,535,629 Outstanding at April 30, 2000
- -------------------------------- ---------------------------------------
Class B Common Stock, $1.00 par
value per share 355,000 Outstanding at April 30, 2000
- -------------------------------- ---------------------------------------
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of March 31, 2000 (Unaudited) and December 31, 1999 ............ 2
Condensed Consolidated Statements of Earnings (Unaudited)
for the Quarters Ended March 31, 2000 and 1999 .................... 3
Condensed Consolidated Statements of Changes in Stockholders'
Equity (Unaudited)for the Quarters Ended March 31, 2000 and 1999... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Quarters Ended March 31, 2000 and 1999..................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited) ..... 6
Review by Independent Certified Public Accountants ................... 13
Report on Review by Independent Certified Public Accountants ......... 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................. 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk... 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................... 22
Item 2. Changes in Securities and Use of Proceeds............. 22
Item 3. Defaults Upon Senior Securities....................... 22
Item 4. Submission of Matters to a Vote of Security Holders... 22
Item 5. Other Information..................................... 23
Item 6. Exhibits and Reports on Form 8-K ..................... 23
Signatures................................................................... 23
1
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
($ in thousands, except par value) 2000 1999
--------------------------------------------------------------------------------- ---------------- ------------------
ASSETS
Cash and due from banks $ 3,396 $ 4,663
Federal funds sold 13,703 3,900
Short-term investments 12,565 23,532
---------------- ------------------
Total cash and cash equivalents 29,664 32,095
Securities held to maturity, net
(estimated fair value of $79,964 and $79,882, respectively) 83,183 83,132
Federal Reserve Bank stock, at cost 508 508
Loans receivable (net of allowance for loan loss reserves of
$2,648 and $2,493, respectively) 239,039 210,444
Accrued interest receivable 3,130 2,834
Premises and equipment, net 5,814 5,863
Deferred income tax asset 950 936
Deferred debenture offering costs 3,491 3,721
Other assets 1,340 948
--------------------------------------------------------------------------------- ---------------- ------------------
Total assets $367,119 $340,481
--------------------------------------------------------------------------------- ---------------- ------------------
LIABILITIES
Deposits:
Noninterest-bearing demand deposit accounts $ 5,330 $ 4,337
Interest-bearing deposit accounts:
Checking (NOW) accounts 7,375 6,636
Savings accounts 17,232 18,722
Money-market accounts 55,331 48,591
Certificate of deposit accounts 154,102 122,794
---------------- ------------------
Total deposits 239,370 201,080
Federal funds purchased - 6,955
Subordinated debentures payable 77,330 84,330
Accrued interest payable on debentures 7,426 8,092
Mortgage escrow funds payable 4,790 3,375
Official checks outstanding 2,382 1,821
Other liabilities 1,636 1,224
--------------------------------------------------------------------------------- ---------------- ------------------
Total liabilities 332,934 306,877
--------------------------------------------------------------------------------- ---------------- ------------------
STOCKHOLDERS' EQUITY
Preferred stock (300,000 shares authorized, none issued) - -
Class A common stock ($1.00 par value, 9,500,000 shares authorized,
3,535,629 and 3,531,879 shres issued and outstanding, respectively) 3,536 3,532
Class B common stock ($1.00 par value, 700,000 shares authorized,
355,000 and 305,000 shares issued and outstanding, respectively) 355 305
Additional paid-in-capital, common 18,907 18,770
Retained earnings 11,387 10,997
--------------------------------------------------------------------------------- ---------------- ------------------
Total stockholders' equity 34,185 33,604
--------------------------------------------------------------------------------- ---------------- ------------------
Total liabilities and stockholders' equity $367,119 $340,481
--------------------------------------------------------------------------------- ---------------- ------------------
See accompanying notes to condensed consolidated financial statements.
2
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited)
For the
Quarter Ended
March 31,
------------- -------------
($ in thousands, except per share data) 2000 1999
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
INTEREST AND DIVIDEND INCOME
Loans receivable $5,646 $4,481
Securities 1,520 1,518
Other interest-earning assets 90 130
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
Total interest and dividend income 7,256 6,129
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
INTEREST EXPENSE
Deposits 2,844 2,015
Federal funds purchased 146 -
Subordinated debentures 2,422 2,425
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
Total interest expense 5,412 4,440
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
Net interest and dividend income 1,844 1,689
Provision for loan loss reserves 155 112
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
Net interest and dividend income after provision for loan loss reserves 1,689 1,577
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
NONINTEREST INCOME
Customer service fees 35 32
Income from mortgage lending activities 127 381
All other - 1
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
Total noninterest income 162 414
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
NONINTEREST EXPENSES
Salaries and employee benefits 676 479
Occupancy and equipment, net 271 151
Advertising and promotion 13 37
Professional fees and services 104 56
Stationery, printing and supplies 38 42
All other 149 136
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
Total noninterest expenses 1,251 901
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
Earnings before income taxes and change in accounting principle 600 1,090
Provision for income taxes 210 468
Cumulative effect of change in accounting principle (note 7) - (128)
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
Net earnings $ 390 $494
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
Basic earnings per share:
Earnings before change in accounting principle $0.10 $ 0.16
Cumulative effect of change in accounting principle - (0.03)
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
Net earnings per share $0.10 $ 0.13
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
Diluted earnings per share:
Earnings before change in accounting principle $0.10 $0.15
Cumulative effect of change in accounting principle - (0.03)
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
Net earnings per share $0.10 $0.12
- ------------------------------------------------------------------------------------ ----- -------- ------------- -------------
See accompanying notes to condensed consolidated financial statements.
3
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
For the Quarter Ended
March 31,
-----------------------------
($ in thousands) 2000 1999
- ----------------------------------------------------------------------------------------- -------------- --------------
CLASS A COMMON STOCK
Balance at beginning of period $ 3,532 $ 3,434
Issuance of 510 shares in exchange for common stock of minority
stockholders of Intervest Bank - 1
Issuance of 1,063 shares upon the conversion of debentures - 1
Issuance of 3,750 shares upon exercise of warrants 4 -
- ----------------------------------------------------------------------------------------- -------------- --------------
Balance at end of period 3,536 3,436
- ----------------------------------------------------------------------------------------- -------------- --------------
CLASS B COMMON STOCK
Balance at beginning of period 305 300
Issuance of 5,000 shares upon the exercise of warrants - 5
Issuance of 50,000 shares of restricted stock compensation (note 2) 50 -
- ----------------------------------------------------------------------------------------- -------------- --------------
Balance at end of period 355 305
- ----------------------------------------------------------------------------------------- -------------- --------------
ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of period 18,770 18,148
Issuance of 510 shares in exchange for common stock of minority
stockholders of Intervest Bank - 6
Issuance of 1,063 shares upon the conversion of debentures, net of
issuance costs - 2
Compensation related to issuance of Class B common stock warrants 6 6
Issuance of 5,000 shares upon exercise of Class B stock warrants - 28
Issuance of 50,000 shares of restricted Class B stock (note 2) 109 -
Issuance of 3,750 shares upon exercise of Class A stock warrants 22 -
- ----------------------------------------------------------------------------------------- -------------- --------------
Balance at end of period 18,907 18,190
- ----------------------------------------------------------------------------------------- -------------- --------------
RETAINED EARNINGS
Balance at beginning of period 10,997 9,230
Comprehensive income - net earnings for the period 390 494
- ----------------------------------------------------------------------------------------- -------------- --------------
Balance at end of period 11,387 9,724
- ----------------------------------------------------------------------------------------- -------------- --------------
- ----------------------------------------------------------------------------------------- -------------- --------------
Total stockholders' equity at end of period $34,185 $31,655
- ----------------------------------------------------------------------------------------- -------------- --------------
See accompanying notes to condensed consolidated financial statements.
4
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Quarter Ended
March 31,
---------------- -----------------
($ in thousands) 2000 1999
--------------------------------------------------------------------------------- ---------------- -----------------
OPERATING ACTIVITIES
Net earnings $ 390 $ 494
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation and amortization 115 79
Provision for loan loss reserves 155 112
Deferred income tax benefit (14) (91)
Amortization of deferred debenture offering costs 230 227
Compensation expense from awards of common stock and warrants 165 6
Amortization of premiums, fees and discounts, net (262) (211)
(Decrease) increase in accrued interest on debentures (666) 306
Increase (decrease) in official checks outstanding 561 (40)
Change in all other assets and liabilities, net (6) (1)
--------------------------------------------------------------------------------- ---------------- -----------------
Net cash provided by operating activities 668 881
--------------------------------------------------------------------------------- ---------------- -----------------
INVESTING ACTIVITIES
Decrease in interest-earning time deposits with banks - 99
Maturities and calls of securities held to maturity 4,015 16,525
Purchases of securities held to maturity (3,972) (19,500)
(Originations) repayments of loans receivable, net (28,852) 3,142
Purchases of premises and equipment, net (66) (235)
--------------------------------------------------------------------------------- ---------------- -----------------
Net cash (used) provided by investing activities (28,875) 31
--------------------------------------------------------------------------------- ---------------- -----------------
FINANCING ACTIVITIES
Net increase in demand, savings, NOW and money-market deposits 6,982 3,504
Net increase (decrease) in certificates of deposit accounts 31,308 (7,893)
Net increase in mortgage escrow funds payable 1,415 1,139
Repayments of federal funds purchased, net (6,955) -
Repayments of debentures (7,000) (500)
Proceeds from issuance of debentures, net of offering costs - 548
Proceeds from issuance of common stock 26 26
--------------------------------------------------------------------------------- ---------------- -----------------
Net cash provided (used) by financing activities 25,776 (3,176)
--------------------------------------------------------------------------------- ---------------- -----------------
Net decrease in cash and cash equivalents (2,431) (2,264)
Cash and cash equivalents at beginning of period 32,095 40,924
--------------------------------------------------------------------------------- ---------------- -----------------
Cash and cash equivalents at end of period $ 29,664 $ 38,660
--------------------------------------------------------------------------------- ---------------- -----------------
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 5,744 $ 3,941
Income taxes 80 639
Noncash financing activities:
Issuance of common stock to minority stockholders of Intervest Bank - 7
Conversion of convertible debentures into common stock - 10
--------------------------------------------------------------------------------- ---------------- -----------------
See accompanying notes to condensed consolidated financial statements.
5
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Note 1 - General
The condensed consolidated financial statements of Intervest Bancshares
Corporation and Subsidiaries in this report have not been audited except for the
information derived from the audited Consolidated Balance Sheet as of December
31, 1999. The financial statements in this report should be read in conjunction
with the consolidated financial statements and related notes thereto included in
the Company's Annual Report to Stockholders on Form 10-KSB for the year ended
December 31, 1999.
The condensed consolidated financial statements include the accounts of
Intervest Bancshares Corporation (a bank holding company referred to by itself
as the "Holding Company") and its subsidiaries, Intervest National Bank,
Intervest Bank, and Intervest Corporation of New York. The banks are referred to
together as the "Banks." The Holding Company and its subsidiaries are referred
to as the "Company" on a consolidated basis. The Holding Company's primary
business activity is the ownership of the aforementioned subsidiaries.
Intervest National Bank is a nationally chartered commercial bank located in
Rockefeller Plaza in New York City. It opened for business on April 1, 1999.
Intervest Bank is a Florida state chartered commercial bank with four banking
offices in Clearwater, Florida and one in South Pasadena, Florida. The Banks
conduct a full-service commercial banking business, which consists of attracting
deposits from the general public and investing those funds, together with other
sources of funds, primarily through the origination of commercial and
multifamily real estate loans, and through the purchase of security investments.
Intervest National Bank also provides Internet banking services at its Web Site:
www.intervestnatbank.com.
Intervest Corporation of New York is located in Rockefeller Plaza in New York
City and is in the business of originating and acquiring commercial and
multifamily residential loans. As discussed in note 2, Intervest Corporation of
New York was acquired by the Holding Company effective March 10, 2000. The
acquisition was accounted for at historical cost similar to the
pooling-of-interests method of accounting. Under this method of accounting, the
recorded assets, liabilities, shareholders' equity, income and expenses of both
companies are combined and recorded at their historical cost amounts.
Accordingly, all prior period financial information in this report has been
adjusted to include the accounts of Intervest Corporation of New York. All
material intercompany accounts and transactions have been eliminated in
consolidation.
In the opinion of management, all material adjustments necessary for a fair
presentation of financial condition and results of operations for the interim
periods presented in this report have been made. These adjustments are of a
normal recurring nature. The results of operations for the interim periods are
not necessarily indicative of results that may be expected for the entire year
or any other interim period.
In preparing the condensed consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. Actual results could differ from
those estimates. Certain reclassifications have been made to prior period
amounts to conform to the current periods' presentation.
6
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Note 2 - Acquisition of Intervest Corporation of New York
On March 10, 2000, Intervest Bancshares Corporation completed the acquisition of
Intervest Corporation of New York, a company engaged in the business of
originating and acquiring commercial and multifamily residential loans. The two
entities were related in that the same persons serve on their boards and the
former holders of all of the shares of Intervest Corporation of New York also
owned approximately 48% of the voting shares of Intervest Bancshares Corporation
prior to the merger. Both Boards of Directors, the shareholders of both the
Holding Company and Intervest Corporation of New York, and the Federal Reserve
Bank of Atlanta approved the merger. In the merger, Intervest Corporation of New
York shareholders received an aggregate of 1,250,000 shares of the Holding
Company's Class A common stock in exchange for all of Intervest Corporation of
New York's capital stock. The merger was accounted for at historical cost
similar to the pooling-of-interests method of accounting.
In connection with the merger, the Holding Company incurred approximately
$210,000 in expenses related to attorney and consulting fees, printing and stock
compensation expense. The Board of Directors and the Holding Company's
shareholders approved a grant of 50,000 shares of Class B common stock to the
Chairman of the Holding Company for his services with respect to the
development, structuring and other activities associated with the merger. This
resulted in $159,000 of compensation expense being recorded, which is included
in the consolidated statement of earnings for the quarter ended March 31, 2000.
Certain pro forma consolidated balance sheet information follows as of December
31, 1999:
Originally Historical Pro Forma
($ in thousands) Reported ICNY Adjustments Adjusted
- --------------------------------------------------------------- -------------- --------------- ----------------- --------------
Cash and cash equivalents $ 7,429 $30,754 $ (6,088) (1) $ 32,095
Securities held to maturity 83,132 - - 83,132
Federal Reserve Bank stock 508 - - 508
Loans receivable, net of unearned fees and loan loss reserves 147,154 63,290 - 210,444
Accrued interest receivable 1,836 998 - 2,834
Premises and equipment, net 5,767 96 - 5,863
Deferred income tax asset 912 24 - 936
Deferred debenture offering costs 479 3,242 - 3,721
All other assets 612 336 - 948
- --------------------------------------------------------------- -------------- --------------- ----------------- --------------
Total assets $247,829 $98,740 $ (6,088) $340,481
- --------------------------------------------------------------- -------------- --------------- ----------------- --------------
Deposit liabilities $207,168 $ - $ (6,088) (1) $201,080
Federal funds purchased 6,955 - - 6,955
Debentures payable 6,930 77,400 - 84,330
Accrued interest on debentures payable 892 7,200 - 8,092
Mortgage escrow funds payable 1,521 1,854 - 3,375
Official checks outstanding 1,821 - - 1,821
All other liabilities 1,078 146 - 1,224
- --------------------------------------------------------------- -------------- --------------- ----------------- --------------
Total liabilities 226,365 86,600 (6,088) 306,877
- --------------------------------------------------------------- -------------- --------------- ----------------- --------------
Common stock and paid-in capital 16,998 5,609 - 22,607
Retained earnings 4,466 6,531 - 10,997
- --------------------------------------------------------------- -------------- --------------- ----------------- --------------
Total stockholders' equity 21,464 12,140 - 33,604
- --------------------------------------------------------------- -------------- --------------- ----------------- --------------
Total liabilities and stockholders' equity $247,829 $98,740 $ (6,088) $340,481
- --------------------------------------------------------------- -------------- --------------- ----------------- --------------
<FN>
(1) Represents the elimination of certain intercompany deposit accounts.
Certain reclassifications were also made to the historical amounts of
Intervest Corporation of New York and the Company to conform to the current
period's presentation.
</FN>
7
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Note 2 - Acquisition of Intervest Corporation of New York, Continued
A pro forma summary of the Company's consolidated statement of earnings for the
quarter ended March 31, 1999 follows:
Originally Historical Pro Forma
($ in thousands) Reported ICNY Adjustments Adjusted
- ------------------------------------------------------------------------ ------------- ----------- -------------- -------------
Interest and dividend income $3,476 $2,654 $(1) (a) $ 6,129
Interest expense 2,171 2,270 (1) (a) 4,440
------------- ----------- -------------- -------------
Net interest and dividend income 1,305 384 - 1,689
Provision for loan loss reserves 112 - - 112
------------- ----------- -------------- -------------
Net interest and dividend income after
provision for loan loss reserve 1,193 384 - 1,577
Noninterest income 123 291 - 414
Noninterest expense 647 254 - 901
------------- ----------- -------------- -------------
Earnings before income taxes and change in accounting principle 669 421 - 1,090
Income taxes 275 193 - 468
Cumulative effect of change in accounting principle (128) - - (128)
- ------------------------------------------------------------------------ ------------- ----------- -------------- -------------
Net earnings $266 $ 228 $ - $494
- ------------------------------------------------------------------------ ------------- ----------- -------------- -------------
Basic earnings per share $ 0.11 - $0.13
Diluted earnings per share $ 0.10 - $0.12
Adjusted earnings used for diluted computation $ 350 $ 228 - $ 578
Average number of common shares outstanding - Basic 2,489,831 - 1,250,000 3,739,831
Average number of common shares outstanding - Diluted 3,544,038 - 1,250,000 4,794,038
- ------------------------------------------------------------------------ ------------- ----------- ------------- --------------
<FN>
(a) Represents the elimination of certain intercompany interest expense.
</FN>
A summary of the Company's consolidated statement of earnings for the quarter
ended March 31, 2000 follows:
Excluding
Intervest
Corporation As
($ in thousands) of New York (1) Reported (1)
- ----------------------------------------------------------------------- -- ---- ------------------ --------------
Interest and dividend income $4,936 $7,256
Interest expense 3,205 5,412
------------ --------------
Net interest and dividend income 1,731 1,844
Provision for loan loss reserves 155 155
------------ --------------
Net interest and dividend income after
provision for loan loss reserves 1,576 1,689
Noninterest income 136 162
Noninterest expense 1,044 1,251
------------ --------------
Earnings before income taxes 668 600
Income taxes 243 210
- ----------------------------------------------------------------------- -- ---------- ------------ --------------
Net earnings $425 $390
- ----------------------------------------------------------------------- -- ---------- ------------ --------------
<FN>
(1) After elimination of intercompany revenue and expense.
</FN>
8
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Note 3 - Allowance for Loan Loss Reserves
The Company monitors its loan portfolio to determine the appropriate level of
the allowance for loan loss reserves based on various factors. These factors
include: the type and level of loans outstanding, volume of loan originations;
overall portfolio quality; loan concentrations; specific problem loans,
historical chargeoffs and recoveries; adverse situations which may affect the
borrowers' ability to repay; and management's assessment of the current and
anticipated economic conditions in the Company's lending regions.
No loans were classified as nonaccrual or impaired during the 2000 and 1999
reporting periods in this report.
Activity in the allowance for loan loss reserves for the periods indicated is
summarized as follows:
For the Quarter Ended
March 31,
------------ -------------
($ in thousands) 2000 1999
- ------------------------------------------------------------- -------------
Balance at beginning of period $2,493 $1,662
Provision charged to operations 155 112
Recoveries - 1
- ------------------------------------------------------------- -------------
Balance at end of period $2,648 $1,775
- ------------------------------------------------------------- -------------
Note 4 - Earnings Per Share (EPS)
Basic EPS is calculated by dividing net earnings by the weighted-average number
of shares of common stock outstanding. Diluted EPS is calculated by dividing
adjusted net earnings by the weighted-average number of shares of common stock
outstanding and dilutive potential common stock shares that may be outstanding
in the future. Potential common stock shares may arise from outstanding dilutive
common stock warrants (as computed by the "treasury stock method") and
convertible debentures (as computed by the "if converted method").
Diluted EPS considers the potential dilution that could occur if the Company's
outstanding stock warrants and convertible debentures were converted into common
stock that then shared in the Company's adjusted earnings (as adjusted for
interest expense, net of taxes, that would no longer occur if the debentures
were converted).
EPS computations for the 1999 period have been adjusted to include the results
of operations of Intervest Corporation of New York as well as the 1,250,000
common shares issued in the merger.
Net earnings applicable to common stock and the weighted-average number of
shares used for basic and diluted earnings per share computations are summarized
in the table that follows:
9
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Note 4 - Earnings Per Share (EPS), Continued
For the Quarter Ended
March 31,
------------- -------------
BASIC EARNINGS PER SHARE 2000 1999
- ------------------------------------------------------------------------ ------------- -------------
Net earnings:
Earnings before change in accounting principle $390,000 $622,000
Cumulative effect of change in accounting principle (1) - (128,000)
- ------------------------------------------------------------------------ ------------- -------------
Net earnings $390,000 $494,000
- ------------------------------------------------------------------------ ------------- -------------
Average number of common shares outstanding 3,851,384 3,739,831
Per share amounts:
Earnings before change in accounting principle $0.10 $0.16
Cumulative effect of change in accounting principle (1) - (0.03)
- ------------------------------------------------------------------------ ------------- -------------
Basic net earnings per share $0.10 $0.13
- ------------------------------------------------------------------------ ------------- -------------
DILUTED EARNINGS PER SHARE
Adjusted net earnings for diluted earnings per share computation (2) $390,000 $578,000
Average number of common shares outstanding for dilution:
Common shares outstanding per above 3,851,384 3,739,831
Potential dilutive shares resulting from exercise of warrants (2) - 310,774
Potential dilutive shares resulting from conversion of debentures (2) - 743,433
------------- -------------
Total average number of common shares outstanding 3,851,384 4,794,038
------------- -------------
Per share amounts:
Earnings before change in accounting principle $0.10 $0.15
Cumulative effect of change in accounting principle (1) - (0.03)
- ------------------------------------------------------------------------ ------------- -------------
Diluted net earnings per share $0.10 $0.12
- ------------------------------------------------------------------------ ------------- -------------
<FN>
(1) Represents a charge, net of taxes, from the adoption of Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities."
(2) A total of 2,659,000 and 1,134,000 common stock warrants with exercise
prices ranging from $6.67 to $15.00 were not included in the quarterly
computation of diluted EPS for 2000 and 1999, respectively, because they
were antidilutive. Additionally, convertible debentures were excluded from
the 2000 quarterly diluted EPS computation because they were not dilutive.
</FN>
Note 5 - Subordinated Debentures Payable
The Holding Company and Intervest Corporation of New York have debentures
outstanding as follows:
At March 31, At December 31,
($ in thousands) 2000 1999
- ---------------------------------------------------------------------- --------------- -------------------
INTERVEST CORPORATION OF NEW YORK:
Series 06/29/92 - interest at 2% above prime - due April 1, 2000 $ - $7,000
Series 09/13/93 - interest at 2% above prime - due October 1, 2001 8,000 8,000
Series 01/28/94 - interest at 2% above prime - due April 1, 2002 4,500 4,500
Series 10/28/94 - interest at 2% above prime - due April 1, 2003 4,500 4,500
Series 05/12/95 - interest at 2% above prime - due April 1, 2004 9,000 9,000
Series 10/19/95 - interest at 2% above prime - due October 1, 2004 9,000 9,000
Series 05/10/96 - interest at 2% above prime - due April 1, 2005 0,000 10,000
Series 10/15/96 - interest at 2% above prime - due October 1, 2005 5,500 5,500
Series 04/30/97 - interest at 1% above prime - due October 1, 2005 8,000 8,000
Series 11/10/98 - interest at 8% fixed - due January 1, 2001 1,400 1,400
Series 11/10/98 - interest at 81/2% fixed - due January 1, 2003 1,400 1,400
Series 11/10/98 - interest at 9% fixed - due January 1, 2005 2,600 2,600
Series 06/28/99 - interest at 8% fixed - due July 1, 2002 2,500 2,500
Series 06/28/99 - interest at 81/2% fixed - due July 1, 2004 2,000 2,000
Series 06/28/99 - interest at 9% fixed - due July 1, 2006 2,000 2,000
------------- -------------------
70,400 77,400
INTERVEST BANCSHARES CORPORATION:
Series 05/14/98 - interest at 8% fixed - due July 1, 2008 6,930 6,930
- ------------------------------------------------------------------------ ------------- -------------------
$77,330 $84,330
- ------------------------------------------------------------------------ ------------- -------------------
10
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Note 5 - Subordinated Debentures Payable, Continued
The "Prime" in the preceding table refers to the prime rate of Chase Manhattan
Bank, which was 9% on March 31, 2000 and 8.50% at December 31, 1999. On March 1,
2000, Intervest Corporation of New York's Series 6/29/92 debentures totaling
$7,000,000 in principal and maturing on April 1, 2000 were redeemed for the
outstanding principal amount plus accrued interest of $1,435,000.
Intervest Corporation of New York's floating-rate Series 10/28/94, 5/12/95,
10/19/95, 5/10/96, 10/15/96 and 4/30/97 debentures have a maximum interest rate
of 12%. Additionally, payment of interest on an aggregate of $19,060,000 of
debentures, which interest is compounded, is deferred until maturity. The
payment of interest on the remaining debentures is made quarterly. Any debenture
holder who has deferred receipt of interest may at any time elect to receive the
deferred interest and subsequently receive regular payments of interest, except
holders of the various Series 11/10/98 and Series 6/28/99 debentures. All the
debentures may be redeemed, in whole or in part, at any time at the option of
Intervest Corporation of New York, for face value, except for debentures issued
after 1997, which would be at a premium of 1% if the redemption is prior to July
1, 2000. Series 11/10/98 and Series 6/28/99 debenture holders can require
Intervest Corporation of New York to repurchase the debentures up to $100,000 in
principal amount plus accrued interest each year after January 1, 2000 and July
1, 2002, respectively. All the debentures are unsecured and subordinate to all
present and future senior indebtedness, as defined.
The Holding Company's Series 05/14/98 subordinated debentures are due July 1,
2008 and are convertible at the option of the holders at any time prior to April
1, 2008, unless previously redeemed by the Holding Company, into shares of Class
A common stock of the Holding Company at the following conversion prices per
share: $12.50 in 2000; $14.00 in 2001; $15.00 in 2002; $16.00 in 2003; $18.00 in
2004; $21.00 in 2005; $24.00 in 2006; $27.00 in 2007 and $30.00 from January 1,
2008 through April 1, 2008. The Holding Company has the right to establish
conversion prices that are less than those set forth above for such periods as
it may determine. The Holding Company also has the option at any time to call
all or any part of the convertible debentures for payment and redeem the same at
any time prior to maturity thereof. The redemption price is the face amount plus
a 1% premium if redemption occurs before July 1, 2000, or the face amount if the
date of redemption is on or after July 1, 2000. Interest accrues and compounds
each calendar quarter at 8%. All accrued interest is payable at maturity whether
by acceleration, redemption or otherwise. Any convertible debenture holder may,
on or before July 1 of each year commencing July 1, 2003, elect to be paid all
accrued interest and to thereafter receive payments of interest quarterly.
Scheduled contractual maturities of all debentures as of March 31, 2000 are
summarized as follows:
($ in thousands) Principal Accrued Interest
-------------------------------------------------------- --- ------------------ --------------------
For the nine months ended December 31, 2000 $ - $ -
For the year ended December 31, 2001 9,400 1,147
For the year ended December 31, 2002 7,000 595
For the year ended December 31, 2003 5,900 591
For the year ended December 31, 2004 20,000 2,687
Thereafter 35,030 2,406
-------------------------------------------------------- --- ------------------ --------------------
$77,330 $7,426
-------------------------------------------------------- --- ------------------ --------------------
On May 1, 2000, Series 9/13/93 and 1/28/94 debentures were redeemed by Intervest
Corporation of New York prior to maturity for outstanding principal totaling
$12,500,000 plus accrued interest of $1,580,000. In connection with this early
redemption, approximately $250,000 of unamortized deferred debenture offering
costs was charged to expense in the second quarter of 2000.
11
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Note 6 - Regulatory Capital
The Banks are required to maintain certain minimum regulatory capital
requirements. The following is a summary at March 31, 2000 of those regulatory
capital requirements and the actual capital of each Bank on a percentage basis:
Actual Minimum To Be Considered
Intervest Bank Ratios Requirement Well Capitalized
------- ----------- ----------------
Total capital to risk-weighted assets 10.80% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 9.55% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 6.50% 4.00% 5.00%
Intervest National Bank
Total capital to risk-weighted assets 19.48% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 18.52% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 17.72% 4.00% 5.00%
Note 7 - Cumulative Effect of Change in Accounting Principle
On January 1, 1999, the Company adopted as required the AICPA's Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities." The SOP
requires that all start-up costs (except for those that are capitalizable under
other generally accepted accounting principles) be expensed as incurred for
financial statement purposes effective January 1, 1999. Previously, a portion of
start-up costs were generally capitalized and amortized over a period of time.
The adoption of this statement resulted in a net charge of $128,000 on January
1, 1999. The charge represents the expensing, net of a tax benefit, of
cumulative start-up costs that had been incurred through December 31, 1998 in
connection with organizing Intervest National Bank.
12
Intervest Bancshares Corporation and Subsidiaries
Review by Independent Certified Public Accountants
Hacker, Johnson, Cohen & Grieb PA, the Company's independent certified public
accountants, have made a limited review of the financial data as of March 31,
2000, and for the three-month period then ended presented in this document, in
accordance with standards established by the American Institute of Certified
Public Accountants.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
13
Report on Review by Independent Certified Public Accountants
The Board of Directors
Intervest Bancshares Corporation and Subsidiaries
New York, New York:
We have reviewed the condensed consolidated balance sheet of Intervest
Bancshares Corporation and Subsidiaries (the "Company") as of March 31, 2000,
and the related condensed consolidated statements of earnings, changes in
stockholders' equity and cash flows for the three-month period then ended
included in this report. These financial statements are the responsibility of
the Company's management.
We were furnished with the report of other accountants on their review
of the interim financial information of Intervest Corporation of New York, whose
total assets as of March 31, 2000, and whose interest income, noninterest income
and net loss for the three-month period then ended, constituted 22.8%, 31.9%,
16.0% and 9.0%, respectively of the related consolidated totals.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review and the report of other accountants, we are not
aware of any material modifications that should be made to the condensed
consolidated financial statements referred to above for them to be in conformity
with generally accepted accounting principles.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
May 9, 2000
14
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Intervest Bancshares Corporation is the Holding Company for Intervest National
Bank in New York City, Intervest Bank in Clearwater, Florida, and Intervest
Corporation of New York in New York City. Hereafter, all the entities are
referred to as the "Company" on a consolidated basis. Intervest National Bank
and Intervest Bank may be referred to together as the "Banks."
All financial information in this report has been adjusted to include the
accounts of Intervest Corporation of New York, which was acquired by the Company
through a merger completed on March 10, 2000. Intervest Corporation of New York
engages in the business of originating and acquiring commercial and multifamily
residential loans. The merger has been accounted for at historical cost similar
to the pooling-of-interests method of accounting. See note 2 to the condensed
consolidated financial statements for a further discussion of the merger.
The Company reported net earnings of $390,000, or $0.10 per fully diluted share,
for the first quarter of 2000, compared to net earnings of $494,000, or $0.12
per fully diluted share, for the first quarter of 1999. The decline in net
earnings was primarily due to nonrecurring expenses associated with the
acquisition of Intervest Corporation of New York, an increase in operating
expenses and a decline in mortgage prepayment fee income. These items were
partially offset by higher net interest income and a lower income tax provision.
Net earnings from the Company's banking subsidiaries continued to increase
during the first quarter. Intervest Bank, a Florida state-chartered bank,
recorded net earnings of $495,000, a 45% increase from $342,000 in the first
quarter of 1999, while Intervest National Bank's net earnings improved to
$61,000 in the first quarter of 2000, from a net loss of $194,000 in the
comparable prior year quarter resulting from startup expenses.
Intervest National Bank is a nationally-chartered commercial bank that opened
for business on April 1, 1999. It is located in Rockefeller Plaza in New York
City and provides full commercial banking services, including internet banking.
Selected information about the Holding Company and its subsidiaries at or for
the quarter ended March 31, 2000, follows in the table below:
Intervest
Intervest Corporation
Holding Intervest National of New Consolidated
($ in thousands) Company Bank Bank York Amounts (1)
--------------------------------------------------------- ----------- ------------ ------------ ------------- ---------------
Total assets $42,235 $199,906 $77,940 $88,114 $367,119
Total cash and cash equivalents 2,516 4,950 12,725 16,648 29,664
Total securities, net - 75,462 8,229 - 83,691
Total loans, net of unearned fees and loan loss reserves 5,105 111,733 55,283 66,918 239,039
Total deposit liabilities - 182,783 64,215 - 239,370
Total debentures payable 6,930 - - 70,400 77,330
Total stockholders' equity 34,185 13,242 11,554 9,105 34,185
Net earnings (loss) for the quarter ended (131) 495 61 (35) 390
Number of full-service banking offices - 5 1 - 6
--------------------------------------------------------- ----------- ------------ ------------ ------------- ---------------
(1) Consolidated amounts exclude intercompany balances.
15
Comparison of Financial Condition at March 31, 2000 and December 31, 1999
Overview
Total assets at March 31, 2000 increased 8% to $367,119,000, from $340,481,000
at December 31, 1999, primarily reflecting an increase in loans receivable,
partially offset by a decline in cash and cash equivalents.
Total liabilities at March 31, 2000 increased to $332,934,000, from $306,877,000
at December 31, 1999, or 8%, reflecting growth in deposit accounts. The increase
in deposits was partially offset by a decline in federal funds purchased and
debentures payable.
Stockholders' equity increased to $34,185,000 at March 31, 2000, from
$33,604,000 at year-end 1999. The increase reflected earnings for the quarter
and issuance of common stock. Book value per common share also improved to $8.79
per share at March 31, 2000, from $8.76 at December 31, 1999.
The Company's balance sheet was comprised of the following:
At March 31, 2000 At December 31, 1999
-------------- ----------------- ----------------- -----------------
Carrying % of Carrying % of
($ in thousands) Value Total Assets Value Total Assets
- ------------------------------------------------ -------------- ----------------- -------- ----------------- -----------------
Cash and cash equivalents $ 29,664 8.1% $32,095 9.4%
Securities 83,691 22.8 83,640 24.6
Loans receivable, net of loan loss reserves 239,039 65.1 210,444 61.8
All other assets 14,725 4.0 14,302 4.2
- ------------------------------------------------ -------------- ----------------- -------- ----------------- -----------------
Total assets $367,119 100.0% $340,481 100.0%
- ------------------------------------------------ -------------- ----------------- -------- ----------------- -----------------
Deposits $239,370 65.2 $201,080 59.1%
Federal funds purchased - - 6,955 2.0
Debentures payable 77,330 21.1 84,330 24.8
Accrued interest payable on debentures 7,426 2.0 8,092 2.3
All other liabilities 8,808 2.4 6,420 1.9
- ------------------------------------------------ -------------- ----------------- -------- ----------------- -----------------
Total liabilities 332,934 90.7 306,877 90.1
- ------------------------------------------------ -------------- ----------------- -------- ----------------- -----------------
Stockholders' equity 34,185 9.3 33,604 9.9
- ------------------------------------------------ -------------- ----------------- -------- ----------------- -----------------
Total liabilities and stockholders' equity $367,119 100.0% $340,481 100.0%
- ------------------------------------------------ -------------- ----------------- -------- ----------------- -----------------
Cash and Cash Equivalents
Cash and cash equivalents decreased due to the partial deployment of funds into
new loan originations. Cash and cash equivalents include interest-bearing and
noninterest-bearing cash balances, investments in overnight federal funds and
other short-term investments that have original maturities of three months or
less. The Company's short-term investments are normally comprised of commercial
paper issued by large commercial banks, certificates of deposit and U.S.
government securities. The level of cash and cash equivalents fluctuates based
on various factors, including liquidity needs, loan demand, deposit flows,
repayments of borrowed funds and alternative security investment opportunities.
Securities
Securities for which the Company has the intent and ability to hold to maturity
are classified as held to maturity and carried at amortized cost. Securities
held to maturity totaled $83,183,000 at March 31, 2000, compared to $83,132,000
at December 31, 1999. The portfolio, which remained relatively unchanged from
16
year-end 1999, consists of fixed-rate debt obligations of the Federal Home Loan
Bank, Federal Farm Credit Bank and Federal National Mortgage Association. Most
of the securities have terms that allow the issuer the right to call or prepay
its obligation without prepayment penalty.
In order for the Banks to be members of the Federal Reserve Banking System, the
Banks maintain an investment in the capital stock of the Federal Reserve Bank,
which pays a dividend that is currently 6%. The amount of the investment, which
amounted to $508,000 at March 31, 2000 and year-end 1999, fluctuates based on
certain criteria.
Loans Receivable
Loans receivable, before the allowance for loan loss reserves, increased to
$241,687,000 at March 31, 2000, from $212,937,000 at December 31, 1999, due to
new commercial and multifamily real estate loan originations, partially offset
by principal repayments. Commercial real estate and multifamily real estate
properties collateralized almost all of the loans in the Company's loan
portfolio.
At March 31, 2000 and December 31, 1999, the Company did not have any loans on a
nonaccrual status or classified as impaired.
Allowance for Loan Loss Reserves
The Company monitors its loan portfolio to determine the appropriate level of
the allowance for loan loss reserves based on various factors. These factors
include: the type and level of loans outstanding, volume of loan originations;
overall portfolio quality; loan concentrations; specific problem loans,
historical chargeoffs and recoveries; adverse situations which may affect the
borrowers' ability to repay; and management's assessment of the current and
anticipated economic conditions in the Company's lending regions.
At March 31, 2000, the allowance amounted to $2,648,000, compared to $2,493,000
at year-end 1999. The increase in the allowance was due to new loan
originations. The allowance represented 1.10% of total loans outstanding at
March 31, 2000, compared to 1.17% at December 31, 1999.
All Other Assets
The following table shows the composition of all other assets:
At At
March 31, December 31,
($ in thousands) 2000 1999
----------------------------------------------- ----------- ---------------
Accrued interest receivable $3,130 $2,834
Premises and equipment, net 5,814 5,863
Deferred income tax asset 950 936
Deferred debenture offering costs (1) 3,491 3,721
All other 1,340 948
----------------------------------------------- ----------- ---------------
$14,725 $14,302
----------------------------------------------- ----------- ---------------
(1) Deferred debenture offering costs consist primarily
of underwriters' commissions and are amortized over the
terms of the debentures based on their maturities.
17
Deposit Liabilities
Deposit liabilities increased due to growth in deposit accounts, particularly
certificates of deposits. At March 31, 2000, certificate of deposit accounts
totaled $154,102,000 and demand deposit, savings, NOW and money-market accounts
aggregated $85,268,000. The same categories of deposit accounts totaled
$122,794,000 and $78,286,000, respectively, at December 31, 1999. Certificate of
deposit accounts represented 64% of total deposits at March 31, 2000, compared
to 61% at year-end 1999.
Federal Funds Purchased
From time to time, the Banks purchase Federal funds to manage their liquidity
needs. At March 31, 2000, there were no outstanding funds, compared to
$6,955,000 at December 31, 1999.
Debentures Payable and Related Accrued Interest Payable
Intervest Corporation of New York, the Holding Company's subsidiary, has
$70,400,000 of registered floating and fixed-rate subordinated debentures
outstanding. The debentures have been sold from time to time and the resulting
proceeds have been used to fund the origination and purchase of mortgage loans.
The Holding Company has $6,930,000 of convertible subordinated debentures
outstanding, whose proceeds have been used for working capital purposes.
On March 1, 2000, Intervest Corporation of New York redeemed Series 6/29/92
debentures totaling $7,000,000 in principal and maturing on April 1, 2000 for
outstanding principal plus accrued interest of $1,435,000. Additionally, on May
1, 2000, Series 9/13/93 and 1/28/94 debentures were redeemed by Intervest
Corporation of New York prior to maturity for outstanding principal totaling
$12,500,000 plus accrued interest of $1,580,000. In connection with this early
redemption, approximately $250,000 of unamortized deferred debenture offering
costs was charged to expense in the second quarter of 2000. For a further
discussion of the debentures, including information on conversion prices and
redemption features, see note 5 to the condensed consolidated financial
statements included in this report.
All Other Liabilities
The following table shows the composition of all other liabilities:
At March 31, At December 31,
($ in thousands) 2000 1999
------------------------------------- --------------- -------------------
Mortgage escrow funds payable $4,790 $3,375
Accrued interest payable on deposits 564 461
Official checks outstanding 2,382 1,821
All other 1,072 763
------------------------------------- --------------- -------------------
$8,808 $6,420
------------------------------------- --------------- -------------------
Mortgage escrow funds payable represent advance payments made by borrowers for
taxes and insurance that are remitted by the Company to third parties. The
increase reflects the timing of payments to taxing authorities as well as the
growth in the loan portfolio. The level of official checks outstanding varies
and fluctuates based on banking activity.
Stockholders' Equity and Regulatory Capital
Stockholders' equity increased almost entirely as a result of net earnings of
$390,000 and the issuance of 53,750 shares of common stock, which resulted, net
of issuance costs, in a $185,000 aggregate increase in stockholders' equity. The
shares were issued as follows: 3,750 shares of Class A common stock upon the
exercise of Class A warrants; and 50,000 shares of Class B common stock as a
18
result of a stock bonus awarded to the Holding Company's Chairman. See note 2 to
the condensed consolidated financial statements included in this report for a
further discussion of the stock bonus award.
Intervest Bank and Intervest National Bank are both well-capitalized
institutions as defined by FDIC regulations. See note 6 to the condensed
consolidated financial statements in this report for their respective capital
ratios.
Liquidity and Capital Resources
The Company manages its liquidity position on a daily basis to assure that funds
are available to meet operations, loan and investment funding commitments,
deposit withdrawals and the repayment of borrowed funds. The Company's primary
sources of funds consist of: retail deposits obtained through the Banks'
offices; satisfactions and repayments of loans; the maturities and calls of
securities; and cash provided by operating activities. From time-to-time, the
Company may also borrow funds through the Fed funds market or sale of
debentures. For information about the cash flows from the Company's operating,
investing and financing activities, see the condensed consolidated statements of
cash flows in this report.
At March 31, 2000, the Company's total commitment to lend aggregated
approximately $26,000,000. Based on its cash flow projections, the Company
believes that it can fund all of its outstanding commitments from the
aforementioned sources of funds.
Interest Rate Risk
Interest rate risk arises from differences in the repricing of assets and
liabilities within a given time period. The principal objective of the Company's
asset/liability management strategy is to minimize its exposure to changes in
interest rates. The Company uses "gap analysis," which measures the difference
between interest-earning assets and interest-bearing liabilities that mature or
reprice within a given time period, to monitor its interest rate sensitivity. At
March 31, 2000, the Company's one-year negative interest-rate sensitivity gap
was $72,706,000, or 19.8% of total assets, compared to $80,693,000, or 23.7%, at
December 31, 1999.
In computing the gap, the Company treats its interest checking, money market and
savings deposit accounts as immediately repricing. For a further discussion of
interest rate risk and gap analysis, including all of the assumptions used in
developing the Company's one-year gap position, see the Company's 1999 Annual
Report on Form 10-KSB, pages 28 and 29.
Comparison of Results of Operations for the Quarters Ended March 31, 2000
and 1999
Overview
Net earnings for the first quarter of 2000 were $390,000, compared to $494,000
for the first quarter of 1999. Diluted earnings per share amounted to $0.10,
compared to $0.12 the first quarter of 1999. The decline in earnings was
primarily due to a $350,000 increase in noninterest expenses and a $252,000
decline in noninterest income. These items were partially offset by an increase
in net interest income of $155,000 and a $258,000 decline in the provision for
income taxes. Results for the first quarter of 1999 included a one-time net
charge of $128,000 related to the required adoption of the AICPA's Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities."
19
Net Interest and Dividend Income
Net interest and dividend income is the Company's primary source of earnings and
is influenced primarily by the amount, distribution and repricing
characteristics of its interest-earning assets and interest-bearing liabilities
as well as by the relative levels and movements of interest rates. The table
that follows sets forth information on average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for the periods indicated. The yields and rates
shown are based on a computation of annualized income/expense for each period
divided by average interest-earning assets/interest-bearing liabilities during
each period. Certain yields and rates shown are adjusted for related fee income
or expense. Average balances are derived mainly from daily balances. Net
interest margin is computed by dividing annualized net interest and dividend
income by the average of total interest-earning assets during each period.
For the Quarter Ended
------------------------------------ --- ------------------------------------
March 31, 2000 March 31, 1999
------------------------------------ --- ------------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- ------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Assets
Interest-earning assets:
Loans $230,710 $5,646 9.84% $164,754 $4,481 11.03%
Securities 104,361 1,520 5.86 109,831 1,518 5.61
Other interest-earning assets 6,426 90 5.63 11,884 130 4.44
- ------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Total interest-earning assets 341,497 $7,256 8.55% 286,469 $6,129 8.68%
- ------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Noninterest-earning assets 14,429 12,544
- ------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Total assets $355,926 $299,013
- ------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Checking deposits $ 7,288 $ 55 3.04% $ 7,321 $ 56 3.10%
Savings deposits 17,357 215 4.98 26,942 279 4.20
Money-market deposits 51,839 662 5.14 35,953 386 4.35
Certificates of deposit 130,444 1,912 5.90 94,349 1,294 5.56
-------------- ----------- --------- --- ------------- ----------- ----------
Total deposit accounts 206,928 2,844 5.53 164,565 2,015 4.97
Federal funds purchased 10,101 146 5.81 - - -
Debentures and accrued interest payable 91,033 2,422 10.70 93,929 2,425 10.47
- ------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Total interest-bearing liabilities 308,062 $5,412 7.07% 258,494 $4,440 6.97%
- ------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Noninterest-bearing deposits 7,467 3,737
Noninterest-bearing liabilities 6,531 5,516
Stockholders' equity 33,866 31,266
- ------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Total liabilities and stockholders' equity $355,926 $299,013
- ------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Net interest and dividend income/spread $1,844 1.48% $1,689 1.71%
- ------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Net interest-earning assets/margin $33,435 2.17% $ 27,975 2.39%
- ------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.11x 1.11x
- ------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Other Ratios:
Return on average assets (1) 0.44% 0.66%
Return on average equity (1) 4.61% 6.32%
Noninterest expense to average assets (1) 1.41% 1.21%
Average stockholders' equity to average assets 9.51% 10.46%
- --------------------------------------------------- ------------ ----------- --------- --- ------------- ----------- ----------
<FN>
(1) Annualized
</FN>
Net interest and dividend income increased to $1,844,000 in the first quarter of
2000, from $1,689,000 in the 1999 first quarter. The increase was attributable
to a $5,460,000 increase in net interest-earning assets. The Company's net
interest margin declined to 2.17%, from 2.39% in the first quarter of 1999, due
to an increase in cost of funds and a decline in the yield on earning assets.
20
The Company's cost of funds increased 10 basis points to 7.07% due to the rising
interest rate environment, which resulted in higher rates being paid by the
Banks on all deposit accounts, as well as an increase in certificate of deposit
accounts. Such accounts pay a higher rate than savings and money-market
accounts.
The Company's yield on earning assets declined 13 basis points to 8.55% due to a
lower yield earned on the loan portfolio. Despite the rising rate environment,
the yield on the loan portfolio declined due to the very competitive lending
conditions, which has resulted in originations of new loans with interest rates
that are lower than the existing portfolio, as well as prepayments of
higher-yielding loans. This decline was offset partially by higher yields earned
on investment securities and other short-term investments.
Provision for Loan Loss Reserves
The provision is based on management's ongoing assessment of the adequacy of the
allowance for loan loss reserves, which takes into consideration a number of
factors, including the level of outstanding loans. The provision amounted to
$155,000 in the first quarter, compared to $112,000 in the first quarter of
1999.
Noninterest Income
Noninterest income declined to $162,000 in the first quarter of 2000, from
$414,000 in the first quarter of 1999, primarily due to lower fee income from
the prepayment of loans. Noninterest income includes fees from customer service
charges and income from mortgage lending activities, which are comprised of loan
prepayment fees, fees earned on expired loan commitments, and loan service,
inspection and maintenance charges.
Noninterest Expenses
Noninterest expenses increased to $1,251,000 in the first quarter of 2000, from
$901,000 in the comparable quarter of 1999. The increase was due to
approximately $210,000 of nonrecurring expenses associated with the acquisition
of Intervest Corporation of New York and increased operating expenses resulting
from the opening of Intervest National Bank on April 1, 1999. The new bank
required the addition of employees and increased occupancy and equipment
expenses. The nonrecurring expenses related to attorney fees, consulting fees,
printing costs, and stock compensation expense resulting from the grant of
50,000 shares of Class B common stock to the Chairman of the Holding Company for
his services with respect to the development, structuring and other activities
associated with the merger. Compensation expense of $159,000 was recorded in
connection with the stock award.
Provision for Income Taxes
The provision for income taxes amounted to $210,000 in the first quarter of
2000, compared to $468,000 in the same period of 1999, primarily due to lower
pre-tax earnings. The Company's effective tax rate (inclusive of state and local
taxes) amounted to 35% in the 2000 period, compared to 43% in the 1999 period.
The decline in the effective tax rate reflects lower New York State and City
taxes generated from Intervest Corporation of New York and the Holding Company's
operations.
Cumulative Effect of Change in Accounting Principle
The change in accounting principle represents the required adoption of the
AICPA's Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities," which applies to all companies except as provided for therein. The
SOP requires that all start-up costs (except for those that are capitalizable
under other generally accepted accounting principles) be expensed as incurred
for financial statement purposes effective January 1, 1999. Previously, a
portion of start-up costs were generally capitalized and amortized over a period
of time. The adoption of this statement resulted in the immediate expensing on
21
January 1, 1999 of $193,000 in start-up costs incurred through December 31, 1998
in connection with organizing Intervest National Bank. A deferred tax benefit of
$65,000 was recorded in conjunction with this charge.
Year 2000 Issue
The Year 2000 issue is the result of computer programs that were written using
two digits rather than four digits to define the applicable year. As a result,
such programs may recognize a date using "00" as the year 1900 instead of the
year 2000, which could result in system failures or miscalculations. Prior to
January 1, 2000, the Company had completed all upgrades necessary to ensure that
its operating and financial systems were Year 2000 compliant. To date, the
Company has not experienced any problems as a result of the Year 2000 issue, nor
does management expect it will. Expenses incurred by the Company related to the
Year 2000 issue have not been material.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Company's market risk arises primarily from interest rate
risk inherent in its lending and deposit-taking activities. The Company has no
risk related to trading accounts, commodities or foreign exchange.
Management actively monitors and manages the Company's interest rate risk
exposure. The primary objective in managing interest rate risk is to limit,
within established guidelines, the adverse impact of changes in interest rates
on the Company's net interest income and capital, while adjusting the Company's
asset-liability structure to obtain the maximum yield versus cost spread on that
structure. Management relies primarily on its asset-liability structure to
control interest rate risk. However, a sudden and substantial increase in
interest rates could adversely impact the Company's earnings, to the extent that
the interest rates borne by assets and liabilities do not change at the same
speed, to the same extent, or on the same basis. Management believes that there
have been no significant changes in the Company's market risk exposure since
December 31, 1999.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Not Applicable
ITEM 2. Changes in Securities and Use of Proceeds
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
ITEM 3. Defaults Upon Senior Securities
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) A Special Meeting of Stockholders was held on March 10, 2000.
(b) Not applicable
(c) Pursuant to the Company's charter and bylaws, except for the election
of directors, Class A and Class B common stockholders vote together as
a single class. The table that follows summarizes the voting results on
each proposal that was submitted to the Company's common stockholders:
22
Proposal For Against Abstained
--------------------------------------------------------------------------- ------------ ---------- ------------
1) Merger of ICNY Acquisition Corporation into
Intervest Corporation of New York 1,940,174 25,944 5,500
2) Increase in the number of authorized shares of Class A Common 1,911,074 52,144 8,400
3) Grant of a stock bonus of 50,000 shares of Class B
Common Stock to the Chairman of the Board of Directors 1,815,176 134,444 21,998
(d) Not Applicable
ITEM 5. Other Information
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index (numbered in accordance with Item 601 of Regulation S-B)
3 - Restated Certificate of Incorporation
27 - Financial Data Schedule (For SEC Purposes only)
(b) A Report on Form 8-K was filed on March 22, 2000, which reported the
Company's completion of its acquisition of Intervest Corporation of New
York.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
Date: May 11, 2000 By: /s/ Lowell S. Dansker
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Lowell S. Dansker,
President and Treasurer
(Chief Financial Officer)
Date: May 11, 2000 By: /s/ Lawrence G. Bergman
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Lawrence G. Bergman, Vice President
and Secretary