U.S. 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, 2000
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Commission File Number 000-23377
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INTERVEST BANCSHARES CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-3699013
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(State or other jurisdiction (I.R.S. employer
of incorporation) identification no.)
10 Rockefeller Plaza, Suite 1015
New York, New York 10020-1903
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(Address of principal executive offices)
(212) 218-2800
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act
of 1934
None
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(Title of class)
Securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934
Class A Common Stock, par value $1.00 per share
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(Title of class)
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 XX 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
amendments to this Form 10-K. [X]
As of February 23, 2001 there were 3,544,629 shares of the Registrant's Class A
common stock and 355,000 shares of the Registrant's Class B common stock issued
and outstanding. The aggregate market value of 1,201,479 shares of the
Registrant's Class A common stock on February 23, 2001, which excludes 2,343,150
shares held by affiliates as a group, was $7,058,689. This value is based on the
average bid and asked prices of $5.875 per share on February 23, 2001 of the
Class A common stock on the NASDAQ Small Cap Market.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2001 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
Intervest Bancshares Corporation and Subsidiaries
2000 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Page
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Item 1 Description of Business ........................................... 2
Item 2 Description of Properties.......................................... 13
Item 3 Legal Proceedings.................................................. 13
Item 4 Submission of Matters to a Vote of Security Holders................ 13
Item 4A Executive Officers and Other Key Employees......................... 13
PART II
Item 5 Market for Common Equity and Related Stockholder Matters........... 15
Item 6 Selected Financial Data............................................ 16
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 17
Item7A Quantitative and Qualitative Disclosures About Market Risk......... 34
Item 8 Financial Statements and Supplementary Data........................ 34
Item 9 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 66
PART III
Item 10 Directors and Executive Officers................................... 66
Item 11 Executive Compensation.............................................. 66
Item 12 Security Ownership of Certain Beneficial Owners and Management...... 66
Item 13 Certain Relationships and Related Transactions...................... 66
PART IV
Item 14 Exhibits, Financial Statements Schedules and Reports on Form 8-K.... 66
Signatures................................................................... 68
1
PART I
Item 1. Description of Business
General
Private Securities Litigation Reform Act Safe Harbor Statement
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The Company is 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 that are not statements of
historical fact may include forward-looking statements that involve a number of
risks and uncertainties. Such forward-looking statements are made based on
management's expectations and beliefs concerning future events impacting the
Company and are subject to uncertainties and factors relating to the Company's
operations and economic environment, all of which are difficult to predict and
many of which are beyond the control of the Company, that could cause actual
results of the Company to differ materially from those matters expressed in or
implied by forward-looking statements. The following factors are among those
that could cause actual results to differ materially from the forward-looking
statements: changes in general economic, market and regulatory conditions; the
development of an interest rate environment that may adversely affect the
Company's interest rate spread, other income or cash flow anticipated from the
Company's operations, investment and lending activities; and changes in laws and
regulations affecting banks and bank holding companies.
Intervest Bancshares Corporation
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Intervest Bancshares Corporation is a registered bank holding company (the
"Holding Company") incorporated in 1993 under the laws of the State of Delaware.
Its principal office is located at 10 Rockefeller Plaza, Suite 1015, New York,
New York 10020, and its telephone number is 212-218-2800. The Holding Company's
Class A common stock was approved for listing on the NASDAQ SmallCap Market
(Symbol: IBCA) in November 1997. Prior to then, there had been no established
trading market for the securities of the Holding Company. At December 31, 2000,
the Holding Company owned 100% of the outstanding capital stock of Intervest
National Bank, Intervest Bank and Intervest Corporation of New York (hereafter
referred to collectively as the "Company," on a consolidated basis). Intervest
Bank and Intervest National Bank may be referred to collectively as the "Banks."
At December 31, 2000, the Company had total assets of $416,927,000, net loans of
$266,326,000, deposits of $300,241,000, debentures and related interest payable
of $72,813,000, and stockholders' equity of $36,228,000, compared to total
assets of $340,481,000, net loans of $212,937,000, deposits of $201,080,000,
debentures and related interest payable of $92,422,000 and stockholders' equity
of $33,604,000, at December 31,1999.
The Holding Company's primary business is the operation of its subsidiaries. It
does not engage in any other substantial business activities other than a
limited amount of real estate mortgage lending. From time to time, the Holding
Company sells debentures to raise funds for working capital purposes. The
Holding Company is subject to examination and regulation by the Federal Reserve
Board (FRB).
Intervest Bank and Intervest National Bank
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Intervest Bank is a Florida state-chartered commercial bank that provides a wide
range of banking services to small and middle-market businesses and individuals
through its banking offices located in Pinellas County, Florida. The principal
executive offices of Intervest Bank are located at 625 Court Street, Clearwater,
Florida 33756. In addition, Intervest Bank has four branches; three in
Clearwater, Florida and one in South Pasadena, Florida.
At December 31, 2000, Intervest Bank had total assets of $218,588,000, net loans
of $127,553,000, deposits of $200,990,000, and stockholder's equity of
$14,496,000, compared to total assets of $189,477,000, net loans of
$105,286,000, deposits of $166,969,000, and stockholder's equity of $12,746,000,
at December 31, 1999.
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Intervest National Bank is a nationally chartered commercial bank that opened
for business on April 1, 1999. It is located at One Rockefeller Plaza in New
York City and provides full commercial banking services, including Internet
banking through its Web Site: www.intervestnatbank.com.
At December 31, 2000, Intervest National Bank had total assets of $117,384,000,
net loans of $80,846,000, deposits of $101,266,000, and stockholder's equity of
$13,110,000, compared to total assets of $57,562,000, net loans of $41,764,000,
deposits of $47,475,000 and stockholder's equity of $8,493,000, at December 31,
1999.
The Banks conduct a personalized commercial and consumer banking business, which
consists of attracting deposits from the areas served by their banking offices.
Intervest National Bank also uses the Internet for attracting its deposits,
which can attract deposit customers from within as well as outside its primary
market area. The deposits, together with funds derived from other sources, are
used to originate a variety of real estate, commercial and consumer loans and to
purchase investment securities. The Banks emphasize multifamily and commercial
residential real estate lending and also offer commercial and consumer loans.
The revenues of the Banks are primarily derived from interest and fees received
from originating loans, and from interest and dividends earned on securities and
other short-term investments. The principal sources of funds for the Banks'
lending activities are deposits, repayment of loans, maturities and calls of
securities and cash flow generated from operating activities. The Banks'
principal expenses are interest paid on deposits and operating and general and
administrative expenses.
Deposit flows and the rates paid thereon are influenced by interest rates on
competing investments available to depositors and general market rates of
interest. Lending activities are affected by the demand for real estate and
other types of loans, interest rates at which such loans may be offered and
other factors affecting the availability of funds to lend. The Banks face strong
competition in the attraction of deposits and in the origination of loans. The
Banks' deposits are insured by the Federal Deposit Insurance Corporation (FDIC)
to the extent permitted by law.
As is the case with banking institutions generally, the Banks' operations are
significantly influenced by general economic conditions and by related monetary
and fiscal policies of banking regulatory agencies, including the FRB and FDIC.
Intervest National Bank is also subject to the supervision, regulation and
examination of the Office of the Comptroller of the Currency of the United
States of America (OCC), while Intervest Bank is subject to the supervision,
regulation and examination by the Florida Department of Banking and Finance.
On June 15, 2000, Intervest National Bank and its primary regulator, the OCC,
entered into a Memorandum of Understanding. The memorandum is a formal written
agreement whereby, among other things, Intervest National Bank shall review,
revise, develop and implement various policies and procedures with respect to
its lending and credit underwriting. Management has implemented various actions
towards bringing Intervest National Bank into full compliance with the
memorandum.
Intervest Corporation of New York
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Intervest Corporation of New York is in the business of investing primarily in
commercial and multifamily real estate mortgage loans on income producing
properties, such as office and commercial properties and multifamily residential
apartment buildings. It also makes loans on other types of properties and may
resell mortgages. Intervest Corporation of New York is located at 10 Rockefeller
Plaza in New York City.
Intervest Corporation of New York was acquired on March 10, 2000, by the Holding
Company. In the acquisition, all the outstanding capital stock of Intervest
Corporation of New York was acquired in exchange for 1,250,000 shares of the
Holding Company's Class A common stock. Former shareholders of Intervest
Corporation of New York are officers and directors of Intervest Corporation of
New York and the Holding Company. 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
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this report on Form 10-K has been adjusted to include the accounts of Intervest
Corporation of New York. All material intercompany accounts and transactions
have been eliminated in consolidation.
At December 31, 2000, Intervest Corporation of New York had total assets of
$74,860,000, net loans of $51,992,000, debentures and related interest payable
of $64,347,000, and stockholder's equity of $9,269,000, compared to total assets
of $98,740,000, net loans of $63,290,000, debentures and related interest
payable of $84,600,000, and stockholder's equity of $12,140,000, at December 31,
1999. In 2000, Intervest Corporation of New York paid a $3,000,000 dividend to
the Holding Company.
Intervest Corporation of New York's operations are significantly influenced by
the movement of interest rates and by general economic conditions, particularly
those in the New York City metropolitan area where most of the properties that
secure its mortgage loans are concentrated.
Market Area
Intervest Bank's facilities are located in Pinellas County, which is the Bank's
primary market area and the most populous county in the Tampa Bay area of
Florida (with an estimated resident population of over 800,000 people). The area
has many more seasonal residents. The Tampa Bay area 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). Intervest Bank's deposit gathering and lending markets are concentrated
in the communities surrounding its offices in Clearwater and South Pasadena,
Florida. Management believes that its offices are located in an area serving
small and mid-sized businesses and serving middle and upper income residential
communities.
Intervest National Bank's facilities are located in Rockefeller Center in New
York City and its primary market area is the New York City metropolitan region,
and Manhattan in particular. Its deposit-gathering market also includes its Web
Site on the Internet: www.intervestnatbank.com, which attracts deposit customers
from both within and outside the Bank's primary market area.
Intervest Corporation of New York's lending activities have been concentrated in
the New York City metropolitan region. It also makes loans in other states,
including Connecticut, Florida, New Jersey, North Carolina, Pennsylvania,
Virginia and Washington D.C.
During the last three years, the economy of the New York City metropolitan area
has shown increased growth as evidenced by local employment growth statistics.
Improvement can also be seen in the local real estate market as reflected in
increased existing home sales and real estate values during the past few years.
Competition
The deregulation of the banking industry and the widespread enactment of state
laws that permit multi-bank holding companies, as well as an increasing level of
interstate banking, have created a highly competitive environment for commercial
banking. In one or more aspects of their business, the Banks 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, some
of which are affiliated with large bank holding companies, have substantially
greater resources and lending limits, and may offer services that the Banks do
not currently provide. In addition, many of the Banks' non-bank competitors are
not subject to the same extensive federal regulations that govern bank holding
companies and federally insured banks.
Competition among financial institutions is based upon interest rates offered on
deposit accounts, interest rates charged on loans and other credit and service
charges, the quality and scope of the services rendered, the convenience of
banking facilities and, in the case of loans to commercial borrowers, relative
lending limits. Management believes that a community bank is better positioned
to establish personalized banking relationships with both commercial customers
and individual households. The Banks' community commitment and involvement in
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their primary market areas, as well as their commitment to quality and
personalized banking services are factors that contribute to each Bank's
competitiveness. Management believes a locally-based bank is often perceived by
the local business community as possessing a clearer understanding of local
commerce and their needs. Consequently, management believes that the Banks can
compete successfully in their primary market areas by making prudent lending
decisions quickly and more efficiently than their competitors, without
compromising asset quality or profitability, although no assurances can be given
that such factors will assure success. In addition, management believes a
personalized service approach enables the Banks to attract and retain core
deposits.
In making its investments, Intervest Corporation of New York also experiences
significant competition from banks, insurance companies, savings and loan
associations, mortgage bankers, pension funds, real estate investment trusts,
limited partnerships and other lenders and investors engaged in purchasing
mortgages or making real property investments with investment objectives similar
in whole or part to its own. An increase in the general availability of funds
may increase competition in the making of investments in mortgages and real
property, and may reduce the yields available therefrom.
Asset Quality
The Banks seek to maintain a high level of asset quality when considering
investments in securities and the originations of loans. In originating loans,
the Banks place emphasis on the borrower's ability to generate cash flow to
support its debt obligations and other cash related expenses. The Banks' lending
activities are conducted pursuant to written policies and defined lending
limits. Depending on their type and size, certain loans must be reviewed and
approved by a Loan Committee comprised of certain members of the Board of
Directors prior to being originated. As part of its loan portfolio management
strategy, 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 new loans originated
by the Banks typically do not exceed 80%. In addition, physical inspections of
properties being considered for mortgage loans are made as part of the approval
process.
Each Bank's Loan Committee, as well as its senior management and lending
officers, concentrate their efforts and resources on loan review and
underwriting procedures. Internal controls include ongoing reviews of loans made
to monitor documentation and ensure the existence and valuations of collateral.
Each Bank also has in place a review process with the objective of quickly
identifying, evaluating and initiating necessary corrective actions for any
problem loans.
Intervest Corporation of New York does not have formal policies regarding the
percentage of its assets that may be invested in any single mortgage, the type
of mortgage loans and investments it can make, the geographic location of
properties collateralizing those mortgages, limits as to loan-to-value ratios
and the loan approval process.
There can be no assurance that a downturn in real estate values, as well as
other economic factors, would not have an adverse impact on the Company's
profitability. At December 31, 2000 and 1999, the Company did not have any
nonperforming assets or impaired loans.
Lending Activities
The Company's lending activities include real estate loans and commercial and
consumer loans. Real estate loans include primarily the origination of loans for
commercial and multifamily properties. While the Bank's lending activities
include single-family residential mortgages, such lending has not been
emphasized. Commercial loans are originated for working capital funding.
Consumer loans include those for the purchase of automobiles, boats, home
improvements and investments.
At December 31, 2000, the Company's net loan portfolio amounted to $266,326,000
compared to $212,937,000 at December 31, 1999. At December 31, 2000 and 1999,
the loan portfolio consisted predominantly of commercial and multifamily real
estate mortgage loans.
5
Commercial and Multifamily Real Estate Mortgage Lending
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Almost all of the Company's current loan portfolio is comprised of loans secured
by commercial and multifamily real estate, including rental and cooperative
apartment buildings, office buildings and shopping centers.
Commercial and multifamily mortgage lending generally involves greater risk than
1-4 family residential lending. Such lending typically involves larger loan
balances to single borrowers and repayment of loans secured by income producing
properties is typically dependent upon the successful operation of the
underlying real estate.
Mortgage loans on commercial and multifamily properties are normally originated
for terms of no more than 20 years, many with variable interest rates that are
based on the prime rate. Additionally, many loans have an interest rate floor
which resets upward along with any increase in the loan's interest rate. This
feature reduces the loan's interest rate exposure to periods of declining
interest rates.
Mortgage loans on commercial and multifamily properties typically provide for
periodic payments of interest and principal during the term of the mortgage,
with the remaining principal balance and any accrued interest due at the
maturity date. The majority of the mortgages owned by the Company provide for
balloon payments at maturity, which means that a substantial part 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 mortgage or, if at maturity or the due date of any balloon payment,
the owner of the property fails to raise the funds (by refinancing, sale or
otherwise) to make the lump sum payment, the Company could sustain a loss on its
investment in the mortgage loan. The Company's mortgage loans are generally not
personal obligations of the borrower and are not insured or guaranteed by
governmental agencies or otherwise.
Commercial Lending
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The Banks offer a variety of commercial loan services including term loans,
lines of credit and equipment financing. Short-to-medium term commercial loans,
both collateralized and uncollateralized, are made available to businesses for
working capital needs (including those secured by inventory, receivables and
other assets), business expansion (including acquisitions of real estate and
improvements), and the purchase of equipment and machinery. The Banks'
commercial loans are typically underwritten on the basis of the borrower's
ability to make repayment from the cash flow of their business and are generally
collateralized as discussed above. As a result, the availability of funds for
the repayment of commercial loans may be substantially dependent on the success
of the business itself. Further, the collateral underlying the loans may
depreciate over time, cannot be appraised with as much precision as residential
real estate, and may fluctuate in value based on the success of the business.
Consumer Lending
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The Banks offer consumer loans including those for: the purchase of automobiles,
recreation vehicles and boats; second mortgages; home improvements; home equity
lines of credit; and personal loans (both collateralized and uncollateralized).
Consumer loans typically have a short term and carry higher interest rates than
other types of loans. In addition, consumer loans have additional risks of
collectability when compared to traditional types of loans granted by commercial
banks such as residential mortgage loans. In many instances, the Banks are
required to rely on the borrower's ability to repay the loan from personal
income sources, since the collateral may be of reduced value at the time of
collection.
Loan Solicitation and Processing
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Loan originations are derived from the following: advertising in newspapers;
referrals from mortgage brokers; existing customers and borrowers; walk-in
customers; and through direct solicitation by the Company's officers.
The Company's underwriting procedures normally require the following: physical
inspections by management of properties being considered for mortgage loans;
mortgage title insurance, hazard insurance; and an appraisal of the property
6
securing the loan to determine the property's adequacy as security performed by
an appraiser approved by the Company. In addition, the Company analyzes relevant
real property and financial factors, which in certain cases may include: the
condition and use of the subject property; the property's income-producing
capacity; and the quality, experience and creditworthiness of the property's
owner.
For commercial and consumer loans, upon receipt of a loan application from a
prospective borrower, a credit report and other verifications are obtained to
substantiate specific information relating to the applicant's employment income
and credit standing.
Real Estate Investing Activities
The Company, from time to time, may purchase equity interests in real property
or it may acquire such an equity interest pursuant to a foreclosure upon a
mortgage in the normal course of business. With respect to such equity interests
in real estate, the Company may acquire and retain title to properties either
directly or through a subsidiary. While no such transactions are presently
pending, the Company would consider the expansion of its business through
investments in or acquisitions of other companies engaged in real estate or
mortgage business activities. While the Company has not previously made
acquisitions of real property or managed income-producing property, its
management has had substantial experience in the acquisition and management of
properties and, in particular, multifamily residential properties.
Investment Activities
The Banks' investment policies and strategies are reviewed and approved by their
respective Board of Directors and Investment Committees. The Company has
historically purchased securities that are issued directly by the U.S.
government or one of its agencies. Accordingly, the Company's investments in
securities carry a significantly lower credit risk than its loan portfolio. To
manage interest rate risk, the Company normally purchases securities that have
adjustable rates or securities with fixed rates that have short- to
intermediate-maturity terms. From time to time, a securities available-for-sale
portfolio may be maintained to provide flexibility for implementing asset and
liability management strategies. The Company does not engage in trading
activities.
On December 31, 2000, Intervest Bank transferred its entire securities
held-to-maturity portfolio (consisting of U.S. government agency securities with
an estimated fair value of $74,789,000) to the securities available-for-sale
portfolio. In 1999, there were no securities classified as available for sale.
Securities held to maturity totaled $20,970,000 at December 31, 2000, compared
to $83,132,000 at December 31, 1999. At December 31, 2000, the held-to-maturity
portfolio consisted of Intervest National Bank's holdings of U.S. government
agency securities.
The Company also invests in various money-market instruments, including
overnight and term federal funds, short-term bank commercial paper and
certificate of deposits. These instruments are used to temporarily invest
available funds resulting from deposit-gathering activities and normal cash flow
from operations. Cash and short-term investments at December 31, 2000 amounted
to $42,938,000, compared to $32,095,000 at December 31, 1999.
Deposit-Gathering Activities
The Banks' primary sources of funds consist of the following: retail deposits
obtained through their branch offices and through the mail; amortization,
satisfactions and repayments of loans; maturities and calls of securities; and
cash generated by operating activities.
Deposit accounts are solicited from individuals, small businesses and
professional firms located throughout the Banks' primary market areas through
the offering of a broad variety of deposit services. Intervest National Bank
also uses its Web Site on the Internet: www.intervestnatbank.com, which attracts
deposit customers from both within and outside its primary market area. At
December 31, 2000, deposit liabilities totaled $300,241,000, compared to
$201,080,000 at December 31, 1999. Deposit services include the following:
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certificates of deposit (including denominations of $100,000 or more);
individual retirement accounts (IRAs); other time deposits; checking and other
demand deposit accounts; negotiable order of withdrawal (NOW) accounts; savings
accounts; and money-market accounts. Interest rates offered by the Banks on
deposit accounts are normally competitive with those in the principal market
area of each Bank. In addition, the determination of rates and terms also
considers the Banks' liquidity requirements, growth goals, capital levels and
federal regulations. Maturity terms, service fees and withdrawal penalties on
deposit products are reviewed and established by the Banks on a periodic basis.
The Banks offer ATM services with access to local, state and national networks,
wire transfers, direct deposit of payroll and social security checks and
automated drafts for various accounts. In addition, Intervest Bank offers safe
deposit boxes to its customers, while Intervest National Bank provides internet
banking services. The Banks periodically review the scope of the banking
products and services they offer consistent with market opportunities and
available resources.
Other Sources of Funds
The Banks purchase federal funds from time to time to manage their liquidity
needs. At December 31, 2000 there were no such funds outstanding, compared to
$6,955,000 outstanding at December 31, 1999.
Intervest Bank has agreements with correspondent banks whereby it may borrow up
to $6,000,000 on an unsecured basis. There were no outstanding borrowings under
these agreements at December 31, 2000 or 1999.
Intervest Corporation of New York's' principal sources of funds consist of
borrowings (through the sale of its debentures), mortgage repayments and cash
flow generated from operations. At December 31, 2000, Intervest Corporation of
New York had debentures outstanding of $57,150,000, compared to $77,400,000 at
December 31, 1999. The Holding Company has sold debentures for working capital
purposes. At December 31, 2000 and 1999, $6,930,000 of the Holding Company's
debentures were outstanding. In February of 2001, the Holding Company completed
the sale of additional debentures in the aggregate principal amount of
$3,500,000. For a further discussion of all the debentures, including conversion
prices and redemption premiums, see note 8 to the consolidated financial
statements.
Employees
At December 31, 2000, the Company employed 49 full-time employees. The employees
are not covered by a collective bargaining agreement and the Company believes
its employee relations are good.
Federal and State Taxation
The Holding Company and its subsidiaries file a consolidated federal income tax
return. The Holding Company, Intervest National Bank and Intervest Corporation
of New York file consolidated state and city income tax returns in New York. The
Holding Company also files state income tax returns in New Jersey and a
franchise tax return in Delaware. Intervest Bank files a state income tax return
in Florida. All the returns are filed on a calendar year basis.
Consolidated returns have the effect of eliminating intercompany distributions,
including dividends, from the computation of consolidated taxable income for the
taxable year in which the distributions occur. In accordance with an income tax
sharing agreement, income tax charges or credits are, for financial reporting
purposes, allocated to the Holding Company and its subsidiaries on the basis of
their respective taxable income or taxable loss included in the consolidated
income tax return.
Banks and bank holding companies are subject to federal and state income taxes
in the same manner as other corporations. Florida taxes banks under primarily
the same provisions as other corporations, while 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 law.
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Although the Banks' 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. The two primary areas in
which the treatment of financial institutions differs from the treatment of
other corporations under the Code are in the areas of bond gains and losses and
bad debt deductions. Bond gains and losses generated from the sale or exchange
of portfolio instruments are generally treated for financial institutions as
ordinary gains and losses as opposed to capital gains and losses for other
corporations, as the Code considers bond portfolios held by banks to be
inventory in a trade or business rather than capital assets. Banks are allowed a
statutory method for calculating a reserve for bad debt deductions. Based on the
asset size of the bank, a bank is permitted to maintain a bad debt reserve
calculated on an experience method, based on chargeoffs and recoveries for the
current and preceding five years, or a "grandfathered" base year reserve, if
larger.
Investment in Subsidiaries
At December 31, 2000
-------------------- Subsidiaries
($ in thousands) % of Equity in Earnings (Loss) for the
Voting Total Underlying Years Ended December 31,
Subsidiary Stock Investment Net Assets 2000 1999 1998
- --------------------------- ----- ---------- ---------- ---- ---- ----
Intervest Bank 100% $14,496 $14,496 $2,002 $1,642 $1,149
Intervest National Bank 100% $13,110 $13,110 $ 617 $ (507) $ -
Intervest Corporation of New York 100% $ 9,269 $ 9,269 $ 129 $ 572 $ 947
Intervest Corporation of New York paid a dividend of $3,000,000 to the Holding
Company in 2000. There were no other dividends paid to the Holding Company in
2000, 1999 or 1998.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both federal
and state laws and regulations that are intended to protect depositors. To the
extent that the following information describes statutory and regulatory
provisions, it is qualified in its entirety by reference to the particular
statutory and regulatory provisions. Any change in the applicable law or
regulation may have a material effect on the business and prospects of the
Holding Company and its subsidiaries.
Bank Holding Company Regulation
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As a bank holding company registered under the Bank Holding Company Act of 1956
(BHCA), the Holding Company is subject to the regulation and supervision of the
FRB. The Holding Company is required to file with the FRB periodic reports and
other information regarding its business operations and those of its
subsidiaries. Under the BHCA, the Holding Company's activities and those of its
subsidiaries are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries or engaging in any other
activity which the FRB determines to be so closely related to banking or
managing or controlling banks as to be properly incident thereto.
As a bank holding company, the Holding Company is required to obtain the prior
approval of the FRB before acquiring direct or indirect ownership or control of
more than 5% of the voting shares of a bank or bank holding company. The FRB
will not approve any acquisition, merger or consolidation that would have a
substantial anti-competitive result, unless the anti-competitive effects of the
proposed transaction are outweighed by a greater public interest in meeting the
needs and convenience of the public. The FRB also considers managerial, capital
and other financial factors in acting on acquisition or merger applications. A
bank holding company may not engage in, or acquire direct or indirect control of
more than 5% of the voting shares of any company engaged in any non-banking
activity, unless such activity has been determined by the FRB to be closely
related to banking or managing banks. The FRB has identified by regulation
various non-banking activities in which a bank holding company may engage with
notice to, or prior approval by, the FRB.
9
The FRB monitors the capital adequacy of bank holding companies and uses
risk-based capital adequacy guidelines to evaluate bank holding companies on a
consolidated basis. The guidelines require a ratio of Tier 1 or Core Capital, as
defined in the guidelines, to total risk-weighted assets of at least 4% and a
ratio of total capital to risk-weighted assets of at least 8%. At December 31,
2000, the Company's consolidated ratio of total capital to risk-weighted assets
was 12.63% and its risk-based Tier 1 capital ratio was 11.72%. The guidelines
also require a ratio of Tier 1 capital to adjusted total average assets of not
less than 3%. The Holding Company's leverage ratio at December 31, 2000, was
8.75%.
The federal banking agencies' risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to operate
with capital positions well above the minimum ratios. The FRB guidelines also
provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets. In addition, the regulations of the FRB provide that concentration of
credit risk and certain risk arising from nontraditional activities, as well as
an institution's ability to manage these risks, are important factors to be
taken into account by regulatory agencies in assessing an organization's overall
capital adequacy.
The FRB and the other federal banking agencies have adopted amendments to their
risk-based capital regulations to provide for the consideration of interest rate
risk in the agency's determination of a banking institution's capital adequacy.
The amendments require such institutions to effectively measure and monitor
their interest rate risk and to maintain capital adequate for that risk.
Bank Regulation
- ---------------
Intervest Bank is a state-chartered banking corporation subject to the
supervision of and examination by the FRB, the Florida Department of Banking and
Finance and the FDIC. Intervest National Bank, as a national banking
association, is subject to supervision, examination and regulation by the OCC,
FRB and FDIC. These regulators have the power to: enjoin "unsafe or unsound
practices;" require affirmative action to correct any conditions resulting from
any violation or practice; issue an administrative order that can be judicially
enforced; direct an increase in capital; restrict the growth of a bank; assess
civil monetary penalties; and remove officers and directors.
The operations of the Banks are subject to numerous statutes and regulations.
Such statutes and regulations relate to required reserves against deposits,
investments, loans, mergers and consolidations, issuance of securities, payment
of dividends, establishment of branches, and other aspects of the Banks'
operations. Various consumer laws and regulations also affect the operations of
the Banks, including state usury laws, laws relating to fiduciaries, consumer
credit and equal credit, and fair credit reporting.
The Banks are subject to Sections 23A and 23B of the Federal Reserve Act, which
governs certain transactions, such as loans, extensions of credit, investments
and purchases of assets between member banks and their affiliates, including
their parent holding companies. These restrictions limit the transfer of funds
to the Holding Company in the form of loans, extensions of credit, investment or
purchases of assets ("Transfers"), and they require that the Banks' transactions
with the Holding Company be on terms no less favorable to the Banks than
comparable transactions between the Banks and unrelated third parties. Transfers
by the Banks to the Holding Company are limited in amount to 10% of each Bank's
capital and surplus, and transfers to all affiliates are limited in the
aggregate to 20% of each Bank's capital and surplus. Furthermore, such loans and
extensions of credit are also subject to various collateral requirements. These
regulations and restrictions may limit the Holding Company's ability to obtain
funds from the Banks for its cash needs, including funds for acquisitions, and
the payment of dividends, interest and operating expenses.
The Banks are prohibited from engaging in certain tying arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services. For example, the Banks may not generally require a customer to
obtain other services from the Banks or the Holding Company, and may not require
the customer to promise not to obtain other services from a competitor as a
10
condition to an extension of credit. The Banks are also subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to
executive officers, directors, principal stockholders or any related interest of
such persons. Extensions of credit (i) must be made on substantially the same
terms (including interest rates and collateral) as, and following credit
underwriting procedures that are not less stringent than those prevailing at the
time for, comparable transactions with persons not covered above and who are not
employees and (ii) must not involve more than the normal risk of repayment or
present other unfavorable features. In addition, extensions of credit to such
persons beyond limits set by FRB regulations must be approved by the Board of
Directors. The Banks are also subject to certain lending limits and restrictions
on overdrafts to such persons. A violation of these restrictions may result in
the assessment of substantial civil monetary penalties on the Banks or any
officer, director, employee, agent or other person participating in the conduct
of the affairs of the Banks or the imposition of a cease and desist order.
Applicable law provides the federal banking agencies with broad powers to take
prompt corrective action to resolve problems of insured depository institutions.
The extent of those powers depends upon whether the institution in question is
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized." Under federal regulations,
a bank is considered "well capitalized" if it has (i) a total risk-based capital
ratio of 10% or greater, (ii) a Tier 1 risk-based capital ratio of 6% or
greater, (iii) a leverage ratio of 5% or greater and (iv) is not subject to any
order or written directive to meet and maintain a specific capital level for any
capital measure. An "adequately capitalized" bank is defined as one that has (i)
a total risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based
capital ratio of 4% or greater, and (iii) a leverage ratio of 4% or greater (or
3% or greater in the case of a bank with a composite CAMELS rating of 1). A bank
is considered (a) "undercapitalized " if it has (i) a total risk-based capital
ratio of less than 8%, (ii) a Tier 1 risk-based capitalized ratio of less than
4%, or (iii) a leverage ratio of less than 4% (or 3% in the case of a bank with
a composite CAMELS rating of 1); (b) "significantly undercapitalized" if a bank
has (i) a total risk-based capital ratio of less than 6%, (ii) a Tier 1
risk-based Capital ratio of less than 3% or (iii) a leverage ratio of less than
3%, and (c) "critically undercapitalized" if a bank has a ratio of tangible
equity to total assets equal to or less than 2%. At December 31, 2000 and 1999,
each Bank met the definition of a well-capitalized institution.
The deposits of the Banks are insured by the FDIC through the Bank Insurance
Fund (the "BIF") to the extent provided by law. Under the FDIC's risk-based
insurance system, BIF-insured institutions are currently assessed premiums of
between zero and $0.27 per $100 of eligible deposits, depending upon the
institutions capital position and other supervisory factors. Congress has
enacted legislation that, among other things, provides for assessments against
BIF insured institutions that will be used to pay certain financing corporation
("FICO") obligations. In addition to any BIF insurance assessments, BIF-insured
banks are expected to make payments for the FICO obligations equal to an
estimated $0.024 per $100 of eligible deposits each year.
Regulations promulgated by the FDIC pursuant to the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("1991 Banking Law") place limitations on
the ability of certain insured depository institutions to accept, renew or
rollover deposits by offering rates of interest which are significantly higher
than the prevailing rates of interest on deposits offered by other depository
institutions having the same type of charter in such depository institutions
normal market area. Under these regulations, well-capitalized institutions may
accept, renew or rollover such deposits without restriction, while adequately
capitalized institutions may accept, renew or rollover such deposits with a
waiver from the FDIC (subject to certain restrictions on payment of rates).
Undercapitalized institutions may not accept, renew or rollover such deposits.
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), a depository institution insured by the FDIC can be held liable for
any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC-insured institution in danger of default. "Default" is defined generally as
the appointment of a conservator or receiver and "in danger of Default" is
defined generally as the existence of certain conditions indicating that a
"default" is likely to occur in the absence of regulatory assistance. The
Federal Community Reinvestment Act of 1977 ("CRA"), among other things, allows
11
regulators to withhold approval of an acquisition or the establishment of a
branch unless the applicant has performed satisfactorily under the CRA.
Satisfactory performance means adequately meeting the credit needs of the
communities the institution serves, including low and moderate income areas. The
applicable federal regulators now regularly conduct CRA examinations to assess
the performance of financial institutions. Intervest Bank has received a
"satisfactory" rating in its most recent CRA examination. Intervest National
Bank will be initially examined for CRA compliance in 2001.
The federal regulators have adopted regulations and examination procedures
promoting the safety and soundness of individual institutions by specifically
addressing, among other things: (i) internal controls; information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate exposure; (v) asset growth; (vi) ratio of classified assets to
capital; (vii) minimum earnings; and (viii) compensation and benefits standards
for management officials.
The FRB, OCC and other federal banking agencies have broad enforcement powers,
including the power to terminate deposit insurance, and impose substantial fines
and other civil and criminal penalties and appoint a conservator or receiver.
Failure to comply with applicable laws, regulations and supervisory agreements
could subject the Holding Company or its banking subsidiaries, as well as
officers, directors and other institution-affiliated parties of these
organizations, to administrative sanctions and potentially civil monetary
penalties. In addition, the Florida Department of Banking and Finance possesses
certain enumerated enforcement powers to address violations of the Florida State
Law by state-chartered banks and to preserve safety and soundness, including, in
the most severe cases, the authority to take possession of a state bank.
Interstate Banking and Other Recent Legislation
- -----------------------------------------------
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
Act also permits interstate mergers of banks, with some limitations and the
establishment of new branches on an interstate basis provided that such action
is authorized by the law of the host state. The Gramm-Leach-Bliley Act was
signed by the President on November 12, 1999. This new legislation permits
banks, securities firms and insurance companies to affiliate under a common
holding company structure. In addition to allowing new forms of financial
services combinations, this Act clarifies how financial services conglomerates
will be regulated by the different federal and state regulators. Additional
legislative and regulatory proposals have been made and others can be expected.
These include proposals designed to improve the overall the financial stability
of the United States banking system, and to provide for other changes in the
bank regulatory structure, including proposals to reduce regulatory burdens on
banking organizations and to expand the nature of products and services banks
and bank holding companies may offer. It is not possible to predict whether or
in what form these proposals may be adopted in the future and, if adopted, what
their effect will be on the Company.
Monetary Policy and Economic Control
- ------------------------------------
The commercial banking business in which the Company engages 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 have had
a significant effect on the operating results of commercial banks and are
expected to continue to do so in the future. The monetary policies of these
agencies are influenced by various factors, including inflation, unemployment,
12
short-term and long-term changes in the international trade balance and in the
fiscal policies of the United States Government. Future monetary policies and
the effect of such policies on the future business and earnings of the Company
cannot be predicted.
Item 2. Description of Properties
The office of the Holding Company and Intervest Corporation of New York is
located in leased premises (of approximately 4,000 sq. ft.) on the tenth floor
of 10 Rockefeller Plaza, New York, N.Y, 10020. The lease expires in September
2004.
Intervest National Bank's office is located on the third floor of One
Rockefeller Plaza, New York, N.Y, 10020. The office consists of approximately
7,000 sq. ft. and has been leased through May 2008.
Intervest Bank maintains its principal office at 625 Court Street, Clearwater,
Florida, 33756. In addition, Intervest Bank operates four branch offices; three
of which are in Clearwater, Florida, at 1875 Belcher Road North, 2175 Nursery
Road and 2575 Ulmerton Road, and one is at 6750 Gulfport Blvd, South Pasadena,
Florida. With the exception of the Belcher Road office, which is leased through
June 2007, all of the offices of Intervest Bank are owned by Intervest Bank. The
office at 625 Court Street consists of a two-story building containing
approximately 22,000 sq. ft. Intervest Bank 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
Intervest Bank 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 Intervest Bank. The
branch office at 2575 Ulmerton Road is a three-story building containing
approximately 17,000 sq. ft. Intervest Bank occupies the ground floor
(approximately 2,500 sq. ft.) and leases the upper floors to 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 Intervest Bank. In
addition, each of Intervest Bank's offices include drive-through teller
facilities.
Item 3. Legal Proceedings
The Company is periodically a party to or otherwise involved in legal
proceedings arising in the normal course of business, such as claims to enforce
liens, claims involving the making and servicing of mortgage loans, and other
issues incident to the Company's business. Management does not believe that
there is any pending or threatened proceeding against the Company, which, if
determined adversely, would have a material effect on the business, results of
operations, or financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of the fiscal year ended
December 31, 2000, to a vote of security holders of the Company, through the
solicitation of proxies or otherwise.
Item 4A. Executive Officers and Other Key Employees
Jerome Dansker, age 82, serves as Chairman of the Board of Directors and
Executive Vice President of Intervest Bancshares Corporation. He has served as
Executive Vice President since 1994 and as Chairman of the Board since 1996. Mr.
Dansker received a Bachelor of Science degree from the New York University
School of Commerce, Accounts and Finance, a Law degree from the New York
University School of Law, and is admitted to practice as an attorney in the
State of New York. Mr. Dansker also serves as Chairman of the Board of Directors
and Chairman of the Loan Committee of Intervest National Bank and as Director
and Chairman of the Loan Committee of Intervest Bank. He is also Chairman of the
Board of Directors and Executive Vice President of Intervest Corporation of New
York.
Lowell S. Dansker, age 50, serves as a Director, President and Treasurer of
Intervest Bancshares Corporation, and has served in such capacities since the
Company was organized in 1993. Mr. Dansker received a Bachelor of Science in
Business Administration from Babson College, a Law degree from the University of
Akron School of Law, and is admitted to practice as an attorney in New York,
Ohio, Florida and the District of Columbia. Mr. Dansker also serves as Chief
Executive Officer, Director and a member of the Loan Committee of Intervest
National Bank and as Co-Chairman of the Board of Directors and a member of the
Loan Committee of Intervest Bank. He is also a Director, President and Treasurer
of Intervest Corporation of New York.
Lawrence G. Bergman, age 56, serves as a Director, Vice President and
Secretary of Intervest Bancshares Corporation and has served in such capacities
since the Company was organized in 1993. Mr. Bergman received a Bachelor of
Science degree and a Master of Engineering (Electrical) degree from Cornell
University and a Master of Science in Engineering and a Ph.D. degree from The
Johns Hopkins University. Mr. Bergman also serves as a Director and a member of
the Loan Committee of Intervest National Bank and as Co-Chairman of the Board of
Directors and a member of the Loan Committee of Intervest Bank. He is also a
13
Director, Vice-President and Secretary of Intervest Corporation of New York.
Keith A. Olsen, age 47, serves as President of Intervest Bank and has
served in such capacity since 1994. Prior to that, Mr. Olsen was a Senior Vice
President of Intervest Bank since 1991. 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. He 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 15 years and has served as a senior
bank officer for more than 10 years.
Petra H. Coover, age 54, serves as Senior Vice President of Lending of
Intervest Bank and has served in such capacity since August 1999. Prior to that,
Ms. Coover served as Vice President of Intervest Bank since 1994. Ms. Coover
received a B.A. degree in business administration from Eckerd College. She has
also attended The National School of Real Estate Finance of Ohio State
University, the Commercial Lending School of the University of South Florida and
the International Business Institute in the Netherlands. Ms. Coover has been a
bank officer for more than 15 years.
Charlotte H. Grant, age 62, serves as Senior Vice President and Chief
Financial Officer of Intervest Bank and has served in that capacity since August
1999. Prior to that, Ms. Grant served as Vice President and Cashier of Intervest
Bank since July 1998. Ms. Grant received a Bachelors degree from the University
of South Florida and a Masters Degree from the University of Tampa. Ms. Grant is
a Certified Public Accountant. Prior to joining Intervest Bank, Ms. Grant served
as Chief Financial Officer of First Community Bank of America from October 1997
to July 1998 and as an Accountant in Practice with the firm of Hacker, Johnson
and Smith, PA (the Company's auditors) from 1993 to 1997. Prior to that, Ms.
Grant was a Manager of Financial Reporting for First Florida Bank.
Raymond C. Sullivan, age 54, serves as President and Director of Intervest
National Bank and has served in that capacity since April 1999. Prior to that,
Mr. Sullivan was an employee of Intervest Bancshares Corporation from March 1998
to March 1999. Mr. Sullivan received an MBA degree from Fordham University, an
M.S. degree from City College of New York and a B.A. degree from St. Francis
College. Mr. Sullivan also has a Certificate in Advanced Graduate Study in
Accounting from Pace University and is a graduate of the National School of
Finance and Management. Mr. Sullivan has over 27 years of banking experience.
Prior to joining the Company, Mr. Sullivan was the Operations Manager of the New
York Agency Office of Banco Mercantile, C.A. from 1994 to 1997, a Senior
Associate at LoBue Associates, Inc. from 1992 to 1993, and an Executive Vice
President, Chief Operations Officer and Director of Central Federal Savings Bank
from 1985 to 1992.
John J. Arvonio, age 38, serves as Senior Vice President, Chief Financial
Officer and Secretary of Intervest National Bank and has served in such capacity
since September 2000. Prior to that, Mr. Arvonio served as Vice President,
Controller and Secretary of Intervest National Bank since April 1999. Prior to
that, Mr. Arvonio was an employee of Intervest Bancshares Corporation from April
1998 to March 1999. Mr. Arvonio received a B.B.A. degree from Iona College and
is a Certified Public Accountant. Mr. Arvonio has over 12 years of banking
experience. Prior to joining the Company, Mr. Arvonio served as Second Vice
President, Technical Advisor and Assistant Controller for The Greater New York
Savings Bank from 1992 to 1997. Prior to that, Mr. Arvonio was a Manager of
Financial Reporting for the Leasing and Investment Banking Divisions of
Citibank.
14
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market for Securities
The Holding Company's Class A common stock is traded over the counter and quoted
on the NASDAQ SmallCap Market under the symbol: IBCA. At December 31, 2000,
there were approximately 700 holders of record of the Class A common stock,
which includes persons or entities that hold their stock in nominee form or in
street name through various brokerage firms. At December 31, 2000, there were
four holders of record of Class B common stock. There is no public-trading
market for the Class B common stock.
The high and low sales prices (as obtained from NASDAQ) for the Class A common
stock by calendar quarter for 2000 and 1999 are as follows:
2000 1999
---- ----
High Low High Low
-------------------- --------------------
First quarter $7.00 $5.50 $11.00 $7.63
Second quarter $8.00 $4.75 $19.00 $7.81
Third quarter $7.00 $4.75 $ 9.75 $7.44
Fourth quarter $5.50 $3.38 $ 9.00 $5.06
Dividends
Class A and Class B common stockholders are entitled to receive dividends when
and if declared by the Board of Directors out of funds legally available for
such purposes. The Holding Company has not paid any dividends on its capital
stock and currently is not contemplating the payment of a dividend.
The Holding Company's ability to pay dividends is generally limited to earnings
from the prior year, although retained earnings and dividends from its
subsidiaries may also be used to pay dividends under certain circumstances. The
primary source of funds for dividends payable by the Holding Company to its
shareholders is the dividends received from its subsidiaries. The payment of
dividends by a subsidiary to the Holding Company is determined by the
subsidiary's Board of Directors and is dependent upon a number of factors,
including the subsidiary's capital requirements, regulatory limitations, results
of operations and financial condition.
There are also various legal limitations with respect to the Banks' financing or
otherwise supplying funds to the Holding Company. In particular, under federal
banking law, the Banks may not declare a dividend that exceeds undivided
profits. In addition, the approval of the FRB, the OCC (in the case of Intervest
National Bank) and the Florida Department of Banking and Finance (in the case of
Intervest Bank), is required if the total amount of all dividends declared in
any calendar year exceeds the Bank's net profits for that year, combined with
its retained net profits for the preceding two years. The FRB also has the
authority to limit further the payment of dividends by the Banks under certain
circumstances. In addition, federal banking laws prohibit or restrict each Bank
from extending credit to the Holding Company under certain circumstances. The
FRB and the OCC have established certain financial and capital requirements that
affect the ability of banks to pay dividends and also have the general authority
to prohibit banks from engaging in unsafe or unsound practices in conducting
business. Depending upon the financial condition of either Bank, the payment of
cash dividends could be deemed to constitute such an unsafe or unsound practice.
Under FRB policy, a bank holding company is expected to act as a source of
financial strength to its subsidiary banks and to commit resources to support
each such bank. Consistent with this policy, the FRB has stated that, as a
matter of prudent banking, a bank holding company generally should not pay cash
dividends unless the available net earnings of the bank holding company is
sufficient to fully fund the dividends, and the prospective rate of earnings
retention appears to be consistent with a holding company's capital needs, asset
quality and overall financial condition.
15
Item 6. Selected Consolidated Financial and Other Data
- --------------------------------------------------------------------------------
At or For The Year Ended December 31,
---------------------------------------------------------------------
($ in thousands, except per share amounts) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Condition Data:
Total assets................................................... $416,927 $340,481 $300,080 $245,262 $196,867
Cash and cash equivalents...................................... 42,938 32,095 40,977 24,043 23,038
Securities available for sale.................................. 74,789 - - - -
Securities held to maturity, net............................... 20,970 83,132 82,338 58,821 34,507
Loans receivable, net.......................................... 266,326 212,937 164,986 150,832 129,676
Deposits....................................................... 300,241 201,080 170,420 130,412 93,228
Federal funds purchased........................................ - 6,955 - - -
Debentures and related accrued interest payable................ 72,813 92,422 93,090 82,966 79,006
Stockholders' equity........................................... 36,228 33,604 31,112 28,142 19,822
Nonaccrual loans............................................... - - - - -
Allowance for loan loss reserves............................... 2,768 2,493 1,662 1,173 811
Loan chargeoffs................................................ - - - - 65
Loan recoveries................................................ - 1 10 10 33
- ------------------------------------------------------------------------------------------------------------------------------------
Operations Data:
Interest and dividend income................................... $31,908 $25,501 $24,647 $ 19,807 $ 16,206
Interest expense............................................... 23,325 18,419 17,669 15,008 11,649
--------------------------------------------------------------------
Net interest and dividend income............................... 8,583 7,082 6,978 4,799 4,557
Provision for loan loss reserves............................... 275 830 479 352 250
--------------------------------------------------------------------
Net interest and dividend income after
provision for loan loss reserves.......................... 8,308 6,252 6,499 4,447 4,307
Noninterest income............................................. 983 900 700 382 414
Noninterest expenses........................................... 4,568 4,059 3,077 2,679 2,499
--------------------------------------------------------------------
Earnings before income taxes, extraordinary item
and change in accounting principle........................ 4,723 3,093 4,122 2,150 2,222
Provision for income taxes..................................... 1,909 1,198 1,740 860 967
--------------------------------------------------------------------
Earnings before extraordinary item and
change in accounting principle............................ 2,814 1,895 2,382 1,290 1,255
Extraordinary item, net of tax (1)............................. (206) - - - -
Cumulative effect of accounting change, net of tax (2)......... - (128) - - -
--------------------------------------------------------------------
Net earnings................................................... $ 2,608 $ 1,767 $2,382 $ 1,290 $1,255
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Data:
Basic earnings per share....................................... $ 0.67 $ 0.47 $ 0.64 $ 0.44 $ 0.43
Diluted earnings per share..................................... 0.67 0.44 0.54 0.39 0.43
Common book value per share.................................... 9.29 8.76 8.33 7.66 6.84
Dividends per share............................................ - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Other Data and Ratios:
Common shares outstanding...................................... 3,899,629 3,836,879 3,734,515 3,674,415 2,900,000
Average common shares used to calculate:
Basic earnings per share.................................. 3,884,560 3,760,293 3,707,113 2,962,292 2,900,000
Diluted earnings per share................................ 3,884,560 4,020,118 4,723,516 3,322,459 2,900,000
Adjusted net earnings for diluted earnings per share........... $2,608 $1,767 $2,554 $1,290 $1,255
Full-service banking offices................................... 5 5 5 4 4
Return on average assets....................................... 0.69% 0.57% 0.87% 0.59% 0.75%
Return on average equity....................................... 7.48% 5.48% 8.05% 6.00% 6.54%
Loans, net of unearned income to deposits...................... 88.70% 105.90% 96.81% 115.66% 139.10%
Allowance for loan losses to total net loans................... 1.04% 1.17% 1.01% 0.78% 0.63%
Average stockholders' equity to average total assets........... 9.18% 10.37% 10.82% 9.86% 11.41%
Stockholders' equity to total assets........................... 8.69% 9.87% 10.37% 11.47% 10.07%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents a charge, net of taxes, from the early retirement of debentures.
(2) Represents a charge, net of taxes, from the adoption of Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities."
</FN>
16
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Management's discussion and analysis of financial condition and results of
operations that follows should be read in conjunction with the Consolidated
Financial Statements and Notes included in this report on Form 10-K.
Intervest Bancshares Corporation has three wholly owned subsidiaries - Intervest
National Bank, Intervest Bank and Intervest Corporation of New York (hereafter
referred to collectively as the "Company" on a consolidated basis). Intervest
Bank and Intervest National Bank may be referred to collectively as the "Banks,"
and Intervest Bancshares Corporation may be referred to by itself as the
"Holding Company."
The Holding Company's primary business is the operation of its subsidiaries. It
does not engage in any other substantial business activities other than a
limited amount of real estate mortgage lending. From time to time, the Holding
Company sells debentures to raise funds for working capital purposes.
Intervest National Bank is a nationally chartered, full-service commercial bank
located in Rockefeller Center in New York City and 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 personalized commercial and consumer banking business, which
consists of attracting deposits from the areas served by their banking offices.
Intervest National Bank also provides Internet banking services through its Web
Site: www.intervestnatbank.com, which can attract deposit customers from outside
its primary market area. The deposits, together with funds derived from other
sources, are used to originate a variety of real estate, commercial and consumer
loans and to purchase investment securities. The Banks' emphasize multifamily
and commercial residential lending.
Intervest Corporation of New York is located in Rockefeller Center in New York
City and is in the business of originating and acquiring commercial and
multifamily loans. On March 10, 2000, the Holding Company acquired all the
outstanding capital stock of Intervest Corporation of New York in exchange for
1,250,000 shares of the Holding Company's Class A common stock. As a result of
the acquisition, Intervest Corporation of New York became a wholly owned
subsidiary of the Holding Company. Former shareholders of Intervest Corporation
of New York are officers and directors of both the Holding Company and Intervest
Corporation of New York. 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 on
Form 10-K has been adjusted to include the accounts of Intervest Corporation of
New York.
The Company's profitability depends primarily on net interest income, which is
the difference between interest income generated from its interest-earning
assets less the interest expense incurred on its interest-bearing liabilities.
Net interest income is dependent upon the interest-rate spread, which is the
difference between the average yield earned on interest-earning assets and the
average rate paid on interest-bearing liabilities. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income. The interest rate spread is impacted
by interest rates, deposit flows and loan demand.
The Company's profitability is also affected by the level of its noninterest
income and expenses, the provision for loan loss reserves, and its effective
income tax rate. Noninterest income consists primarily of loan and other banking
fees. Noninterest expense consists of compensation and benefits, occupancy and
equipment related expenses, data processing expenses, advertising expense,
deposit insurance premiums and other operating expenses. The Company's
profitability is also significantly affected by general economic and competitive
conditions, changes in market interest rates, government policies and actions of
regulatory authorities.
17
Comparison of Results of Operations for the Years Ended December 31, 2000 and
1999.
General
- -------
The Company's net earnings for 2000 increased to $2,608,000, or $0.67 per fully
diluted share, from $1,767,000, or $0.44 per fully diluted share in 1999, or a
48% year-to-year increase. Net earnings for 2000 represent the highest level of
earnings reported by the Company since its inception in 1993. The growth in
earnings from 1999 was primarily due to a $1,501,000 increase in net interest
and dividend income and a $555,000 decrease in the provision for loan loss
reserves. These items were partially offset by a $711,000 increase in the
provision for income taxes, an increase in operating expenses of $299,000
resulting largely from a full year of operations of Intervest National Bank, and
approximately $210,000 of nonrecurring expenses associated with the acquisition
of Intervest Corporation of New York in March of 2000.
Selected information regarding results of operations for the Holding Company and
its subsidiaries for 2000 follows:
Intervest Intervest Inter-
Holding Intervest National Corporation company
($ in thousands) Company Bank Bank of New York Balances Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Interest and dividend income $ 672 $15,104 $7,878 $8,519 $(265) $31,908
Interest expense 686 10,303 4,965 7,636 (265) 23,325
--------------------------------------------------------------------------------
Net interest and dividend (expense) income (14) 4,801 2,913 883 - 8,583
Provision (credit) for loan loss reserves 17 (93) 351 - - 275
Noninterest income 165 347 132 563 (224) 983
Noninterest expenses 405 2,031 1,533 823 (224) 4,568
--------------------------------------------------------------------------------
(Loss) earnings before taxes and extraordinary item (271) 3,210 1,161 623 - 4,723
(Credit) provision for income taxes (131) 1,208 544 288 - 1,909
Extraordinary item, net of tax - - - (206) - (206)
- ------------------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings $(140) $ 2,002 $ 617 $ 129 $ - $ 2,608
- ------------------------------------------------------------------------------------------------------------------------------------
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. Net interest
and dividend income increased to $8,583,000 in 2000, from $7,082,000 in 1999.
The improvement was attributable to a $74,961,000 increase in the average loan
portfolio, partially offset by a decline in the Company's interest rate spread
from 1.69% to 1.64%. The growth in the loan portfolio was funded primarily by a
$78,008,000 increase in average deposits.
The Company's cost of funds in 2000 increased 16 basis points to 7.04% due to
the rising interest rate environment, as evidenced by the Federal Reserve Board
increasing the federal funds target rate on six occasions between June 1999 and
June 2000, for a total of 175 basis points. This resulted in higher rates paid
for deposit accounts and floating-rate debentures, as well as an increase in
depositors' preference for certificates of deposit accounts, which normally have
higher rates than savings and money-market accounts.
The Company's yield on earning assets in 2000 increased 11 basis point to 8.68%
due to higher yields earned on investment securities and other short-term
investments, partially offset by a decline in the yield on the loan portfolio.
Despite the higher rate environment, the average yield on the loan portfolio
declined to 9.93% from 10.68%, due to competitive lending conditions (which
resulted in originations of new loans with lower rates than the average yield of
the portfolio in 1999, as well as prepayments of higher-yielding loans). The
effect of the preceding was partially offset by rate increases on floating-rate
loans.
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 2000 and 1999. 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 mainly 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.
18
For the Year Ended December 31,
--------------------------------
2000 1999
----------------------------------- ------------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
-----------------------------------------------------------------------------------------------------------------------------------
Assets
Interest-earning assets:
Loans $250,941 $24,923 9.93% $175,980 $18,794 10.68%
Securities 101,532 6,056 5.96 108,336 6,123 5.65
Other interest-earning assets 14,925 929 6.22 13,089 584 4.46
-----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 367,398 $31,908 8.68% 297,405 $25,501 8.57%
-----------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 12,257 13,610
-----------------------------------------------------------------------------------------------------------------------------------
Total assets $379,655 $311,015
-----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest checking deposits $ 7,611 $ 232 3.05% $ 7,687 $ 238 3.10%
Savings deposits 17,070 897 5.25 25,160 1,059 4.21
Money market deposits 52,182 2,832 5.43 42,078 1,882 4.47
Certificates of deposit 175,552 10,892 6.20 99,482 5,524 5.55
--------------------------------------------------------------------------------
Total deposit accounts 252,415 14,853 5.88 174,407 8,703 4.99
Federal funds purchased 2,544 150 5.90 517 29 5.61
Debentures and accrued interest payable 76,546 8,322 10.87 92,888 9,687 10.43
-----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 331,505 $23,325 7.04% 267,812 $18,419 6.88%
-----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 5,696 4,436
Noninterest-bearing liabilities 7,599 6,529
Stockholders' equity 34,855 32,238
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $379,655 $311,015
-----------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $ 8,583 1.64% $ 7,082 1.69%
-----------------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 35,893 2.34% $ 29,593 2.38%
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.11x 1.11x
-----------------------------------------------------------------------------------------------------------------------------------
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, 2000 vs. 1999
---------------------------------------------
Increase (Decrease) Due To Change In:
-------------------------------------
($ in thousands) Rate Volume Rate/Volume Total
-------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans $(1,320) $8,006 $(557) $6,129
Securities 336 (384) (19) (67)
Other interest-earning assets 230 82 33 345
-------------------------------------------------------------------------------------------------------------
Total interest-earning assets (754) 7,704 (543) 6,407
-------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest checking deposits (4) (2) - (6)
Savings deposits 262 (341) (83) (162)
Money-market deposits 404 452 94 950
Certificates of deposit 647 4,222 499 5,368
-----------------------------------------------------------
Total deposit accounts 1,309 4,331 510 6,150
Federal funds purchased 1 114 6 121
Debentures and accrued interest payable 409 (1,704) (70) (1,365)
-------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,719 2,741 446 4,906
-------------------------------------------------------------------------------------------------------------
Net change in interest and dividend income $(2,473) $4,963 $(989) $1,501
-------------------------------------------------------------------------------------------------------------
19
Provision for Loan Loss Reserves
- --------------------------------
The provision for loan loss reserves 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. See
the section "Comparison of Financial Condition at December 31, 2000 and 1999,"
for a discussion of these factors. The provision amounted to $275,000 in 2000,
compared to $830,000 in 1999. The 1999 provision included $444,000 recorded by
Intervest National Bank as its initial provision for loan loss reserves in
conjunction with approximately $42,000,000 of new loan originations in 1999. At
December 31, 2000 and 1999, the Company did not have any nonaccrual or impaired
loans.
Noninterest Income
- ------------------
Noninterest income, which is comprised mainly of fees from customer service
charges and income from mortgage lending activities, increased to $983,000 in
2000, from $900,000 in 1999. The increase was due to a higher level of income
from the early repayment of loans, which consists of the recognition of unearned
fees and discounts associated with such loans and the receipt of prepayment
penalties in certain cases.
Noninterest Expenses
- --------------------
Noninterest expenses increased to $4,568,000 in 2000, from $4,059,000 in 1999.
The increase was due to approximately $210,000 of nonrecurring expenses
(consisting of attorney and consulting fees, printing costs, and stock
compensation) associated with the acquisition of Intervest Corporation of New
York. The remaining $299,000 increase was due to higher compensation, occupancy
and equipment expenses resulting from a full year of operations of Intervest
National Bank in 2000, compared to nine months of operations in 1999.
Provision for Income Taxes
- --------------------------
The provision for income taxes increased to $1,909,000 in 2000, from $1,198,000
in 1999, due to higher pre-tax earnings. The Company's effective tax rate
(inclusive of state and local taxes) amounted to 40% in 2000, compared to 39% in
1999.
Extraordinary Item
- ------------------
In 2000, Intervest Corporation of New York redeemed debentures totaling
$24,000,000 in principal prior to maturity for the outstanding principal amount
plus accrued interest aggregating $3,970,000. In connection with these
redemptions, $382,000 of unamortized deferred debenture offering costs was
charged to expense and reported as an extraordinary charge, net of a tax benefit
of $176,000, in the consolidated statement of earnings for the year ended
December 31, 2000.
Cumulative Effect of Change in Accounting Principle
- ---------------------------------------------------
See the "Comparison of Results of Operations for the Years Ended December 31,
1999 and 1998" for a discussion of the change in accounting principle.
20
Comparison of Results of Operations for the Years Ended December 31, 1999 and
1998.
General
- -------
The Company's net earnings for 1999 were $1,767,000, or $0.44 per fully diluted
share, compared to $2,382,000, or $0.54 per fully diluted share, for 1998. The
decline in net earnings was almost entirely due to the opening of Intervest
National Bank. The new bank recorded a net loss from its initial nine-months of
operations in 1999 of $507,000, which included $444,000 allocated to its initial
provision for loan loss reserves, as well as a one-time net charge of $128,000
in connection with the required adoption of a new accounting standard related to
the costs of start-up activities. Intervest National Bank opened for business on
April 1, 1999.
Selected information regarding results of operations of the Holding Company and
its subsidiaries for 1999 follows:
Intervest Intervest Inter-
Holding Intervest National Corporation company
($ in thousands) Company Bank Bank of New York Balances Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Interest and dividend income $744 $12,827 $1,558 $10,552 $(180) $25,501
Interest expense 637 8,106 806 9,050 (180) 18,419
------------------------------------------------------------------------------
Net interest and dividend income 107 4,721 752 1,502 - 7,082
(Credit) provision for loan loss reserves (42) 428 444 - - 830
Noninterest income 159 346 42 444 (91) 900
Noninterest expenses 195 2,046 1,015 894 (91) 4,059
------------------------------------------------------------------------------
Earnings (loss) before taxes
and accounting change 113 2,593 (665) 1,052 - 3,093
Provision (credit) for income taxes 53 951 (286) 480 - 1,198
Cumulative effect of change
in accounting principle, net of tax - - (128) - - (128)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 60 $ 1,642 $ (507) $ 572 $ - $ 1,767
- ------------------------------------------------------------------------------------------------------------------------------------
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.
Net interest and dividend income increased to $7,082,000 in 1999, from
$6,978,000 in 1998. The increase was due to a $37,944,000 increase in
interest-earning assets, partially offset by a decline in the net interest
margin from 2.69% in 1998, to 2.38% in 1999.
The decline in the margin was a function of a lower interest rate spread caused
by the yield on the Company's earning assets declining at faster pace than its
cost of funds. The yield on earning assets declined by 93 basis points to 8.57%
in 1999, largely due to a lower yield on the loan portfolio, as well as an
increase in securities and short-term investments as a percentage of total
interest-earning assets. Securities and short-term investments have a lower
yield than the Company's loan portfolio. The Company's cost of funds declined by
65 basis points in 1999 to 6.88%, due to a decline in the average cost of
deposits and debentures payable.
The following table provides information on average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for 1999 and 1998. The yields and rates shown
are based on a computation of income/expense (including any related fee income
or expense) for each year divided by average interest-earning
assets/interest-bearing liabilities during each year. Average balances are
derived mainly from daily balances. Net interest margin is computed by dividing
net interest and dividend income by the average of total interest-earning assets
during each year.
21
For the Year Ended December 31,
--------------------------------
1999 1998
-------------------------------------- --------------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Interest-earning assets:
Loans $175,980 $18,794 10.68% $170,675 $19,383 11.36%
Securities 108,336 6,123 5.65 79,539 4,816 6.05
Other interest-earning assets 13,089 584 4.46 9,247 448 4.46
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 297,405 $25,501 8.57% 259,461 $24,647 9.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 13,610 14,276
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $311,015 $273,737
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest checking deposits $ 7,687 $ 238 3.10% $ 5,286 $ 216 4.09%
Savings deposits 25,160 1,059 4.21 17,210 832 4.83
Money market deposits 42,078 1,882 4.47 22,855 1,079 4.72
Certificates of deposit 99,482 5,524 5.55 101,547 5,821 5.73
---------------------------------------------------------------------------------
Total deposit accounts 174,407 8,703 4.99 146,898 7,948 5.41
Federal funds purchased 517 29 5.61 20 1 5.00
Debentures and accrued interest payable 92,888 9,687 10.43 87,781 9,720 11.07
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 267,812 $18,419 6.88% 234,699 $17,669 7.53%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 4,436 3,096
Noninterest-bearing liabilities 6,529 6,337
Stockholders' equity 32,238 29,605
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $311,015 $273,737
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $ 7,082 1.69% $ 6,978 1.97%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $29,593 2.38% $ 24,762 2.69%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.11x 1.11x
- ------------------------------------------------------------------------------------------------------------------------------------
The table that follows 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, 1999 vs. 1998
---------------------------------------------
Increase (Decrease) Due To Change In:
-------------------------------------
($ in thousands) Rate Volume Rate/Volume Total
-------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans $(1,161) $ 603 $ (31) $ (589)
Securities (318) 1,742 (117) 1,307
Other interest-earning assets (35) 186 (15) 136
-------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets (1,514) 2,531 (163) 854
-------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest checking deposits (52) 98 (24) 22
Savings deposits (107) 384 (50) 227
Money market deposits (57) 907 (47) 803
Certificates of deposit (183) (118) 4 (297)
-----------------------------------------------------------------
Total deposit accounts (399) 1,271 (117) 755
Federal funds purchased - 25 3 28
Debentures and accrued interest payable (562) 564 (35) (33)
-------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities (961) 1,860 (149) 750
-------------------------------------------------------------------------------------------------------------------------------
Net change in interest and dividend income $ (553) $ 671 $ (14) $ 104
-------------------------------------------------------------------------------------------------------------------------------
22
Provision for Loan Loss Reserves
- --------------------------------
The provision for loan loss reserves 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. See
the section "Comparison of Financial Condition at December 31, 2000 and 1999,"
for a discussion of these factors. The provision amounted to $830,000 in 1999,
compared to $479,000 in 1998. The 1999 provision included $444,000 recorded by
Intervest National Bank as its initial provision for loan loss reserves in
conjunction with approximately $42,000,000 of new loan originations. At December
31, 1999 and 1998, the Company did not have any nonaccrual or impaired loans.
Noninterest Income
- ------------------
Noninterest income, which is comprised mainly of fees from customer service
charges and income from mortgage lending activities, increased to $900,000 in
1999, from $700,000 in 1998. The increase was due to higher fee income from
mortgage lending activities. Such fees include loan prepayment fees, fees earned
on expired commitments, and loan service, inspection and maintenance charges.
Noninterest Expenses
- --------------------
Noninterest expenses increased to $4,059,000 in 1999, from $3,077,000 in 1998.
The increase was almost entirely due to the opening of Intervest National Bank
on April 1, 1999, which increased compensation expense (due to additional
staffing) and occupancy and equipment expenses (due to the leasing of new office
space and fixed asset depreciation).
Provision for Income Taxes
- --------------------------
The provision for income taxes decreased to $1,198,000 in 1999, from $1,740,000
in 1998, due to lower pre-tax earnings. The Company's effective tax rate
(inclusive of state and local taxes) amounted to 39% in 1999, compared to 42% in
1998. The decline in the rate was due to New York State and City tax benefits
resulting from Intervest National Bank's operating loss in 1999.
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
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.
23
Comparison of Financial Condition at December 31, 2000 and December 31, 1999.
Overview
- --------
Total assets at December 31, 2000 increased to $416,927,000, from $340,481,000
at December 31, 1999. The increase is reflected primarily in new mortgage loans
originated and purchases of new security investments. Total liabilities at
December 31, 2000 increased to $380,699,000, from $306,877,000 at December 31,
1999, due to growth in deposit accounts. The increase in deposits was partially
offset by the retirement of certain debentures payable and the repayment of
federal funds purchased. Stockholders' equity increased to $36,288,000 at
December 31, 2000, from $33,604,000 at year-end 1999. The increase reflected
earnings for 2000 and the issuance of common stock in connection with a stock
award and the exercise of warrants. Book value per common share increased to
$9.29 per share at December 31, 2000, from $8.76 at December 31, 1999.
Selected balance sheet information for the Holding Company and its subsidiaries
as of December 31, 2000 follows:
Intervest Intervest Inter-
Holding Intervest National Corporation company
($ in thousands) Company Bank Bank of New York Balances Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Assets $44,876 $218,588 $117,384 $74,860 $(38,781) $416,927
Cash and cash equivalents 1,447 9,903 13,994 19,476 (1,882) 42,938
Securities available for sale, net - 74,789 - - - 74,789
Securities held to maturity, net - - 20,970 - - 20,970
Loans receivable, net of deferred fees 5,935 127,553 80,846 51,992 - 266,326
Allowance for loan loss reserves 30 1,943 795 - - 2,768
Deposits - 200,990 101,266 - (2,015) 300,241
Debentures and accrued interest payable 8,466 - - 64,347 - 72,813
Stockholders' equity 36,228 14,496 13,110 9,269 (36,875) 36,228
- ------------------------------------------------------------------------------------------------------------------------------------
A comparison of the Company's consolidated balance sheet as of December 31, 2000
and 1999 follows:
At December 31, 2000 At December 31, 1999
-------------------- --------------------
Carrying % of Carrying % of
($ in thousands) Value Total Assets Value Total Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 42,938 10.3% $ 32,095 9.4%
Securities available for sale, net 74,789 17.9 - -
Securities held to maturity, net 20,970 5.0 83,132 24.4
Federal Reserve Bank stock 605 0.2 508 0.2
Loans receivable, net of deferred fees and loan loss reserves 263,558 63.2 210,444 61.8
All other assets 14,067 3.4 14,302 4.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $416,927 100.0% $340,481 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits $300,241 72.0% $201,080 59.1%
Federal funds purchased - - 6,955 2.0
Debentures payable 64,080 15.4 84,330 24.8
Accrued interest payable on debentures 8,733 2.1 8,092 2.3
All other liabilities 7,645 1.8 6,420 1.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 380,699 91.3 306,877 90.1
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 36,228 8.7 33,604 9.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $416,927 100.0% $340,481 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents
- -------------------------
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. Other
short-term investments are normally comprised of bank commercial paper,
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.
24
Securities
- ----------
The Company invests in securities after satisfying its liquidity objectives and
lending commitments. The Company has historically only purchased securities that
are issued by the U.S. government or one of its agencies. The Company's security
investments have lower yields than its loan portfolio. To manage interest rate
risk, the Company normally purchases securities that have adjustable rates or
securities with fixed rates that have short- to intermediate-maturity terms.
From time to time, the Banks maintain a securities available-for-sale portfolio
to provide flexibility in implementing asset/liability management strategies. On
December 31, 2000, Intervest Bank transferred its entire securities
held-to-maturity portfolio (consisting of U.S. government agency securities with
an estimated fair value of $74,789,000) to the securities available-for-sale
portfolio. At December 31, 2000, a valuation allowance of $252,000, which
represents the unrealized loss on securities available for sale, net of taxes,
was recorded as a component of stockholders' equity in connection with this
transfer.
The available-for-sale portfolio consists of fixed-rate debt obligations of the
Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB) and Federal
National Mortgage Association (FNMA). Most of the securities have terms that
allow the issuer the right to call or prepay its obligation without prepayment
penalty. There were no sales of securities during 2000, 1999 and 1998, and no
transfers of securities to the available-for-sale portfolio in 1999 or 1998. The
Company does not engage in trading activities.
Securities for which the Banks have the intent and ability to hold to maturity
are classified as held to maturity and carried at amortized cost. Securities
held to maturity totaled $20,970,000 at December 31, 2000, compared to
$83,132,000 at December 31, 1999. The decrease reflected the transfer discussed
above, partially offset by additional purchases. The estimated fair value of the
held-to-maturity portfolio was $20,978,000 at December 31, 2000 and $79,882,000
at December 31, 1999. At December 31, 2000, securities held to maturity
consisted of Intervest National Bank's holdings of short-term (due in one year
or less), fixed-rate debt obligations of the FHLB, FNMA and the Federal Home
Loan Mortgage Corporation (FHLMC).
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 $605,000 at December 31, 2000 and $508,000 at year-end 1999,
fluctuates based on each Bank's capital level.
Loans Receivable
- ----------------
Loans receivable, (before the allowance for loan loss reserves and deferred
fees), increased to $268,305,000 at December 31, 2000, from $214,682,000 at
December 31, 1999, due to new originations of commercial real estate and
multifamily loans, partially offset by principal repayments. At December 31,
2000, the loan portfolio consisted of $59,587,000 of fixed-rate loans and
$208,718,000 of adjustable-rate loans.
At December 31, 2000 and 1999, the loan portfolio was concentrated in commercial
real estate and multifamily mortgage loans. Such loans represented 98% and 97%
of the total loan portfolio in 2000 and 1999, respectively. Loan concentrations
are defined as amounts loaned to a number of borrowers engaged in similar
activities, which would cause the loans to be similarly impacted by economic or
other conditions. Credit risk, which represents the possibility of the Company
not recovering amounts due from its borrowers, is significantly related to local
economic conditions in the areas the properties are located, as well as the
Company's underwriting standards. Economic conditions affect the market value of
the underlying collateral as well as the levels of occupancy of income-producing
properties (such as office buildings, shopping centers and rental and
cooperative apartment buildings).
25
The following table sets forth information concerning the loan portfolio:
At December 31, 2000 At December 31, 1999
-------------------- --------------------
# of % of # of % of
($ in thousands) loans Amount Total loans Amount Total
-------------------------------------------------------------------------------------------------------------------------------
Residential multifamily loans 137 $144,916 54.0% 120 $116,729 54.4%
Commercial real estate loans 124 118,368 44.1 110 93,293 43.5
Residential 1-4 family loans 39 3,034 1.1 44 2,311 1.1
Commercial loans 39 1,781 0.7 42 2,107 1.0
Consumer loans 18 206 0.1 24 242 -
-------------------------------------------------------------------------------------------------------------------------------
Total gross loans receivable 357 268,305 100.0% 340 214,682 100.0%
Deferred loan fees (1,979) (1,745)
-------------------------------------------------------------------------------------------------------------------------------
Loans, net of deferred fees 266,326 212,937
Allowance for loan loss reserves (2,768) (2,493)
-------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net $263,558 $210,444
-------------------------------------------------------------------------------------------------------------------------------
The following table sets forth the scheduled contractual principal repayments
the loan portfolio:
At December 31,
---------------
($ in thousands) 2000 1999
-------------------------------------------------------------------------
Within one year $120,258 $ 48,577
Over one to five years 107,490 127,880
Over five years 40,557 38,225
-------------------------------------------------------------------------
$268,305 $214,682
-------------------------------------------------------------------------
At December 31, 2000, $115,718,000 of loans with adjustable rates and
$32,329,000 of loans with fixed rates were due after one year.
The following table sets forth the activity in the loan portfolio:
For the Year Ended December 31,
-------------------------------
($ in thousands)
2000 1999
-------------------------------------------------------------------------
Loans receivable, net, at beginning of year $210,444 $163,324
Loans originated and purchased 124,669 112,629
Principal repayments (71,046) (64,244)
Recoveries - 1
Increase in deferred loan fees (234) (435)
Increase in allowance for loan loss reserves (275) (831)
-------------------------------------------------------------------------
Loans receivable, net, at end of year $263,558 $210,444
-------------------------------------------------------------------------
Nonaccrual Loans
- ----------------
During 2000 and 1999, the Company did not have any loans on a nonaccrual status.
The Company's policy is to discontinue the accrual of interest income and
classify a loan as nonaccrual when principal or interest is past due 90 days or
more and the loan is not adequately collateralized and in the process of
collection, or when in the opinion of the Company's management, principal or
interest is not likely to be paid in accordance with the terms of the loan.
Allowance for Loan Loss Reserves
- --------------------------------
The allowance for loan loss reserves is established through a provision charged
to operations. Loans are charged against the allowance when management believes
that the collectability of the principal is unlikely. Subsequent recoveries are
added to the allowance. The adequacy of the allowance is evaluated monthly or
more frequently when necessary with consideration given to: the nature and
volume of the loan portfolio; overall portfolio quality; loan concentrations;
specific problem loans and commitments and estimates of fair value thereof;
26
historical chargeoffs and recoveries; adverse situations which may affect the
borrowers' ability to repay; and management's perception of the current and
anticipated economic conditions in the Company's lending areas. Although
management believes it uses the best information available to make
determinations with respect to the allowance for loan loss reserves, future
adjustments may be necessary if economic conditions, or other factors, differ
from those assumed in the determination of the level of the allowance.
In addition, SFAS No. 114 specifies the manner in which the portion of the
allowance for loan loss reserves related to impaired loans is computed. A loan
is normally deemed impaired when, based upon current information and events, it
is probable that the Company will be unable to collect both full principal and
interest due according to the contractual terms of the loan agreement.
Impairment for larger balance loans such as commercial real estate and
multifamily loans are measured based on: the present value of expected future
cash flows, discounted at the loan's effective interest rate; or the observable
market price of the loan; or the estimated fair value of the loan's collateral,
if payment of the principal and interest is dependent upon the collateral. When
the fair value of the property is less than the recorded investment in the loan,
this deficiency is recognized as a valuation allowance within the overall
allowance for loan loss reserves and a charge through the provision for loan
loss reserves. The Company's policy is to charge off any portion of the recorded
investment in the loan that exceeds the fair value of the collateral. The net
carrying amount of an impaired loan does not at any time exceed the recorded
investment in the loan.
The Company considers 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 minimum delays or shortfalls in payments, and (iii) other information
known by management that would indicate the full repayment of principal and
interest is not probable. In evaluating loans for impairment, management
generally considers delinquencies of 60 days or less to be minimum delays, and
accordingly does not consider such delinquent loans to be impaired in the
absence of other indications. Impaired loans normally consist of loans on
nonaccrual status. Generally, all loans are evaluated for impairment on a
loan-by-loan basis, except for smaller balance homogeneous loans, such as
consumer loans, whose evaluation for impairment is done on an aggregate basis.
For consumer loans, historical charge-off experience as well as the charge off
experience of peer groups and industry statistics are used to evaluate the
adequacy of the allowance for loan loss reserves. The Company's regulators, as
an integral part of their examination process, periodically review the allowance
for loan loss reserves. Accordingly, the Company may be required to take certain
chargeoffs and/or recognize additions to the allowance based on the regulators'
judgment concerning information available to them during their examination.
At December 31, 2000, the Company's allowance for loan loss reserves amounted to
$2,768,000 compared to $2,493,000 at year-end 1999. The increase reflected the
growth in the loan portfolio. During 2000 and 1999, the Company did not have any
loans on a nonaccrual status or classified as impaired. At December 31, 2000 and
1999, the allowance for loan loss reserves was predominately allocated to
commercial real estate and multifamily loans.
The following table sets forth information with respect to the allowance for
loan loss reserves:
For the Year Ended December 31,
-------------------------------
($ in thousands) 2000 1999
- --------------------------------------------------------------------------------
Allowance at beginning of year $ 2,493 $ 1,662
Provision charged to operations 275 830
Recoveries - 1
- --------------------------------------------------------------------------------
Allowance at end of year $ 2,768 $ 2,493
- --------------------------------------------------------------------------------
Ratio of allowance to total loans, net of
deferred fees 1.04% 1.17%
Total loans, net of deferred fees $266,326 $212,937
Average loans outstanding during the year $250,941 $175,980
- --------------------------------------------------------------------------------
27
Foreclosed Real Estate
- ----------------------
During 2000 and 1999, the Company did not have any foreclosed real estate.
All Other Assets
- ----------------
The following table sets forth the composition of all other assets:
At December 31,
---------------
($ in thousands) 2000 1999
--------------------------------------------------------------------------
Accrued interest receivable $2,961 $1,995
Loans fee receivable 1,276 839
Premises and equipment, net 5,731 5,863
Deferred income tax asset 1,105 936
Deferred debenture offering costs 2,835 3,721
All other 159 948
--------------------------------------------------------------------------
$14,067 $14,302
--------------------------------------------------------------------------
Accrued interest receivable fluctuates based on the amount of loans, investments
and other interest-earning assets outstanding. The increase reflected growth in
these accounts.
Loan fees receivable are fees due to the Company in accordance with the terms of
mortgage loans. Such amounts are generally due upon the full repayment of the
loan. This fee is recorded as deferred income at the time a loan is originated
and is then amortized to interest income over the life of the loan. The increase
was due to an increase in mortgage loans outstanding.
Premises and equipment is detailed in note 6 to the consolidated financial
statements.
The deferred income tax asset relates primarily to the unrealized tax benefit on
the Company's allowance for loan loss reserves and organizational start-up
costs. These charges have been expensed for financial statement purposes, but
are not all currently deductible for income tax purposes. The ultimate
realization of the deferred tax asset is dependent upon the generation of
sufficient taxable income by the Company during the periods in which these
temporary differences become deductible for tax purposes. Management believes
that it is more likely than not that the Company's deferred tax asset will be
realized and accordingly, a valuation allowance for deferred tax assets was not
maintained at any time during 2000 and 1999.
Deferred debenture offering costs consist primarily of underwriters' commissions
and are amortized over the terms of the debentures. The decline was due to
normal amortization as well as the accelerated amortization of $382,000 in
connection with the early retirement of debentures. See note 8 to the
consolidated financial statements for a further discussion.
Deposits
- --------
Deposit liabilities increased to $300,241,000 at December 31, 2000, from
$201,080,000 at December 31, 1999, due to growth in certificates of deposit
accounts. At December 31, 2000, certificates of deposit accounts totaled
$217,656,000 and demand deposit, savings, NOW and money-market accounts
aggregated $82,585,000. The same categories of deposit accounts totaled
$122,794,000 and $78,286,000, respectively, at December 31, 1999. Certificates
of deposit accounts represented 73% of total deposits at December 31, 2000,
compared to 61% at year-end 1999.
Management believes the Banks do not have a concentration of deposits from any
one source. Management believes that a large portion of the Banks' depositors
are residents in their primary market areas, although there has been growth in
deposits from outside the primary areas resulting from Intervest National Bank's
deposit-gathering activities through its Web Site on the Internet:
www.intervestnatbank.com. The Banks do not accept brokered deposits.
28
The following table sets forth the distribution of deposit accounts by type:
At December 31, 2000 At December 31, 1999
-------------------- --------------------
($ in thousands) Amount % of Total Amount % of Total
-------------------------------------------------------------------------------
Demand deposits $ 5,035 1.7% $ 4,337 2.2%
Interest-checking deposits 9,188 3.1 6,636 3.3
Savings deposits 15,743 5.2 18,722 9.3
Money-market deposits 52,619 17.5 48,591 24.1
Certificates of deposit 217,656 72.5 122,794 61.1
-------------------------------------------------------------------------------
Total deposit accounts (1) $300,241 100.0% $201,080 100.0%
-------------------------------------------------------------------------------
[FN]
(1) Includes individual retirement accounts totaling $22,307,000 and
$11,483,000 at December 31, 2000 and 1999, respectively, nearly
all of which are certificates of deposit.
</FN>
The following table sets forth certificates of deposits by maturity for the
periods indicated:
At December 31, 2000 At December 31, 1999
-------------------- --------------------
Wtd-Avg Wtd-Avg
($ in thousands) Amount Stated Rate Amount Stated Rate
- --------------------------------------------------------------------------------
Within one year $133,433 6.44% $75,815 5.56%
Over one to two years 47,878 6.65 18,992 5.77
Over two to three years 8,274 6.23 12,148 6.03
Over three to four years 9,359 6.37 5,288 5.84
Over four years 18,712 6.88 10,551 6.32
- --------------------------------------------------------------------------------
$217,656 6.51% $122,794 5.72%
- --------------------------------------------------------------------------------
The following table sets forth the maturities of certificates of deposit in
denominations of $100,000 or more:
At December 31,
---------------
($ in thousands) 2000 1999
- --------------------------------------------------------------------------------
Due within three months or less $14,088 $3,276
Due over three months to six months 5,175 2,337
Due over six months to one year 11,179 6,974
Due over one year 18,432 5,653
- --------------------------------------------------------------------------------
$48,874 $18,240
- --------------------------------------------------------------------------------
As a percentage of total deposits 16.3% 9.1%
- --------------------------------------------------------------------------------
The following table sets forth net deposit flows:
For the Year Ended December 31,
-------------------------------
($ in thousands) 2000 1999
- --------------------------------------------------------------------------------
Net increase before interest credited $84,289 $21,948
Net interest credited 14,872 8,712
- --------------------------------------------------------------------------------
Net deposit increase $99,161 $30,660
- --------------------------------------------------------------------------------
Federal Funds Purchased
- -----------------------
From time to time, the Banks purchase federal funds to manage their liquidity
needs. At December 31, 2000, there were no outstanding funds, compared to
$6,955,000 outstanding at December 31, 1999.
Debentures Payable and Accrued Interest Payable on Debentures
- -------------------------------------------------------------
At December 31, 2000, debentures payable amounted to $64,080,000, compared to
$84,330,000 at year-end 1999. In the first half of 2000, Intervest Corporation
of New York redeemed debentures totaling $24,000,000 in principal prior to
maturity for the outstanding principal amount plus accrued interest aggregating
$3,970,000. In November of 2000, Intervest Corporation of New York completed the
sale of additional debentures in the aggregate principal amount of $3,750,000,
which resulted in net proceeds of $3,500,000 after underwriter's commissions and
other issuance costs. From time to time, Intervest Corporation of New York sells
29
debentures and the proceeds are used for the origination and purchase of
commercial and multifamily mortgage loans.
At December 31, 2000, debentures payable consisted of $57,150,000 of Intervest
Corporation of New York's registered floating and fixed-rate subordinated
debentures and $6,930,000 of the Holding Company's fixed-rate convertible
subordinated debentures. From time to time, the Holding Company also sells
debentures to raise funds for working capital purposes. In February 2001, the
Holding Company completed the sale of additional debentures in the aggregate
principal amount of $3,500,000.
At December 31, 2000, accrued interest payable on debentures amounted to
$8,733,000, relatively unchanged from $8,092,000 at year-end 1999, as the
payment of interest in connection with the early retirement of the debentures
discussed above was partially offset by additional accruals in 2000. The accrued
interest at December 31, 2000 is due and payable at the maturity of various
debentures. For a further discussion of the debentures, including conversion
prices and redemption premiums, see note 8 to the consolidated financial
statements.
All Other Liabilities
- ---------------------
The following table shows the composition of all other liabilities:
At December 31,
---------------
($ in thousands) 2000 1999
- --------------------------------------------------------------------------------
Mortgage escrow funds payable $3,397 $3,375
Accrued interest payable on deposits 856 461
Official checks outstanding 2,281 1,821
All other 1,111 763
- --------------------------------------------------------------------------------
$7,645 $6,420
- --------------------------------------------------------------------------------
Mortgage escrow funds payable represent advance payments made by borrowers for
real estate taxes and insurance that are remitted by the Company to third
parties. The amount fluctuates based on the timing of payments to taxing
authorities as well as the level of outstanding loans. Accrued interest payable
on deposit accounts fluctuates based on the level of outstanding deposits. The
level of official checks outstanding varies and fluctuates based on banking
activity.
Stockholders' Equity
- --------------------
Stockholders' equity increased to $36,228,000 at December 31, 2000, from
$33,604,000 at December 31, 1999. The increase was due to net earnings of
$2,608,000 and the issuance of $242,000 of common stock, partially offset by the
recording at December 31, 2000, of a valuation allowance for the unrealized loss
on securities available for sale, net of taxes, of $252,000, in connection with
the transfer of securities to the available for sale portfolio.
In 2000, 62,750 shares of common stock were issued as follows: 12,750 shares of
Class A common stock upon the exercise of Class A warrants; and 50,000 shares of
Class B common stock issued in connection with the merger. (See note 2 to the
consolidated financial statements for a further discussion of the stock issued
in connection with the merger.)
Asset and Liability Management
Interest rate risk arises from differences in the repricing of assets and
liabilities within a given time period. The primary objective of the Company's
asset/liability management strategy is to limit, within established guidelines,
the adverse impact of changes in interest rates on the Company's net interest
income and capital. This strategy is overseen in part through the direction of
the Asset and Liability Committee ("ALCO") of the Board of Directors of each
Bank, which establishes policies and monitors results to control interest rate
sensitivity.
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. An asset
or liability is normally considered to be interest-rate sensitive if it will
30
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 reprice within a one-year time period. 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.
During a period of rising interest rates, a negative gap would tend to adversely
affect net interest income, while a positive gap would tend to result in an
increase in net interest income. During a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive gap would tend to adversely affect net interest income. If the
repricing of the Company's assets and liabilities were equally flexible and
moved concurrently, the impact of any increase or decrease in interest rates on
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. In addition,
certain assets, such as adjustable-rate mortgage loans, may have features
generally referred to as "interest rate caps or collars" 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 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 than those assumed in the gap analysis.
For purposes of creating the gap analysis that follows, deposits with no stated
maturities are treated as readily accessible accounts. Given this assumption,
the Company's negative one-year interest rate sensitivity gap was 3.0% at
December 31, 2000 and 23.7% at December 31, 1999. However, if those deposits
were treated differently, then the interest-rate sensitivity gap would change.
The behavior of core depositors may not necessarily result in the immediate
withdrawal of funds in the event deposit rates offered by the Banks did not
change as quickly and uniformly as changes in general market rates. For example,
if only 25% of deposits with no stated maturity were assumed to be readily
accessible, the Company's one-year interest-rate sensitivity gap would have been
a positive 11.0% at year-end 2000, compared to a negative 7.4% at year-end 1999.
The Company has a "floor," or minimum rate, on many of its floating-rate loans.
The floor for each specific loan is determined in relation to the prevailing
market rates on the date of origination and most adjust upwards in the event of
increases in the loan's interest rate.
Notwithstanding all of the above, there can be no assurances that a sudden and
substantial increase in interest rates may not 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.
31
The following table summarizes information relating to the Company's
interest-earning assets and interest-bearing liabilities as of December 31,
2000, that are scheduled to mature or reprice within the periods shown.
0-3 4-12 Over 1-4 Over 4
--- ---- ------- ------
($ in thousands) Months Months Years Years Total
----------------------------------------------------------------------------------------------------------------------------
Loans (1) $83,130 $103,991 $53,995 $27,189 $268,305
Securities available for sale (2) - 1,000 57,014 17,180 75,194
Securities held to maturity (2) 9,310 11,660 - - 20,970
Federal funds sold 20,268 - - - 20,268
Short-term investments 17,654 - - - 17,654
Federal Reserve Bank stock - - - 605 605
----------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive assets $130,362 $116,651 $111,009 $44,974 $402,996
----------------------------------------------------------------------------------------------------------------------------
Deposit accounts (3):
Interest-checking deposits $ 9,188 $ - $ - $ - $ 9,188
Savings deposits 15,743 - - - 15,743
Money-market deposits 52,619 - - - 52,619
Certificates of deposit 40,558 92,875 65,511 18,712 217,656
-----------------------------------------------------------------------------------
Total deposits 118,108 92,875 65,511 18,712 295,206
Debentures payable 42,900 - 7,150 14,030 64,080
Accrued interest on debentures 5,541 - 2,365 827 8,733
----------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive liabilities $166,549 $ 92,875 $ 75,026 $33,569 $368,019
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
GAP (repricing differences) $(36,187) $ 23,776 $ 35,983 $11,405 $34,977
----------------------------------------------------------------------------------------------------------------------------
Cumulative GAP $(36,187) $(12,411) $ 23,572 $34,977 $34,977
----------------------------------------------------------------------------------------------------------------------------
Cumulative GAP to total assets -8.7% -3.0% 5.7% 8.4% 8.4%
----------------------------------------------------------------------------------------------------------------------------
[FN]
Significant assumptions used in preparing the table above:
(1) Adjustable-rate loans are included in the period in which their
interest rates are next scheduled to adjust rather than in the period
in which the loans mature. Fixed-rate loans are scheduled, including
repayments, according to their contractual maturities; (2) securities
are scheduled according to their contractual maturity dates, which does
not take into consideration the effects of possible prepayments that
may result from the issuer's right to call a security before its
contractual maturity date. Additionally, unrealized losses on
securities available for sale are ignored for this analysis; (3) money
market, NOW and savings deposits are regarded as ready accessible
withdrawable accounts; and certificates of deposit are scheduled
through their maturity dates.
</FN>
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 commitments, deposit
withdrawals and the repayment of borrowed funds. The Company's primary sources
of funds consist of: retail deposits obtained through the Banks' branch offices
and through the mail; amortization, satisfactions and repayments of loans; the
maturities and calls of securities; and cash provided by operating activities.
For additional information concerning the Company's cash flows, see the
consolidated statements of cash flows included in this report.
At December 31, 2000, the Company's total commitment to lend aggregated
$18,037,000. The Company believes that it can fund such commitments from the
aforementioned sources of funds.
Intervest Bank has agreements with correspondent banks whereby it may borrow up
to $6,000,000 on an unsecured basis. There were no outstanding borrowings under
these agreements at December 31, 2000 or 1999.
The Banks are subject to various regulatory capital requirements administered by
the federal banking agencies. The FDIC Improvement Act of 1991, among other
things, established five capital categories ranging from well capitalized to
critically undercapitalized. Such classifications are used by the FDIC and other
bank regulatory agencies to determine various matters, including prompt
32
corrective action and each institution's FDIC deposit insurance premium
assessments. The capital categories involve quantitative measures of a bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Banks' capital amounts and classifications
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
the regulators that, if undertaken, could have a direct material effect on the
Company's consolidated financial statements.
The Banks are required to maintain, for regulatory compliance and reporting
purposes, regulatory defined minimum leverage and Tier 1 and total risk-based
capital ratio levels of at least 4%, 4% and 8%, respectively. At December 31,
2000 and 1999, management believes that the Banks met their capital adequacy
requirements. The Banks are well-capitalized institutions as defined in the
regulations, which require minimum Tier 1 leverage and Tier 1 and total
risk-based ratios of 5%, 6% and 10%, respectively. Management believes that
there are no current conditions or events outstanding which would change the
Banks' designations as well-capitalized institutions.
On June 15, 2000, Intervest National Bank and its primary regulator, the OCC
entered into a Memorandum of Understanding. The memorandum is a formal written
agreement whereby, among other things, Intervest National Bank shall review,
revise, develop and implement various policies and procedures with respect to
its lending and credit underwriting. Management has implemented various actions
towards bringing Intervest National Bank into full compliance with the
memorandum.
Information regarding the Banks' regulatory capital and related ratios is
summarized below:
Intervest Bank Intervest National Bank
-------------- -----------------------
At December 31, At December 31,
--------------- ---------------
($ in thousands) 2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Tier 1 Capital:
Stockholder's equity $ 14,496 $ 12,746 $ 13,110 $ 8,493
Disallowed portion of deferred tax asset (584) (570) (193) (213)
Unrealized loss on debt securities, net of tax 252 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total Tier 1 capital 14,164 12,176 12,917 8,280
- ------------------------------------------------------------------------------------------------------------------------------------
Tier 2 Capital:
Allowable portion of allowance for loan loss reserves 1,855 1,561 795 444
- ------------------------------------------------------------------------------------------------------------------------------------
Total risk-based capital $ 16,019 $ 13,737 $ 13,712 $ 8,724
- ------------------------------------------------------------------------------------------------------------------------------------
Net risk-weighted assets $148,324 $124,389 $ 89,809 $45,860
Average assets for regulatory purposes $213,200 $189,069 $114,448 $50,838
Tier 1 capital to average assets 6.64% 6.44% 11.29% 16.29%
Tier 1 capital to risk-weighted assets 9.55% 9.79% 14.38% 18.06%
Total capital to risk-weighted assets 10.80% 11.04% 15.27% 19.02%
- ------------------------------------------------------------------------------------------------------------------------------------
Recent Accounting Pronouncements
See note 1 to the consolidated financial statements for a discussion of this
topic.
Impact of Inflation and Changing Prices
The financial statements and related financial data concerning the Company
presented herein have been prepared in accordance with generally accepted
accounting principles, 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 the operations of the Company is reflected in increased
operating costs. Virtually all of the assets and liabilities of the Company are
monetary in nature. As a result, changes in interest rates have a more
significant impact on the performance of the Company than do the effects of
changes in the general rate of inflation and changes in prices. Interest rates
do not necessarily move in the same direction or in the same magnitude as the
prices of goods and services.
33
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 7a. 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. 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 as of December 31, 2000 and 1999, which
reflect changes in market prices and rates, can be found in Note 20 of the notes
to consolidated financial statements.
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. For a further discussion, see
the section "Asset and Liability Management."
Item 8. Financial Statements and Supplementary Data
Financial Statements
The following consolidated financial statements of Intervest Bancshares
Corporation and Subsidiaries are included herein:
- - Independent Auditors' Report - Hacker, Johnson & Smith PA (page 36)
- - Independent Auditors' Report - Richard A. Eisner & Company, LLP (page 37)
- - Consolidated Balance Sheets at December 31, 2000 and 1999 (page 38)
- - Consolidated Statements of Earnings for the Years Ended December 31, 2000,
1999 and 1998 (page 39)
- - Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 2000, 1999 and 1998 (page 40)
- - Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 2000, 1999 and 1998 (page 41)
- - Consolidated Statements of Cash Flows for the Years Ended December 31, 2000,
1999 and 1998 (page 42)
- - Notes to the Consolidated Financial Statements (pages 43 to 65)
Supplementary Data
Securities Available for Sale
- -----------------------------
The following table sets forth, by maturity distribution, information pertaining
to securities available for sale:
After One Year to After Five Years to
------------------ --------------------
One Year or Less Five Years Ten Years Total
---------------- ---------- --------- -----
Carrying Avg. Carrying Avg. Carrying Avg. Carrying Avg.
($ in thousands) Value Yield Value Yield Value Yield Value Yield
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31, 2000:
U.S. Government agencies $998 5.42% $63,809 5.70% $9,982 6.56% $74,789 5.81%
34
Supplementary Data, Continued
Securities Held to Maturity
- --------------------------
The following table sets forth, by maturity distribution, information pertaining
to securities held to maturity:
After One Year to After Five Years to
----------------- -------------------
One Year or Less Five Years Ten Years Total
---------------- ---------- --------- -----
Carrying Avg. Carrying Avg. Carrying Avg. Carrying Avg.
($ in thousands) Value Yield Value Yield Value Yield Value Yield
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31, 2000:
- ---------------------
U.S. Government agencies $20,970 6.52% $ - -% $ - -% $20,970 6.52%
At December 31, 1999
- --------------------
U.S. Government agencies $ 7,907 5.72% $58,013 5.65% $17,212 6.36% $83,132 5.80%
At December 31, 1998
- --------------------
U.S. Treasury securities $ 2,015 6.03% $ - -% $ - -% $ 2,015 6.03%
U.S. Government agencies - - 61,060 5.80 19,263 6.18 80,323 5.89
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 2,015 6.03% $61,060 5.80% $19,263 6.18% $82,338 5.89%
- ------------------------------------------------------------------------------------------------------------------------------------
Loans and Allowance for Loan Loss Reserves
- ------------------------------------------
The following table sets forth information with respect to loans receivable at
December 31:
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Carrying Carrying Carrying Carrying Carrying
($ in thousands) Value Value Value Value Value
- ----------------------------------------------------------------------------------------------------------------------------
Commercial real estate and multifamily loans $263,284 $210,022 $160,610 $146,375 $124,752
Residential 1-4 family loans 3,034 2,311 2,627 3,162 2,784
Construction loans - - - 158 47
Commercial loans 1,781 2,107 2,875 2,641 3,514
Consumer loans 206 242 184 92 157
--------------------------------------------------------------------------
Total gross loans receivable 268,305 214,682 166,296 152,428 131,254
Deferred loan fees (1,979) (1,745) (1,310) (1,596) (1,578)
--------------------------------------------------------------------------
Loans receivable, net of deferred fees 266,326 212,937 164,986 150,832 129,676
Allowance for loan loss reserves (2,768) (2,493) (1,662) (1,173) (811)
- ----------------------------------------------------------------------------------------------------------------------------
Loans receivable, net $263,558 $210,444 $163,324 $149,659 $128,865
- ----------------------------------------------------------------------------------------------------------------------------
Loans included above that were
on a nonaccrual status at year end$ $ - $ - $ - $ - $ -
- ----------------------------------------------------------------------------------------------------------------------------
The following table sets forth information with respect to the allowance for
loan loss reserves at December 31:
($ in thousands) 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Allowance at beginning of year $ 2,493 $ 1,662 $ 1,173 $ 811 $ 593
Provision charged to operations 275 830 479 352 250
Chargeoffs - - - - (65)
Recoveries - 1 10 10 33
- ----------------------------------------------------------------------------------------------------------------------------
Allowance at end of year $ 2,768 $ 2,493 $ 1,662 $ 1,173 $ 811
- ----------------------------------------------------------------------------------------------------------------------------
Total loans, net of deferred fees $266,326 $212,937 $164,986 $150,832 $129,676
Average loans outstanding during the year $250,941 $175,980 $170,675 $141,612 $124,732
Ratio of allowance to net loans receivable 1.04% 1.17% 1.01% 0.78% 0.63%
- ----------------------------------------------------------------------------------------------------------------------------
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 the financial
statements filed, including the notes thereto.
35
Independent Auditors' Report
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 Subsidiaries (the "Company") as
of December 31, 2000 and 1999 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, 2000. 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 did not audit the
financial statements of Intervest Corporation of New York, whose total
assets as of December 31, 2000 and 1999, constituted 17.8% and 27.2% of
the related consolidated totals, and whose net interest income,
noninterest income and net earnings for the years ended December 31,
2000, 1999 and 1998, constituted 10.3%, 48.6% and 5.0%, respectively in
2000, 21.2%, 49.3% and 32.4%, respectively in 1999 and 33.6%, 50.1% and
39.8%, respectively in 1998, of the related consolidated totals. Those
statements were audited by other auditors whose report has been
furnished to us, and our opinion insofar as it relates to the amounts
included in the consolidated totals, are based solely on the report of
the other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. 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, based on our audits and the report of other
auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company at December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the years in the three-year
period ended December 31, 2000 in conformity with generally accepted
accounting principles.
/s/ HACKER, JOHNSON & SMITH PA
------------------------------
HACKER, JOHNSON & SMITH PA
Tampa, Florida
January 18, 2001
36
Independent Auditors' Report
Board of Directors and Stockholder
Intervest Corporation of New York
New York, New York:
We have audited the accompanying consolidated balance sheets of
Intervest Corporation of New York and Subsidiaries (the "Company") at
December 31, 2000 and 1999 and the related consolidated statements of
operations, changes in stockholder's equity and cash flows for each of
the years in the three-year period ended December 31, 2000. Our audits
also included the financial statement schedule listed in the exhibit
index as item 14(a)(2). 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 generally accepted auditing
standards. 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
fairly present, in all material respects, the financial position of the
Company at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year
period ended December 31, 2000 in conformity with generally accepted
accounting principles. Also in our opinion, the schedule referred to
above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ Richard A. Eisner & Company, LLP
------------------------------------
Richard A. Eisner & Company, LLP
New York, New York
January 18, 2001
37
Intervest Bancshares Corporation and Subsidiaries
Consolidated Balance Sheets
At December 31,
--------------------------
($ in thousands, except par value) 2000 1999
---------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 5,016 $ 4,663
Federal funds sold 20,268 3,900
Short-term investments 17,654 23,532
--------------------------
Total cash and cash equivalents 42,938 32,095
Securities available for sale, net 74,789 -
Securities held to maturity, net 20,970 83,132
Federal Reserve Bank stock, at cost 605 508
Loans receivable (net of allowance for loan losses 263,558 210,444
of $2,768 in 2000 and $2,493 in 1999)
Accrued interest receivable 2,961 1,995
Premises and equipment, net 5,731 5,863
Deferred income tax asset 1,105 936
Deferred debenture offering costs 2,835 3,721
Other assets 1,435 1,787
---------------------------------------------------------------------------------------------------
Total assets $416,927 $340,481
---------------------------------------------------------------------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing demand deposit accounts $5,035 $ 4,337
Interest-bearing deposit accounts:
Checking (NOW) accounts 9,188 6,636
Savings accounts 15,743 18,722
Money-market accounts 52,619 48,591
Certificate of deposit accounts 217,656 122,794
-------------------------
Total deposit accounts 300,241 201,080
Federal funds purchased - 6,955
Subordinated debentures payable 64,080 84,330
Accrued interest payable on debentures 8,733 8,092
Mortgage escrow funds payable 3,397 3,375
Official checks outstanding 2,281 1,821
Other liabilities 1,967 1,224
---------------------------------------------------------------------------------------------------
Total liabilities 380,699 306,877
---------------------------------------------------------------------------------------------------
Commitments and contingencies (notes 6, 17 and 19)
STOCKHOLDERS' EQUITY
Preferred stock (300,000 shares authorized, none issued) - -
Class A common stock ($1.00 par value, 9,500,000 shares authorized,
3,544,629 and 3,531,879 shares issued and outstanding, respectively) 3,545 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 18,975 18,770
Retained earnings 13,605 10,997
Accumulated other comprehensive income:
Net unrealized loss on securities available for sale, net of tax (252) -
---------------------------------------------------------------------------------------------------
Total stockholders' equity 36,228 33,604
---------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $416,927 $340,481
---------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
38
Intervest Bancshares Corporation and Subsidiaries
Consolidated Statements of Earnings
Year Ended December 31,
---------------------------------------
($ in thousands, except per share data) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Loans receivable $24,923 $18,794 $19,383
Securities 6,056 6,123 4,816
Other interest-earning assets 929 584 448
- -------------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 31,908 25,501 24,647
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 14,853 8,703 7,948
Federal funds purchased 150 29 1
Debentures payable 8,322 9,687 9,720
- -------------------------------------------------------------------------------------------------------------------------------
Total interest expense 23,325 18,419 17,669
- -------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income 8,583 7,082 6,978
Provision for loan loss reserves 275 830 479
- -------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income after provision for loan loss reserves 8,308 6,252 6,499
- -------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Customer service fees 139 140 139
Income from lending activities 809 744 536
All other 35 16 25
- -------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 983 900 700
- -------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and employee benefits 2,228 1,915 1,349
Occupancy and equipment, net 1,090 963 573
Advertising and promotion 35 142 149
Professional fees and services 410 258 260
Stationery, printing and supplies 140 165 103
All other 665 616 643
- -------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 4,568 4,059 3,077
- -------------------------------------------------------------------------------------------------------------------------------
Earnings before taxes, extraordinary item and change in accounting principle 4,723 3,093 4,122
Provision for income taxes 1,909 1,198 1,740
-----------------------------------------------
Earnings before extraordinary item and change in accounting principle 2,814 1,895 2,382
Extraordinary item, net of tax (note 8) (206) - -
Cumulative effect of change in accounting principle, net of tax (note 1) - (128) -
- -------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 2,608 $ 1,767 $ 2,382
- -------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Earnings before extraordinary item and change in accounting principle $ 0.72 $ 0.50 $ 0.64
Extraordinary item, net of tax (0.05) - -
Cumulative effect of change in accounting principle, net of tax - (0.03) -
- -------------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 0.67 $ 0.47 $ 0.64
- -------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Earnings before extraordinary item and change in accounting principle $ 0.72 $ 0.47 $ 0.54
Extraordinary item, net of tax (0.05) - -
Cumulative effect of change in accounting principle, net of tax - (0.03) -
- -------------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 0.67 $ 0.44 $ 0.54
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
39
Intervest Bancshares Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
Year Ended December 31,
---------------------------------------
($ in thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $2,608 $1,767 $2,382
--------------------------------------
Net unrealized holding losses on securities arising during the year (405) - -
Provision for income taxes related to unrealized holding losses on securities 153 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Other comprehensive loss, net of tax (252) - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income, net of tax $2,356 $1,767 $2,382
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
40
Intervest Bancshares Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Year Ended December 31,
------------------------------------------
($ in thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A COMMON STOCK
Balance at beginning of year $3,532 $3,434 $3,374
Issuance of 510 shares in exchange for common stock of minority
stockholders of Intervest Bank - 1 -
Issuance of 7,554 shares upon the conversion of debentures - 7 -
Issuance of 12,750, 89,300 and 60,100 shares, respectively,
upon the exercise of warrants 13 90 60
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 3,545 3,532 3,434
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B COMMON STOCK
Balance at beginning of year 305 300 300
Issuance of 5,000 shares upon the exercise of warrants - 5 -
Issuance of 50,000 shares of restricted stock compensation 50 - -
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 355 305 300
- ---------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of year 18,770 18,148 17,719
Issuance of 510 shares in exchange for common stock of minority
stockholders of Intervest Bank - 6 -
Issuance of 7,554 shares upon the conversion of debentures,
net of issuance costs - 56 -
Compensation related to issuance of Class B stock warrants 26 26 43
Issuance of 50,000 shares of restricted Class B stock compensation 109 - -
Issuance of 12,750, 94,300 and 60,100 shares upon
exercise of stock warrants, inclusive of tax benefits 70 534 386
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 18,975 18,770 18,148
- ---------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of year 10,997 9,230 6,848
Net earnings for the year 2,608 1,767 2,382
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 13,605 10,997 9,230
- ---------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET
Balance at beginning of year - - -
Net change in accumulated other comprehensive income, net (252) - -
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (252) - -
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity at end of year $36,228 $33,604 $31,112
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
41
Intervest Bancshares Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended December 31,
-------------------------------------------------
($ in thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 2,608 $ 1,767 $ 2,382
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 433 416 337
Provision for loan loss reserves 275 830 479
Deferred income tax benefit (16) (327) (84)
Amortization of deferred debenture offering costs 1,136 943 912
Compensation expense from awards of common stock and warrants 185 26 43
Amortization of premiums, fees and discounts, net (1,814) (1,000) (1,107)
Net increase in accrued interest payable on debentures 641 2,302 824
Net increase in official checks outstanding 460 249 853
Net decrease in all other assets and liabilities 1,912 1,240 430
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,820 6,446 5,069
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Decrease in interest-earning time deposits - 99 -
Maturities and calls of securities held to maturity 26,393 32,556 50,050
Purchases of securities held to maturity (39,160) (33,278) (73,650)
Net increase in loans receivable (53,623) (48,386) (13,868)
Purchases of Federal Reserve Bank stock, net (97) (275) -
Purchases of premises and equipment, net (301) (1,362) (377)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (66,788) (50,646) (37,845)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand, savings, NOW and money-market deposits 4,299 6,904 34,353
Net increase in certificates of deposit 94,862 23,761 5,655
Net increase in mortgage escrow funds payable 22 470 698
(Repayments of) proceeds from federal funds purchased, net (6,955) 6,955 -
Proceeds from sale of debentures, net of issuance costs 3,500 6,606 10,990
Principal repayments of debentures (24,000) (10,000) (2,500)
Net proceeds from issuance of common stock, net of issuance costs 83 622 514
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 71,811 35,318 49,710
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 10,843 (8,882) 16,934
Cash and cash equivalents at beginning of year 32,095 40,977 24,043
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $42,938 $32,095 $40,977
- ------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $21,532 $15,074 $15,885
Income taxes 1,004 1,989 1,506
Noncash activities:
Transfers of securities from held-to-maturity to available-for-sale 74,789 - -
Accumulated other comprehensive income, change in
unrealized loss on securities available for sale, net of tax (252) - -
Conversion of debentures into Class A common stock - 70 -
Issuance of common stock in exchange for common stock of minority
stockholders of Intervest Bank - 7 -
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
42
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Intervest Bancshares Corporation (the "Holding Company") was
incorporated in 1993 and is headquartered in New York City. Its wholly
owned subsidiaries are Intervest National Bank, Intervest Bank and
Intervest Corporation of New York. Hereafter, Intervest Bank and
Intervest National Bank are referred to together as the "Banks" and all
the entities are referred to collectively as the "Company," on a
consolidated basis. The Holding Company's primary business is the
ownership of its 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
on 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.
Principles of Consolidation, Basis of Presentation and Use of Estimates
The consolidated financial statements include the accounts of the
Holding Company and its subsidiaries. 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. The accounting and
reporting policies of the Company conform to generally accepted
accounting principles and to general practices within the banking
industry.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent
liabilities, as of the date of the financial statements and revenues
and expenses during the reporting periods. Actual results could differ
from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the
determination of the allowance for loan loss reserves and deferred
income tax assets.
Cash Equivalents
For purposes of the statements of cash flows, cash equivalents include
Federal funds sold and short-term investments. Federal funds are
generally sold for one-day periods and short-term investments have
maturities of three months or less from the time of purchase.
43
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
1. Description of Business and Summary of Significant Accounting Policies,
Continued
Securities
Securities for which the Company has the ability and intent to hold
until maturity are classified as securities held to maturity and are
carried at cost, adjusted for accretion of any discounts and
amortization of premiums, which are recognized into interest income
using the interest method over the period to maturity. Securities that
are held for indefinite periods of time which management intends to use
as part of its 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 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 are
determined using the specific identification method.
Loans Receivable
Loans that the Company has 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
loss reserves, 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 earnings accordingly.
Loans are placed on nonaccrual status when principal or interest
becomes 90 days or more past due. Accrued interest receivable
previously recognized is reversed when a loan is placed on nonaccrual
status. Amortization of net deferred fee income is discontinued for
loans placed on nonaccrual status. 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. Loans remain
on nonaccrual status until principal and interest payments are current.
Allowance for Loan Loss Reserves
The allowance for loan loss reserves 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 monthly with consideration given to: the nature and volume of
the loan portfolio; overall portfolio quality; loan concentrations;
specific problem loans and commitments and estimates of fair value
thereof; historical chargeoffs and recoveries; adverse situations which
may affect the borrowers' ability to repay; and management's perception
of the current and anticipated economic conditions in the Company's
lending areas. In addition, SFAS No. 114 specifies the manner in which
the portion of the allowance for loan loss reserves is computed related
to certain loans that are impaired. A loan is normally deemed impaired
when, based upon current information and events, it is probable the
Company will be unable to collect both principal and interest due
according to the contractual terms of the loan agreement. Impaired
loans normally consist of loans on nonaccrual status. Interest income
on impaired loans is recognized on a cash basis. Impairment for
commercial real estate and residential loans is measured based on: the
present value of expected future cash flows, discounted at the loan's
effective interest rate; or the observable market price of the loan; or
the estimated fair value of the loan's collateral, if payment of the
principal and interest is dependent upon the collateral.
44
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
1. Description of Business and Summary of Significant Accounting Policies,
Continued
Allowance for Loan Loss Reserves, Continued
When the fair value of the property is less than the recorded
investment in the loan, this deficiency is recognized as a valuation
allowance within the overall allowance for loan loss reserves and a
charge through the provision for loan losses. The Company normally
charges off any portion of the recorded investment in the loan that
exceeds the fair value of the collateral. The net carrying amount of an
impaired loan does not at any time exceed the recorded investment in
the loan.
Lastly, the Company's regulators, as an integral part of their
examination process, periodically review the allowance for loan loss
reserves. Accordingly, the Company may be required to take certain
chargeoffs and/or recognize additions to the allowance based on the
regulators' judgment concerning information available to them during
their examination.
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
charged to operating expense as incurred, while major improvements are
capitalized.
Deferred Debenture Offering Costs
Costs relating to offerings of debentures are amortized over the terms
of the debentures. Deferred debenture offering costs consist primarily
of underwriters' commissions. Accumulated amortization amounted to
$2,331,000 at December 31, 2000 and $3,453,000 at December 31, 1999.
Stock Based Compensation
The Company follows APB No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its
stock-based compensation, which is in the form of stock warrants. SFAS
No. 123, "Accounting for Stock-Based Compensation," requires pro forma
disclosures of net earnings and earnings per share determined as if the
Company accounted for its stock warrants under the fair value method.
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
Under SFAS No. 109, "Accounting for Income Taxes," deferred tax assets
and liabilities are recognized for the estimated future tax
consequences attributable to temporary 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 year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax law or rates is recognized in income in the period
that includes the enactment date of change. A valuation allowance is
recorded if it is more likely than not that some portion or all of the
deferred tax assets will not be realized based on a review of available
evidence.
45
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
1. Description of Business and Summary of Significant Accounting Policies,
Continued
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 and dilutive
potential common stock shares that may be outstanding in the future.
Potential common stock shares consist of outstanding dilutive common
stock warrants (which are computed using the "treasury stock method")
and convertible debentures (computed using 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 earnings
(as adjusted for interest expense that would no longer occur if the
debentures were converted).
Comprehensive Income
The Company follows SFAS 130, "Reporting 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 equity section of the balance sheet, such items along
with net earnings, are components of comprehensive income.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Company enters into off-balance
sheet financial instruments consisting of commitments to extend credit,
unused lines of credit and standby letters of credit. Such financial
instruments are recorded in the consolidated financial statements when
they are funded or related fees are incurred or received.
Recent Accounting Pronouncements
Accounting for Start-Up Costs. 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.
Accounting for Derivative Instruments and Hedging Activities. Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities," requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains and losses resulting from changes in the values of
those derivatives would be accounted for depending on the uses of the
derivatives and whether they qualify for hedge accounting. The Company
will be required to adopt this statement effective January 1, 2001.
Since the Company does not use derivatives, this statement will not
have any impact on the Company's financial statements.
46
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
2. Acquisition of Intervest Corporation of New York
On March 10, 2000, the Holding Company acquired all the outstanding
capital stock of Intervest Corporation of New York in exchange for
1,250,000 shares of the Holding Company's Class A common stock. As a
result of the acquisition, Intervest Corporation of New York became a
wholly owned subsidiary of the Holding Company. Former shareholders of
Intervest Corporation of New York are officers and directors of both
the Holding Company and Intervest Corporation of New York (ICNY).
In connection with the acquisition, the Holding Company incurred
approximately $210,000 in expenses related to legal 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 $159,000 of
compensation expense being recorded, which is included in the
consolidated statement of earnings for 2000.
Pro forma consolidated balance sheet information follows as of December
31, 1999:
Originally Historical Pro Forma
($ in thousands) Reported ICNY Adjustments Adjusted
---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 7,429 $30,754 $(6,088) (1) $ 32,095
Securities held to maturity, net 83,132 - - 83,132
Federal Reserve Bank stock 508 - - 508
Loans receivable, net 147,154 63,290 - 210,444
Accrued interest receivable 1,349 646 - 1,995
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
Other assets 1,099 688 - 1,787
-----------------------------------------------------------------------------------------------------------------------
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 payable on debentures 892 7,200 - 8,092
Mortgage escrow funds payable 1,521 1,854 - 3,375
Official checks outstanding 1,821 - - 1,821
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) $340,481
-----------------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents the elimination of certain intercompany deposit
accounts. Certain reclassifications were also made to the
historical amounts of Intervest Corporation of New York and the
Company to conform to the current period's presentation.
</FN>
47
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
2. Acquisition of Intervest Corporation of New York, Continued
A pro forma summary of the Company's consolidated statements of
earnings follows for the periods indicated:
For the Year Ended December 31, 1999
---------------------------------------------------
Originally Historical Pro Forma
($ in thousands) Reported ICNY Adjustments Adjusted
-----------------------------------------------------------------------------------------------------------------------
Interest and dividend income $15,058 $10,552 $ (109)(a) $25,501
Interest expense 9,478 9,050 (109)(a) 18,419
---------------------------------------------------
Net interest and dividend income 5,580 1,502 - 7,082
Provision for loan loss reserves 830 - - 830
---------------------------------------------------
Net interest and dividend income
after provision for loan loss reserves 4,750 1,502 - 6,252
Noninterest income 456 444 - 900
Noninterest expenses 3,165 894 - 4,059
---------------------------------------------------
Earnings before taxes and change in accounting principle 2,041 1,052 - 3,093
Provision for income taxes 718 480 - 1,198
Cumulative effect of change in accounting principle, net of tax (128) - - (128)
-----------------------------------------------------------------------------------------------------------------------
Net earnings $ 1,195 $ 572 $ - $1,767
-----------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.48 - - $ 0.47
Diluted earnings per share $ 0.43 - - $ 0.44
Average number of common shares outstanding - Basic 2,510,293 - 1,250,000 3,760,293
Average number of common shares outstanding - Diluted 2,770,118 - 1,250,000 4,020,118
-----------------------------------------------------------------------------------------------------------------------
<FN>
(a) Represents the elimination of certain intercompany interest income and expense.
</FN>
For the Year Ended December 31, 1998
---------------------------------------------------
Originally Historical Pro Forma
($ in thousands) Reported ICNY Adjustments Adjusted
-----------------------------------------------------------------------------------------------------------------------
Interest and dividend income $12,934 $11,742 $ (29)(a) $24,647
Interest expense 8,297 9,401 (29)(a) 17,669
---------------------------------------------------
Net interest and dividend income 4,637 2,341 - 6,978
Provision for loan loss reserves 479 - - 479
---------------------------------------------------
Net interest and dividend income
after provision for loan loss reserves 4,158 2,341 - 6,499
Noninterest income 349 351 - 700
Noninterest expenses 2,133 944 - 3,077
---------------------------------------------------
Earnings before taxes 2,374 1,748 - 4,122
Provision for income taxes 939 801 - 1,740
-----------------------------------------------------------------------------------------------------------------------
Net earnings $ 1,435 $ 947 $ - $ 2,382
-----------------------------------------------------------------------------------------------------------------------
Adjusted net earnings for diluted earnings per share computation $ 1,607 $ 947 $ - $ 2,554
Basic earnings per share $ 0.58 - - $ 0.64
Diluted earnings per share $ 0.46 - - $ 0.54
Average number of common shares outstanding - Basic 2,457,113 - 1,250,000 3,707,113
Average number of common shares outstanding - Diluted 3,473,516 - 1,250,000 4,723,516
-----------------------------------------------------------------------------------------------------------------------
<FN>
(a) Represents the elimination of certain intercompany interest income and expense.
</FN>
48
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
2. Acquisition of Intervest Corporation of New York, Continued
A summary of the Company's consolidated statement of earnings for 2000
follows:
For the Year Ended
December 31, 2000
-------------------------
Excluding As
($ in thousands) ICNY Reported
----------------------------------------------------------------------------------------------------
Interest and dividend income $23,389 $31,908
Interest expense 15,689 23,325
-------------------------
Net interest and dividend income 7,700 8,583
Provision for loan loss reserves 275 275
-------------------------
Net interest and dividend income after provision for loan loss reserves 7,425 8,308
Noninterest income 505 983
Noninterest expenses 3,830 4,568
-------------------------
Earnings before taxes and extraordinary item 4,100 4,723
Provision for income taxes 1,621 1,909
Extraordinary item, net of tax - (206)
----------------------------------------------------------------------------------------------------
Net earnings $ 2,479 $ 2,608
----------------------------------------------------------------------------------------------------
The amounts reported in the table above are after elimination of
intercompany revenue and expense.
3. Securities
The carrying values (estimated fair values) of securities available for
sale at December 31, 2000 are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Carrying
($ in thousands) Cost Gains Losses Value
------------------------------------------------------------------------------------
U.S. Government agency securities $75,194 $- $405 $74,789
------------------------------------------------------------------------------------
On December 31, 2000, Intervest Bank transferred its entire securities
held-to-maturity portfolio (consisting of U.S. government agency
securities with an estimated fair value of $74,789,000) to the
securities available-for-sale portfolio. The transfer was made in order
to provide additional flexibility for implementing the Bank's
asset/liability management strategies.
The available-for-sale portfolio consists of fixed-rate debt
obligations of the Federal Home Loan Bank (FHLB), Federal Farm Credit
Bank (FFCB) and Federal National Mortgage Association (FNMA). Most of
the securities have terms that allow the issuer the right to call or
prepay its obligation without prepayment penalty. The weighted-average
yield of the portfolio was 5.81% at December 31, 2000. There were no
sales of securities during 2000, 1999 and 1998, and no transfers of
securities to the available-for-sale portfolio in 1999 or 1998.
Intervest Bank expects to classify any future purchases of securities
until 2002 as available for sale.
The amortized cost and carrying values (estimated fair values) of
securities available for sale at December 31, 2000, by remaining term
to contractual maturity are summarized as follows:
Amortized Carrying
($ in thousands) Cost Value
-------------------------------------------------------------------
Due in one year or less $ 1,000 $998
Due after one year through five years 64,190 63,809
Due after five years through ten years 10,004 9,982
-------------------------------------------------------------------
$75,194 $74,789
-------------------------------------------------------------------
49
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
3. Securities, Continued
The carrying values (amortized cost) and estimated fair values of
securities held to maturity are summarized as follows:
Gross Gross Estimated
----- ----- ---------
Amortized Unrealized Unrealized Fair
--------- ---------- ---------- ----
($ in thousands) Cost Gains Losses Value
---------------------------------------------------------------------------------------------
At December 31, 2000:
U.S. Government agency securities $20,970 $8 $ - $20,978
---------------------------------------------------------------------------------------------
At December 31, 1999:
U.S. Government agency securities $83,132 $1 $3,251 $79,882
---------------------------------------------------------------------------------------------
At December 31, 2000, securities held to maturity consisted of
Intervest National Bank's holdings of short-term (due in one year or
less), fixed-rate debt obligations of the FHLB, FNMA and the Federal
Home Loan Mortgage Corporation (FHLMC). The weighted-average yield of
the held-to-maturity portfolio was 6.52% at December 31, 2000 and 5.80%
at December 31, 1999.
4. Loans Receivable
Loans receivable are summarized as follows:
At December 31, 2000 At December 31, 1999
-------------------- --------------------
($ in thousands) # of loans Amount # of loans Amount
-------------------------------------------------------------------------------------------
Residential multifamily loans 137 $144,916 120 $116,729
Commercial real estate loans 124 118,368 110 93,293
Residential 1-4 family loans 39 3,034 44 2,311
Commercial business loans 39 1,781 42 2,107
Consumer loans 18 206 24 242
-------------------------------------------------------------------------------------------
Loans receivable 357 268,305 340 214,682
-------------------------------------------------------------------------------------------
Deferred loan fees (1,979) (1,745)
Allowance for loan loss reserves (2,768) (2,493)
-------------------------------------------------------------------------------------------
Loans receivable, net $263,558 $210,444
-------------------------------------------------------------------------------------------
Credit risk, which represents the possibility of the Company not
recovering amounts due from its borrowers, is significantly related to
local economic conditions in the areas the properties are located, as
well as the Company's underwriting standards. Economic conditions
affect the market value of the underlying collateral as well as the
levels of occupancy of income-producing properties (such as office
buildings, shopping centers and rental and cooperative apartment
buildings).
The geographic distribution of the loan portfolio is summarized as
follows:
At December 31, 2000 At December 31, 1999
--------------------- --------------------
($ in thousands) Amount % of Total Amount % of Total
--------------------------------------------------------------------------------
New York $134,905 50.3% $103,477 48.2%
Florida 125,350 46.7 95,383 44.4
Connecticut and New Jersey 5,263 2.0 9,722 4.5
All other 2,787 1.0 6,100 2.9
--------------------------------------------------------------------------------
$268,305 100.0% $214,682 100.0%
--------------------------------------------------------------------------------
50
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
5. Allowance for Loan Loss Reserves
Activity in the allowance for loan loss reserves is summarized as
follows:
For the Year Ended December 31,
-------------------------------
($ in thousands) 2000 1999 1998
----------------------------------------------------------------------
Allowance at beginning of year $2,493 $1,662 $1,173
Provision charged to operations 275 830 479
Recoveries - 1 10
----------------------------------------------------------------------
Allowance at end of year $2,768 $2,493 $1,662
----------------------------------------------------------------------
No loans were on nonaccrual status or classified as impaired in 2000,
1999 or 1998.
6. Premises and Equipment, Lease Commitments and Rental Expense
Premises and equipment is summarized as follows:
At December 31,
---------------
($ in thousands) 2000 1999
----------------------------------------------------------------------
Land $1,264 $1,264
Buildings 4,294 4,016
Leasehold improvements 324 324
Furniture, fixtures and equipment 1,889 1,867
----------------------------------------------------------------------
Total cost 7,771 7,471
----------------------------------------------------------------------
Less accumulated deprecation and amortization (2,040) (1,608)
----------------------------------------------------------------------
Net book value $5,731 $5,863
----------------------------------------------------------------------
Intervest Bank leases its office at Belcher Road in Clearwater, Florida
and Intervest National Bank and Intervest Corporation of New York lease
their offices in Rockefeller Center, New York City. The leases contain
operating escalation clauses related to taxes and operating costs based
upon various criteria and are accounted for as operating leases
expiring in June 2007, May 2008 and September 2004, respectively. Total
future minimum annual lease rental payments due under these
noncancellable operating leases as of December 31, 2000 were as
follows: $551,000 in 2001; $554,000 in 2002; $558,000 in 2003; $541,000
in 2004; $400,000 in 2005; and $1,011,000 thereafter. Rent expense
aggregated $522,000 in 2000, $461,000 in 1999 and $271,000 in 1998.
Intervest Bank subleases certain of its space to other companies under
leases that expire at various times through August 2007. Future
sublease rental income due under such leases as of December 31, 2000
aggregated as follows: $359,000 in 2001; $340,000 in 2002; $280,000 in
2003; $256,000 in 2004; $231,000 in 2005; and $297,000 thereafter.
Sublease rental income aggregated $340,000 in 2000 and $338,000 in 1999
and 1998.
7. Deposits
Scheduled maturities of certificates of deposit accounts are summarized
as follows:
At December 31, 2000 At December 31, 1999
-------------------- --------------------
Wtd-Avg Wtd-Avg
($ in thousands) Amount Stated Rate Amount Stated Rate
-----------------------------------------------------------------------------------
Within one year $133,433 6.44% $75,815 5.56%
Over one to two years 47,878 6.65 18,992 5.77
Over two to three years 8,274 6.23 12,148 6.03
Over three to four years 9,359 6.37 5,288 5.84
Over four years 18,712 6.88 10,551 6.32
-----------------------------------------------------------------------------------
$217,656 6.51% $122,794 5.72%
-----------------------------------------------------------------------------------
51
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
7. Deposits, Continued
Certificates of deposit accounts of $100,000 or more totaled
$48,874,000 and $18,240,000 at December 31, 2000 and 1999,
respectively. At December 31, 2000, certificates of deposit accounts of
$100,000 or more by remaining maturity were as follows: due within one
year $30,442,000; over one to two years $11,677,000 over two to three
years $921,000; over three to four years $2,052,000; and over four
years $3,782,000.
Interest expense on deposits is summarized as follows:
For the Year Ended December 31,
-------------------------------
($ in thousands) 2000 1999 1998
----------------------------------------------------------------------
Interest-checking accounts $ 232 $ 238 $216
Savings accounts 897 1,059 832
Money-market accounts 2,832 1,882 1,079
Certificates of deposit accounts 10,892 5,524 5,821
----------------------------------------------------------------------
$14,853 $8,703 $7,948
----------------------------------------------------------------------
8. Debentures Payable and Extraordinary Item
Debentures outstanding are summarized as follows:
At December 31,
---------------
($ 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
Series 01/28/94 - interest at 2% above prime - due April 1, 2002 - 4,500
Series 10/28/94 - interest at 2% above prime - due April 1, 2003 - 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 10,000 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
Series 09/18/00 - interest at 8% fixed - due January 1, 2004 1,250 -
Series 09/18/00 - interest at 81/2% fixed - due January 1, 2006 1,250 -
Series 09/18/00 - interest at 9% fixed - due January 1, 2008 1,250 -
---------------------------
57,150 77,400
INTERVEST BANCSHARES CORPORATION:
Series 05/14/98 - interest at 8% fixed - due July 1, 2008 6,930 6,930
----------------------------------------------------------------------------------------------------
$64,080 $84,330
----------------------------------------------------------------------------------------------------
The "Prime" in the preceding table refers to the prime rate of Chase
Manhattan Bank, which was 9.5% on December 31, 2000 and 8.50% on
December 31, 1999. In 2000, Intervest Corporation of New York's Series
6/29/92, 9/13/93, 1/28/94 and 10/28/94 debentures totaling $24,000,000
in principal were redeemed prior to maturity for the outstanding
principal amount plus accrued interest aggregating $3,970,000. In
connection with these early redemptions, $382,000 of unamortized
deferred debenture offering costs was charged to expense and reported
as an extraordinary charge, net of a tax benefit of $176,000, in the
consolidated statement of earnings for the year ended December 31,
2000.
52
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
8. Debentures Payable and Extraordinary Item, Continued
Intervest Corporation of New York's floating-rate Series 5/12/95,
10/19/95, 5/10/96, 10/15/96 and 4/30/97 debentures have a maximum
interest rate of 12%. Interest on an aggregate of $6,540,000 of these
debentures is accrued and compounded quarterly, and is due and payable
at maturity. The payment of interest on the remaining debentures is
made quarterly. Any debenture holder in the aforementioned Series whose
interest accrues and is due at maturity may at any time elect to
receive the accrued interest and subsequently receive regular payments
of interest.
Intervest Corporation of New York's Series 11/10/98, 6/28/99, 09/18/00
debentures accrue and compound interest quarterly, with such interest
due and payable at maturity. The holders of these debentures can
require Intervest Corporation of New York to repurchase the debentures
for face amount plus accrued interest each year beginning on July 1,
2001, July 1, 2002 and January 1, 2004, respectively, provided, however
that in no calendar year will Intervest Corporation of New York be
required to purchase more than $100,000 in principal amount of each
maturity of debentures, on a non-cumulative basis.
All of Intervest Corporation of New York's 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 Series 9/18/00 debentures,
which would be at a premium of 1% if the redemption is prior to January
1, 2002. All the debentures are unsecured and subordinate to all
present and future senior indebtedness, as defined.
The Holding Company's Series 5/14/98 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: $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. On January 13, 1999, the conversion prices were adjusted
downward from those set at the original offering date to the prices
shown above. During 1999, debentures in the aggregate principal amount
of $70,000, plus accrued interest, were converted into shares of Class
A common stock at the election of the debenture holders. The conversion
price was $10 per share, which resulted in 7,554 shares of Class A
common stock being issued in connection with the conversions.
The Holding Company also has the option at any time to call all or any
part of the convertible debentures for payment and redeem the same at
any time prior to maturity thereof for face amount. Interest accrues
and compounds each calendar quarter at 8%. All accrued interest is due
and payable at maturity whether by acceleration, redemption or
otherwise. Any convertible debenture holder may, on or before July 1 of
each year commencing July 1, 2003, elect to be paid all accrued
interest and to thereafter receive payments of interest quarterly.
Scheduled contractual maturities of all debentures as of December 31,
2000 are summarized as follows:
($ in thousands) Principal Accrued Interest
----------------------------------------------------------------------
For the year ended December 31, 2001 $1,400 $1,233
For the year ended December 31, 2002 2,500 295
For the year ended December 31, 2003 1,400 265
For the year ended December 31, 2004 21,250 3,418
For the year ended December 31, 2005 26,100 1,682
Thereafter 11,430 1,840
----------------------------------------------------------------------
$64,080 $8,733
----------------------------------------------------------------------
53
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
9. Federal funds Purchased and Other Borrowed Funds
From time to time, the Banks purchase federal funds to manage liquidity
needs. At December 31, 2000, there were no such fund outstanding,
compared to $6,955,000 at December 31, 1999. Intervest Bank also has
agreements with correspondent banks whereby it may borrow up to
$6,000,000 on an unsecured basis. There were no outstanding borrowings
under these agreements at December 31, 2000 or 1999.
10. Stockholders' Equity
The Holding Company's Board of Directors is authorized to issue
up to 300,000 shares of preferred stock of the Holding Company without
stockholder approval. The powers, preferences and rights, and the
qualifications, limitations, and restrictions thereof on any series of
preferred stock issued is determined by the Board of Directors. At
December 31, 2000 and 1999, there was no preferred stock issued and
outstanding.
Class A and B common stock have equal voting rights as to all matters,
except that, so long as at least 50,000 shares of Class B common stock
remain issued and outstanding, the holders of the outstanding shares of
Class B common stock are entitled to vote for the election of
two-thirds of the Board of Directors (rounded up to the nearest whole
number), and the holders of the outstanding shares of Class A common
stock are entitled to vote for the remaining Directors of the Holding
Company. The shares of Class B common stock are convertible, on a
share-for-share basis, into Class A common stock at any time.
11. Asset and Dividend Restrictions
The Banks are required under Federal Reserve Board regulations to
maintain reserves, generally consisting of cash or noninterest-earning
accounts, against its transaction accounts. At December 31, 2000 and
1999, balances maintained as reserves were not material.
As a member of the Federal Reserve Banking system, the Banks must
maintain an investment in the capital stock of the Federal Reserve
Bank. At December 31, 2000 and 1999, such investment, which earns a
dividend, aggregated $605,000 and $508,000, respectively. At December
31, 2000, U.S. government agency securities available for sale with a
carrying value of $6,127,000 were pledged against various deposit
accounts. At December 31, 1999, U.S. government agency securities with
a carrying value of $5,500,000 were pledged against federal funds
purchased.
The payment of dividends by the Holding Company to its shareholders and
the payment of dividends by the Holding Company's subsidiaries to the
Holding Company itself is subject to various regulatory restrictions.
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. The holders of Class
A common stock and Class B common stock share ratably in any dividend.
The Holding Company has not paid any dividends on its capital stock and
currently is not contemplating the payment of a dividend.
12. Profit Sharing Plans
The Company's subsidiaries sponsor tax-qualified, profit sharing plans
in accordance with the provisions of Section 401(k) of the Internal
Revenue Code. The plans are available to employees who elect to
participate after meeting certain length-of-service requirements.
Contributions to the profit sharing plans are discretionary and are
determined annually. Total contributions to the plans included in the
consolidated statements of earnings aggregated $26,141, $25,000 and
$22,000 for 2000, 1999 and 1998, respectively.
54
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
13. Related Party Transactions
Intervest Bank has made loans to certain of its directors and their
related entities. The activity is as follows:
For the Year Ended December 31,
-------------------------------
($ in thousands) 2000 1999 1998
----------------------------------------------------------------------
Balance at beginning of year $3,395 $3,826 $3,242
Additions 50 25 868
Repayments (134) (456) (284)
----------------------------------------------------------------------
Balance at end of year $3,311 $3,395 $3,826
----------------------------------------------------------------------
There are no loans to any directors or officers of the Holding Company
or its other subsidiaries. The Banks have deposit accounts from
directors, executive officers and members of their immediate families
and related business interests of approximately $3,967,000 at December
31, 2000 and $3,482,000 at December 31, 1999.
14. Common Stock Warrants
The Holding Company has common stock warrants outstanding that entitle
the registered holders thereof to purchase one share of common stock
for each warrant. All warrants are exercisable when issued, except for
certain Class B common stock warrants issued in 1998. The Holding
Company's warrants have been issued in connection with public stock
offerings, to directors and employees of Intervest Bank and directors
of the Holding Company and to outside third parties for performance of
services.
Data concerning common stock warrants is summarized as follows:
Exercise Price Per Warrant
--------------------------
Total Wtd-Avg
Class A Common Stock Warrants: $6.67 $11.50 (1) $15.00 (2) Warrants Exercise Price
---------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 1,528,665 965,683 - 2,494,348 $ 7.96
Granted in 1998 - 20 122,000 122,020 $14.00
Exercised in 1998 (56,100) (4,000) - (60,100) $ 6.89
------------------------------------------------------------
Outstanding at December 31, 1998 1,472,565 961,703 122,000 2,556,268 $ 8.27
Granted in 1999 - 1,000 - 1,000 $10.00
Exercised in 1999 (89,000) (300) - (89,300) $ 6.68
------------------------------------------------------------
Outstanding at December 31, 1999 1,383,565 962,403 122,000 2,467,968 $ 8.33
Exercised in 2000 (12,750) - - (12,750) $ 6.67
---------------------------------------------------------------------------------------------------
Outstanding at December 31, 2000 1,370,815 962,403 122,000 2,455,218 $ 8.98
---------------------------------------------------------------------------------------------------------------------------
Remaining contractual life in years
at December 31, 2000 2.5 2.0 2.0 2.3
---------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The exercise price per warrant increases to $12.50 per share in
2001 and $13.50 per share in 2002.
(2) The exercise price per warrant increase to $16.00 per share in
2001 and $17.00 per share in 2002.
</FN>
Exercise Price Per Warrant
-------------------------- Total Wtd-Avg
Class B Common Stock Warrants: $6.67 $10.00 (1) Warrants Exercise Price
---------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31,1997 150,000 - 150,000 $ 6.67
Granted in 1998 (1) - 50,000 50,000 $10.00
---------------------------------------
Outstanding at December 31,1998 150,000 50,000 200,000 $ 7.50
Exercised in 1999 (5,000) - (5,000) $ 6.67
------------------------------------------------------------------------------------------------
Outstanding at December 31,1999 and 2000 145,000 50,000 195,000 $ 7.52
------------------------------------------------------------------------------------------------
Remaining contractual life in years at December 31, 2000 6.1 7.1 6.3
---------------------------------------------------------------------------------------------------------------------------
<FN>
(1) At December 31, 2000, 21,300 of these warrants were immediately
exercisable. An additional 7,100 warrants vest and become exercisable
on each April 27th of 2001, 2002, 2003, and the remaining 7,400 on
April 27, 2004. The warrants, which expire on January 31, 2008, become
fully vested earlier upon certain conditions.
</FN>
55
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
14. Common Stock Warrants, Continued
The Company uses the intrinsic value-based method prescribed under APB
Opinion No. 25, "Accounting for Stock Issued to Employees," in
accounting for its stock warrants. Under this method, compensation
expense related to stock warrants is the excess, if any, of the market
price of the stock as of the grant date over the exercise price of the
warrant. The exercise price of the Class B warrants granted in 1998 was
below the market price of the common shares at the date of grant.
Therefore, in accordance with APB Opinion No. 25, approximately
$26,000, $26,000 and $43,000 was included in salaries and employee
benefits expense for 2000, 1999 and 1998, respectively, in connection
with these warrants. No compensation expense was recorded related to
the remaining stock warrants granted in 1998 because their exercise
prices were the same as the market price of the common shares at the
date of grant. Had compensation expense been determined based on the
estimated fair value of the warrants at the grant date in accordance
with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net earnings and earnings per share would have been reduced
to the pro forma amounts as follows:
For the Year Ended December 31,
-------------------------------
($ in thousands, except per share amounts) 2000 1999 1998
-------------------------------------------------------------------------------------
Reported net earnings $2,608 $1,767 $2,382
Pro forma net earnings (1) $2,585 $1,744 $2,093
Reported basic earnings per share $0.67 $0.47 $0.64
Pro forma basic earnings per share $0.66 $0.46 $0.56
Reported diluted earnings per share $0.67 $0.44 $0.54
Pro forma diluted earnings per share $0.66 $0.43 $0.48
-------------------------------------------------------------------------------------
<FN>
. (1) Pro forma net earnings for 1998 does not reflect the full
impact of calculating compensation expense related to Class B
stock warrants granted in 1998, since the total expense
calculated under SFAS No.123 is apportioned over the vesting
period of those warrants.
</FN>
The per share weighted-average estimated fair value of 172,000 stock
warrants granted to employees and directors in 1998 was $3.63 on the
date of grant using the Black-Scholes option-pricing model. The
following weighted-average assumptions were used: no expected
dividends; expected life of 2.9 years, expected price volatility of 25%
and a 5.5% risk-free interest rate. For 1999, a fair value calculation
for the 1,000 warrants issued was not performed because the impact was
not significant. The assumptions used are subjective in nature, involve
uncertainties and cannot be determined with precision.
15. Income Taxes
The Holding Company and its subsidiaries file a consolidated federal
income tax return. The Holding Company also files consolidated income
tax returns with Intervest National Bank and Intervest Corporation of
New York in New York State and New York City. In addition, the Holding
Company files a state income tax return in New Jersey and a franchise
tax return in Delaware. Intervest Bank files a state income tax return
in Florida. All the returns are filed on a calendar year basis.
At December 31, 2000 and 1999, the Company had a net deferred tax asset
of $1,105,000 and $936,000, respectively. The asset relates to the
unrealized benefit for: net temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases that will result in future tax deductions. In
assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of such assets is dependent upon the generation of
sufficient taxable income during the periods in which those temporary
differences become deductible. Management believes that it is more
likely than not that the Company's deferred tax asset will be realized
and accordingly, a valuation allowance for deferred tax assets was not
maintained at any time during 2000, 1999 or 1998.
56
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
15. Income Taxes, Continued
The total tax expense (benefit) is as follows:
For the Year Ended December 31,
-------------------------------
($ in thousands) 2000 1999 1998
-------------------------------------------------------------------------------------
Provision for income taxes $1,909 $1,198 $1,740
Benefit from change in accounting principle - (65) -
Benefit from extraordinary item (176) - -
-------------------------------------------------------------------------------------
$1,733 $1,133 $1,740
-------------------------------------------------------------------------------------
Allocation of federal, state and local income taxes between current and
deferred portions is as follows:
($ in thousands) Current Deferred Total
------------------------------------------------------------------------------
Year Ended December 31, 2000:
----------------------------
Federal $1,350 $ (10) $1,340
State and Local 399 (6) 393
------------------------------------------------------------------------------
$1,749 $ (16) $1,733
------------------------------------------------------------------------------
Year Ended December 31, 1999:
----------------------------
Federal $1,123 $(263) $ 860
State and Local 337 (64) 273
------------------------------------------------------------------------------
$1,460 $(327) $1,133
------------------------------------------------------------------------------
Year Ended December 31, 1998:
----------------------------
Federal $1,290 $ (74) $1,216
State and Local 534 (10) 524
------------------------------------------------------------------------------
$1,824 $ (84) $1,740
------------------------------------------------------------------------------
The components of the deferred tax benefit is summarized as follows:
For the Year Ended December 31,
------------------------------
($ in thousands) 2000 1999 1998
------------------------------------------------------------------------------
Allowance for loan loss reserves $ 16 $(262) $(185)
Organization and startup costs (10) (99) -
Stock-based compensation (17) (12) (15)
Depreciation (33) (3) (38)
Net operating loss carryforwards - 61 125
All other 28 (12) 29
------------------------------------------------------------------------------
$ (16) $(327) $ (84)
------------------------------------------------------------------------------
The tax effects of the temporary differences that give rise to the
deferred tax asset are summarized as follows:
At December 31,
--------------
($ in thousands) 2000 1999
-------------------------------------------------------- ------------ -----------
Allowance for loan loss reserves $ 729 $745
Unrealized net loss on securities available for sale 153 -
Organization and startup costs 109 99
Stock-based compensation 44 27
Depreciation 55 22
All other 15 43
-------------------------------------------------------------------------------
Total deferred tax asset $1,105 $936
-------------------------------------------------------------------------------
57
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
15. Income Taxes, Continued
The reconciliation between the statutory federal income tax rate and
the Company's effective tax rate (including state and local taxes) is
as follows:
For the Year Ended December 31,
------------------------------
($ in thousands) 2000 1999 1998
--------------------------------------------------------------------------------------
Tax provision at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) in taxes resulting from:
State and local income taxes, net of federal benefit 6.4 6.3 8.2
Other - (1.6) -
-------------------------------------------------------------------------------------------
40.4% 38.7% 42.2%
-------------------------------------------------------------------------------------------
16. Earnings Per Share
Net earnings applicable to common stock and the weighted-average number
of shares used for basic and diluted earnings per share computations
are summarized as follows:
For the Year Ended December 31,
------------------------------
($ in thousands, except share and per share amounts) 2000 1999 1998
------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Net earnings applicable to common stockholders $2,608 $1,767 $2,382
Average number of common shares outstanding 3,884,560 3,760,293 3,707,113
------------------------------------------------------------------------------------------------------------
Basic earnings per share amount $0.67 $0.47 $0.64
------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Net earnings applicable to common stockholders $2,608 $1,767 $2,382
Adjustment to net earnings from assumed conversion of debentures - - 172
-------------------------------------
Adjusted net earnings for diluted earnings per share computation $2,608 $1,767 $2,554
-------------------------------------
Average number of common shares outstanding:
Common shares outstanding 3,884,560 3,760,293 3,707,113
Potential dilutive shares resulting from exercise of warrants - 259,825 630,457
Potential dilutive shares resulting from conversion of debentures - - 385,946
-------------------------------------
Total average number of common shares outstanding used for dilution 3,884,560 4,020,118 4,723,516
------------------------------------------------------------------------------------------------------------
Diluted earnings per share amount $0.67 $0.44 $0.54
------------------------------------------------------------------------------------------------------------
Certain common stock warrants were not considered in the computations
of diluted EPS because they were not dilutive and they are as follows:
2,650,000 warrants with exercise prices ranging from $6.67 to $15.00
for 2000; 1,134,000 warrants with exercise prices ranging from $10.00
to $14.00 for 1999; and 122,000 warrants with an exercise price of
$14.00 for 1998. Additionally, convertible debentures totaling
$6,930,000 and convertible (at $12.50 per share in 2000 and $10.00 per
share in 1999) into Class A common stock were excluded from the 2000
and 1999 diluted EPS computations because they were not dilutive.
17. Contingencies
The Company is periodically a party to or otherwise involved in legal
proceedings arising in the normal course of business, such as claims to
enforce liens, claims involving the making and servicing of mortgage
loans, and other issues incident to the Company's business. Management
does not believe that there is any pending or threatened proceeding
against the Company which, if determined adversely, would have a
material effect on the business, results of operations, or financial
position of the Company.
58
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
18. Regulatory Matters
The Company is subject to regulation, examination and supervision by
the Federal Reserve Bank. The Banks are also subject to regulation,
examination and supervision by the Federal Deposit Insurance
Corporation. In addition, Intervest Bank is subject to the regulation,
examination and supervision of the Florida Department of Banking and
Finance, while Intervest National Bank is subject to the regulation,
examination and supervision of the Office of the Comptroller of the
Currency of the United States of America ("OCC").
The Company (on a consolidated basis) and the Banks are subject to
various regulatory capital requirements administered by the federal
banking agencies. Failure to meet capital requirements can initiate
certain mandatory and possibly discretionary actions by the regulators
that, if undertaken, could have a direct material effect on the
Company's and the Banks' financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action,
the Company and the Banks must meet specific capital guidelines that
involve quantitative measures of their 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. Prompt corrective action provisions are not applicable to bank
holding companies. Quantitative measures established by the regulations
to ensure capital adequacy require the Company and the Banks to
maintain minimum amounts and ratios of total and Tier 1 capital to
risk-weighted assets and of Tier 1 capital to average assets, as
defined by the regulations.
Management believes, as of December 31, 2000 and 1999, that the
Company, Intervest Bank and Intervest National Bank met all capital
adequacy requirements to which they are subject. As of December 31,
2000, the most recent notification from the regulators categorized the
Banks as well-capitalized institutions under the regulatory framework
for prompt corrective action, which requires minimum Tier 1 leverage
and Tier 1 and total risk-based capital ratios of 5%, 6% and 10%,
respectively. Management believes that there are no current conditions
or events outstanding that would change the designations from well
capitalized.
On June 15, 2000, Intervest National Bank and its primary regulator the
OCC entered into a Memorandum of Understanding. The memorandum is a
formal written agreement whereby, among other things, Intervest
National Bank shall review, revise, develop and implement various
policies and procedures with respect to its lending and credit
underwriting. Management has implemented various actions towards
bringing Intervest National Bank into full compliance with the
memorandum.
The following tables present information regarding the Company's and
the Banks' capital adequacy.
Minimum to Be Well
------------------
Capitalized Under
-----------------
Minimum Capital Prompt Corrective
--------------- -----------------
Actual Requirements Action Provisions
------ ------------ -----------------
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------------------------------------------------------
Consolidated as of December 31, 2000:
------------------------------------
Total capital to risk-weighted assets $38,382 12.63% $24,309 8.00% NA NA
Tier 1 capital to risk-weighted assets $35,614 11.72% $12,155 4.00% NA NA
Tier 1 capital to average assets $35,614 8.75% $16,275 4.00% NA NA
Consolidated as of December 31, 1999:
------------------------------------
Total capital to risk-weighted assets $35,252 14.31% $19,704 8.00% NA NA
Tier 1 capital to risk-weighted assets $32,759 13.30% $9,852 4.00% NA NA
Tier 1 capital to average assets $32,759 9.55% $13,720 4.00% NA NA
------------------------------------------------------------------------------------------------------------------
59
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
18. Regulatory Matters, Continued
Minimum to Be Well
------------------
Capitalized Under
-----------------
Minimum Capital Prompt Corrective
--------------- -----------------
Actual Requirements Action Provisions
------ ------------ -----------------
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------------------------
Intervest Bank at December 31, 2000:
-----------------------------------
Total capital to risk-weighted assets $16,019 10.80% $11,866 8.00% $14,832 10.00%
Tier 1 capital to risk-weighted assets $14,164 9.55% $5,933 4.00% $8,899 6.00%
Tier 1 capital to average assets $14,164 6.64% $8,528 4.00% $10,660 5.00%
Intervest Bank at December 31, 1999:
-----------------------------------
Total capital to risk-weighted assets $13,737 11.04% $9,951 8.00% $12,439 10.00%
Tier 1 capital to risk-weighted assets $12,176 9.79% $4,976 4.00% $7,463 6.00%
Tier 1 capital to average assets $12,176 6.44% $7,562 4.00% $9,453 5.00%
--------------------------------------------------------------------------------------------------------------
Intervest National Bank at December 31, 2000:
--------------------------------------------
Total capital to risk-weighted assets $13,712 15.27% $7,185 8.00% $8,981 10.00%
Tier 1 capital to risk-weighted assets $12,917 14.38% $3,592 4.00% $5,389 6.00%
Tier 1 capital to average assets $12,917 11.29% $4,578 4.00% $5,722 5.00%
Intervest National Bank at December 31, 1999:
--------------------------------------------
Total capital to risk-weighted assets $8,724 19.02% $3,668 8.00% $4,586 10.00%
Tier 1 capital to risk-weighted assets $8,280 18.06% $1,834 4.00% $2,752 6.00%
Tier 1 capital to average assets $8,280 16.29% $2,034 4.00% $2,542 5.00%
--------------------------------------------------------------------------------------------------------------
19. Off-Balance Sheet Financial Instruments
The Company is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments are 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
the consolidated balance sheets. The contract amounts of these
instruments reflect the extent of involvement the Company has in these
financial instruments. The Company's exposure to credit loss in the
event of nonperformance by the other party to the off-balance sheet
financial instruments is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making
commitments as it does for on-balance sheet 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 may require payment of fees. Since some
of the commitments are expected to expire without being drawn upon, the
total commitment amount does not necessarily represent future cash
requirements. The Company evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on
management's credit evaluation of the counterparty. Standby letters of
credit are conditional commitments issued by the Company to guarantee
the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers.
60
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
19. Off-Balance Sheet Financial Instruments, Continued
The following is a summary of the notional amounts of the Company's
off-balance sheet financial instruments.
At December 31,
($ in thousands) 2000 1999
-------------------------------------------------------------
Unfunded loan commitments $17,310 $26,256
Available lines of credit 560 765
Standby letters of credit 167 900
-------------------------------------------------------------
$18,037 $27,921
-------------------------------------------------------------
20. Estimated Fair Value of Financial Instruments
Fair value estimates are made at a specific point in time based on
available information about each financial instrument. Where available,
quoted market prices are used. However, a significant portion of the
Company's financial instruments, such as commercial real estate and
multifamily loans, do not have an active marketplace in which they can
be readily sold or purchased to determine fair value. Consequently,
fair value estimates for such instruments are based on assumptions made
by management that include the financial instrument's credit risk
characteristics and future estimated cash flows and prevailing interest
rates. As a result, these fair value estimates are subjective in
nature, involve uncertainties and matters of significant judgment and
therefore, cannot be determined with precision. Accordingly, changes in
any of management's assumptions could cause the fair value estimates to
deviate substantially. The fair value estimates also do not reflect any
additional premium or discount that could result from offering for
sale, at one time, the Company's entire holdings of a particular
financial instrument, nor estimated transaction costs. Further, the tax
ramifications related to the realization of unrealized gains and losses
can have a significant effect on and have not been considered in the
fair value estimates. Finally, fair value estimates do not attempt to
estimate the value of anticipated future business, the Company's
customer relationships, branch network, and the value of assets and
liabilities that are not considered financial instruments, such as core
deposit intangibles and premises and equipment.
The carrying and estimated fair values of the Company's financial
instruments are summarized as follows:
At December 31, 2000 At December 31, 1999
-------------------- --------------------
Carrying Fair Carrying Fair Value
($ in thousands) Value Value Value
------------------------------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents $42,938 $42,938 $32,095 $32,095
Securities available for sale, net 74,789 74,789 - -
Securities held to maturity, net 20,970 20,978 83,132 79,882
Federal Reserve Bank stock 605 605 508 508
Loans receivable, net 263,558 265,068 210,444 210,594
Accrued interest receivable 2,961 2,961 1,995 1,995
Financial Liabilities:
Deposit liabilities 300,241 300,775 201,080 200,623
Federal funds purchased - - 6,955 6,955
Debentures payable plus accrued interest 72,813 72,813 92,422 91,983
Accrued interest payable 856 856 461 461
------------------------------------------------------------------------------------------------
61
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
20. Estimated Fair Value of Financial Instruments, Continued
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Securities. The estimated fair value of securities available for sale
and held to maturity is based on quoted market prices. The estimated
fair value of the Federal Reserve Bank stock approximates fair value
since the security does not present credit concerns and is redeemable
at cost.
Loans Receivable. The estimated fair value of variable rate loans that
reprice frequently and have no significant change in credit risk since
origination approximates their carrying values. For fixed-rate loans
estimated fair value is based on a discounted cash flow analysis, using
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality.
Management can make no assurance that its perception and quantification
of credit risk would be viewed in the same manner as that of a
potential investor. Therefore, changes in any of management's
assumptions could cause the fair value estimates of 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 approximates carrying value. The estimated fair value
of certificates of deposit are based on the discounted value of their
contractual cash flows. The discount rate used in the present value
computation was estimated by comparison to current interest rates
offered by the Banks for certificates of deposit with similar remaining
maturities.
Debentures and Accrued Interest Payable. The estimated fair value of
debentures and related accrued interest payable is based on a
discounted cash flow analysis. The discount rate used in the present
value computation was estimated by comparison to what management
believes to be the Company's incremental borrowing rate for similar
arrangements. For 2000, management believes that the incremental
borrowing rate approximated the current rates for each of the
borrowings.
All Other Financial Assets and Liabilities. The estimated fair value of
cash and cash equivalents, accrued interest receivable, federal funds
purchased and accrued interest payable approximates their carrying
values since these instruments are payable on demand or have short-term
maturities.
Off-Balance Sheet Instruments. The carrying amounts of commitments to
lend approximated estimated fair value.
62
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
21. Holding Company Financial Information
Condensed Balance Sheets
At December 31,
---------------
($ in thousands) 2000 1999
-----------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 19 $ 9
Short-term investments 1,428 4,877
----------------------
Total cash and cash equivalents 1,447 4,886
Loans receivable, net (net of allowance for loan loss reserves
of $30 and $13 at December 31, 2000 and 1999) 5,905 2,584
Investment in subsidiaries 36,875 33,379
Deferred debenture offering costs 438 479
All other assets 211 117
-----------------------------------------------------------------------------------------------
Total assets $44,876 $41,445
-----------------------------------------------------------------------------------------------
LIABILITIES
Convertible subordinated debentures payable $ 6,930 $ 6,930
Accrued interest payable on debentures 1,536 892
All other liabilities 182 19
-----------------------------------------------------------------------------------------------
Total liabilities 8,648 7,841
-----------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common equity 36,228 33,604
-----------------------------------------------------------------------------------------------
Total stockholders' equity 36,228 33,604
-----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $44,876 $41,445
-----------------------------------------------------------------------------------------------
Condensed Statements of Earnings
For the Year Ended December 31,
($ in thousands) 2000 1999 1998
-----------------------------------------------------------------------------------------------
Interest income $ 672 $ 744 $ 993
Interest expense 686 637 319
----------------------------------
Net interest (expense) income (14) 107 674
Provision (credit) for loan loss reserves 17 (42) 55
Noninterest income 165 161 109
Noninterest expenses 405 197 197
----------------------------------
(Loss) earnings before income taxes (271) 113 531
(Credit) provision for income taxes (131) 53 245
----------------------------------
Net (loss) earnings before earnings (loss) of subsidiaries (140) 60 286
Equity in earnings of Intervest Bank 2,002 1,642 1,149
Equity in earnings (loss) of Intervest National Bank 617 (507) -
Equity in earnings of Intervest Corporation of New York 129 572 947
-----------------------------------------------------------------------------------------------
Net earnings $2,608 $1,767 $ 2,382
-----------------------------------------------------------------------------------------------
Cash dividends received from subsidiaries $3,000 $ - $ -
63
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
21. Holding Company Financial Information, Continued
Condensed Statements of Cash Flows
For the Year Ended December 31,
-------------------------------
($ in thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 2,608 $ 1,767 $ 2,382
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries (2,748) (1,707) (2,096)
Provision (credit) for loan loss reserves 17 (42) 55
Deferred income tax (benefit) expense (41) 7 (45)
Compensation expense from awards of Class B stock and warrants 185 26 43
Increase in accrued interest payable on debentures 644 637 319
Change in all other assets and liabilities, net 24 135 (371)
--------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 689 823 287
--------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Decrease (increase) in interest-earning deposits - 100 (100)
Investment in subsidiaries (4,000) (9,018) (500)
Cash dividends received from subsidiaries 3,000 - -
Sale of loans to subsidiaries - 5,604 -
Loan originations and principal repayments, net (3,368) 2,761 (10,032)
--------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,368) (553) (10,632)
--------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in mortgage escrow funds payable 157 (173) 142
Proceeds from sale of convertible debentures, net of issuance costs - - 6,457
Proceeds from issuance of common stock upon the exercise
of stock warrants, net of issuance costs 83 622 414
--------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 240 449 7,013
--------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,439) 719 (3,332)
Cash and cash equivalents at beginning of year 4,886 4,167 7,499
--------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,447 $ 4,886 $ 4,167
--------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Income taxes $ (110) $ 142 $ 200
Noncash transactions:
Accumulated other comprehensive income, change in
subsidiary's unrealized loss on securities available for sale (252) - -
Conversion of debentures into Class A common stock - 70 -
Issuance of common stock in exchange for common
stock of minority stockholders of Intervest Bank - 7 -
--------------------------------------------------------------------------------------------------------
64
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
22. Quarterly Financial Data (Unaudited)
The following is a summary of the consolidated statements of earnings
by quarter:
For the Year Ended December 31, 2000
------------------------------------
First Second Third Fourth
($ in thousands, except per share amounts) Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------------------------------------------
Interest and dividend income $7,256 $7,658 $8,324 $8,670
Interest expense 5,412 5,552 5,943 6,418
---------------------------------------------
Net interest and dividend income 1,844 2,106 2,381 2,252
Provision (credit) for loan loss reserves 155 90 47 (17)
---------------------------------------------
Net interest and dividend income
after provision (credit) for loan loss reserves 1,689 2,016 2,334 2,269
Noninterest income 162 178 338 305
Noninterest expenses 1,251 1,130 1,081 1,106
---------------------------------------------
Earnings before income taxes and extraordinary item 600 1,064 1,591 1,468
Provision for income taxes 210 427 662 610
Extraordinary item, net of tax - (206) - -
----------------------------------------------------------------------------------------------------------------------
Net earnings $ 390 $ 431 $ 929 $ 858
----------------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Earnings before extraordinary item $ .10 $ .16 $ .24 $ .22
Extraordinary item, net of tax - (.05) - -
----------------------------------------------------------------------------------------------------------------------
Net earnings per share $ .10 $ .11 $ .24 $ .22
----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Earnings before extraordinary item $ .10 $ .16 $ .24 $ .22
Extraordinary item, net of tax - (.05) - -
----------------------------------------------------------------------------------------------------------------------
Net earnings per share $ .10 $ .11 $ .24 $ .22
----------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31, 1999
------------------------------------
First Second Third Fourth
($ in thousands, except per share amounts) Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------------------------------------------
Interest and dividend income $6,129 $6,151 $6,487 $6,734
Interest expense 4,440 4,392 4,581 5,006
---------------------------------------------
Net interest and dividend income 1,689 1,759 1,906 1,728
Provision for loan loss reserves 112 223 270 225
---------------------------------------------
Net interest and dividend income after provision for loan loss reserves 1,577 1,536 1,636 1,503
Noninterest income 414 143 219 124
Noninterest expenses 901 1,092 1,003 1,063
---------------------------------------------
Earnings before income taxes and change in accounting principle 1,090 587 852 564
Provision for income taxes 468 248 344 138
Cumulative effect of change in accounting principle, net of tax (128) - - -
----------------------------------------------------------------------------------------------------------------------
Net earnings $ 494 $ 339 $ 508 $ 426
----------------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Earnings before change in accounting principle $ .16 $ .09 $ .14 $ .11
Cumulative effect of change in accounting principle, net of tax (.03) - - -
----------------------------------------------------------------------------------------------------------------------
Net earnings per share $ .13 $ .09 $ .14 $ .11
----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Earnings before change in accounting principle $ .15 $ .08 $ .13 $ .11
Cumulative effect of change in accounting principle, net of tax (.03) - - -
----------------------------------------------------------------------------------------------------------------------
Net earnings per share $ .12 $ .08 $ .13 $ .11
----------------------------------------------------------------------------------------------------------------------
65
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers
a. Directors. The information required by this item is contained under the
section entitled "Election of Directors" in the Company's Proxy Statement
for its 2001 Annual Meeting (the "Proxy Statement") and is incorporated
herein by reference.
b. Executive Officers. The information required by this item is set forth in
Part I of this report under the Caption Item 4A "Executive Officers and
Other Key Employees".
c. Compliance with Section 16(a). Information contained in the section of
the Proxy Statement entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" is incorporated herein by reference.
Item 11. Executive Compensation
The information contained in the section entitled "Executive Compensation" of
the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained in the section entitled "Security Ownership of Certain
Beneficial Owners and Management" of the Proxy Statement is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions
The information contained in the section entitled "Certain Relationships and
Related Transactions" of the Proxy Statement is incorporated herein by
reference.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents Filed as Part of this Report
(1) Financial Statements:
See Item 8 "Financial Statements and Supplementary Data"
(2) Financial Statement Schedules:
See Item 8 "Financial Statements and Supplementary Data"
(3) Exhibits: The following exhibits are filed herein as part of this
Form 10-K:
66
PART IV
Exhibit No Description of Exhibit
- ---------- ----------------------
2.0 Agreement and Plan of Merger dated as of November 1, 1999 by and
among Intervest Bancshares Corporation, ICNY Acquisition
Corporation and Intervest Corporation of New York, incorporated
by reference to the Company's definitive proxy statement for the
special meeting of shareholders to be held March 10, 2000,
wherein such document is identified as "Annex A."
3.1 Restated Certificate of Incorporation of the Company,
incorporated by reference to Amendment No.1 to the Company's
Registration Statement on Form SB-2 (No 333-33419, the
"Registration Statement"), filed with the Securities and Exchange
Commission (the "Commission") on September 22, 1997, wherein such
document is identified as Exhibit 3.1.
3.2 Bylaws of the Company, incorporated by reference to the
Registration Statement, wherein such document is identified as
Exhibit 3.1.
4.1 Form of Certificate for Shares of Class A common stock,
incorporated by reference to the Company's Pre-Effective
Amendment No.1 to the Registration Statement on Form SB-2 (No.
33-82246), filed with the Commission on September 15, 1994.
4.2 Form of Certificate for Shares of Class B common stock,
incorporated by reference to the Company's Pre-Effective
Amendment No.1 to the Registration Statement on Form SB-2 (No.
33-82246), filed with the Commission on September 15, 1994.
4.3 Form of Warrant issued to Mr. Jerome Dansker, incorporated by
reference to the Company's Report on Form 10-K for the year ended
December 31, 1995, wherein such document is identified as Exhibit
4.2.
4.4 Form of Warrant for Class A common stock, incorporated by
reference to the Registration Statement, wherein such document is
identified as Exhibit 4.3.
4.5 Form of Warrant Agreement between the Company and the Bank of New
York, incorporated by reference to the Registration Statement,
wherein such document is identified as Exhibit 4.4.
4.6 Form of Indenture between the Company and the Bank of New York,
as Trustee, incorporated by reference to the Company's
Registration Statement on Form SB-2 (333-50113) filed with the
Commission on April 15,1998.
4.7 Form of Indenture between the Company and the Bank of New York,
as Trustee, dated January 1, 2001.
12 Statement re: computation of ratios of earnings to fixed charges.
23.1 Consent of Independent Accountants.
23.2 Consent of Independent Accouttants.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the date indicated.
INTERVEST BANCSHARES CORPORATION
(Registrant)
By: /s/ Lowell S. Dansker Date: March 6, 2001
-------------------------------- ------------------------
Lowell S. Dansker, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Chairman of the Board, Executive Vice President and Director:
By: /s/ Jerome Dansker Date: March 6, 2001
--------------------------------- -----------------------
Jerome Dansker
President, Treasurer and Director
(Principal Executive, Financial and Accounting Officer):
By: /s/ Lowell S. Dansker Date: March 6, 2001
------------------------------- -----------------------
Lowell S. Dansker
Vice President, Secretary and Director:
By: /s/ Lawrence G. Bergman Date: March 6, 2001
--------------------------------- -----------------------
Lawrence G. Bergman
Directors:
By: Date:
-------------------------------- -----------------------
Michael A. Callen
By: /s/ Wayne F. Holly Date: March 6, 2001
-------------------------------- -----------------------
Wayne F. Holly
By: /s/ Edward J. Merz Date: March 6, 2001
-------------------------------- -----------------------
Edward J. Merz
By: /s/ Lawton Swan, III Date: March 6, 2001
-------------------------------- -----------------------
Lawton Swan, III
By: /s/ Thomas E. Willett Date: March 6, 2001
-------------------------------- -----------------------
Thomas E. Willett
By: /s/ David J. Willmott Date: March 6, 2001
-------------------------------- -----------------------
David J. Willmott
By: /s/ Wesley T. Wood Date: March 6, 2001
-------------------------------- -----------------------
Wesley T. Wood
68