As filed with the Securities and Exchange Commission on June 25, 2001
Registration No. 333-64177
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Post-Effective Amendment No. 3 on Form S-1 to
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INTERVEST BANCSHARES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
___________________________________________________________________
Delaware 6060
- -------- ----
(State or Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
13-3699013
----------
(IRS Employer
Identification No.)
10 Rockefeller Plaza (Suite 1015), New York, New York 10020-1903, (212) 218-2800
- --------------------------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices)
10 Rockefeller Plaza (Suite 1015), New York, New York 10020-1903
----------------------------------------------------------------
(Address of Principal Place of Business)
Lawrence G. Bergman, Vice President
Intervest Bancshares Corporation
10 Rockefeller Plaza (Suite 1015)
New York, New York 10020-1903
_____________________________________________________________
(Name, Address and Telephone Number of Agent For Service)
with copies to:
Thomas E. Willett, Esq.
Harris Beach LLP
130 East Main Street
Rochester, New York 14604
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |X| 333-64177
---------
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_| __________
As permitted by Rule 429(a) of the Securities Act, the Prospectus included
herein also relates to: a Registration Statement on Form SB-2 (No. 333-5013)
with respect to shares of Class A Common Stock issuable upon conversion of
debentures; a Registration Statement on Form SB-2 (No. 333-82246) with respect
to 675,000 Warrants and 675,000 shares of Class A Common Stock; a Registration
Statement on Form SB-2 (No. 333-3522) with respect to 613,500 Warrants and
613,500 shares of Class A Common Stock; a Registration Statement on Form SB-2
(No. 333-26583) with respect to 240,165 Warrants, 240,165 shares of Class A
Common Stock and 150,000 shares of Class B Common Stock; and a Registration
Statement on Form SB-2 (No. 333-33419) related to 965,683 Warrants and 965,683
shares of Class A Common Stock.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date the Commission, acting pursuant to said Section 8(a), may
determine.
- --------------------------------------------------------------------------------
PROSPECTUS
INTERVEST BANCSHARES CORPORATION
(A Bank Holding Company for Intervest Bank and Intervest National Bank)
This prospectus covers shares of our Class A Common Stock and Class B
Common Stock that we may issue whenever someone exercises warrants that we
previously issued. We have issued warrants which currently entitle the holders
to purchase up to 2,455,218 shares of Class A Common Stock and up to 195,000
shares of Class B Common Stock. This prospectus also covers shares of Class A
Common Stock that we may issue upon conversion of debentures. We have issued
convertible debentures which allow the holders to currently convert them into up
to 616,938 shares of our Class A Common Stock.
Our Class A Common Stock is listed on the Nasdaq SmallCap Market under
the symbol "IBCA".
Please see "Risk Factors" beginning on page 6 to read about certain
factors you should consider.
_________________
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
Underwriting
Discounts and Proceeds to
Price to Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
Per Share(2) (3) $0 (3)
- --------------------------------------------------------------------------------
Per Warrant(2)(4) --- $0 ---
- --------------------------------------------------------------------------------
Total(2) $24,592,294 $0 $24,592,524
- --------------------------------------------------------------------------------
(1) The Company will not use brokers or dealers in connection with this
offering.
(2) Before deducting expenses estimated at $18,000. The Company will not receive
any proceeds in connection with the conversion of its debentures.
(3) Warrants related to 1,370,815 shares of Class A Common Stock are at an
exercise price of $6.67 per share; Warrants related to 122,000 shares of
Class A Common Stock are at an exercise price of $16.00 per share; and the
remaining Class A Warrants are at an exercise price of $12.50 per share.
Warrants related to 145,000 shares of Class B Common Stock are at an
exercise price of $6.67 per share and Warrants related to 50,000 shares of
Class B Common Stock are at an exercise price of $10.00 per share.
(4) The Company has attributed no value to the Warrants.
The date of this Prospectus is , 2001
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission under the Securities Exchange Act. We also
have filed a registration statement, including exhibits, which contains more
information on our company and the securities offered in this prospectus. You
may read and copy this information at the public reference facilities maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's regional offices located at 7 World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can also be
obtained at prescribed rates by writing to the Securities and Exchange
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a website that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of that site is:
"http://www.sec.gov".
We will furnish annual reports to our shareholders which contain
audited financial statements certified by our independent public accountants. We
may distribute unaudited quarterly reports and other interim reports to our
shareholders as we deem appropriate.
We will provide without charge to each person to whom a Prospectus is
delivered, upon written or oral request of such person, a copy of any or all
documents referred to above that have been incorporated into this Prospectus by
reference. Written or oral requests for such copies should be directed to: Mr.
Lawrence G. Bergman, Intervest Bancshares Corporation, 10 Rockefeller Plaza, New
York, New York 10020; (212) 218-2800.
2
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements, including the notes to those statements,
appearing elsewhere in this Prospectus.
The Company
Intervest Bancshares Corporation is a bank holding company (the
"Holding Company") incorporated under the laws of the State of Delaware whose
wholly-owned subsidiaries at March 31, 2001 were Intervest Bank, a Florida
state-chartered bank, Intervest National Bank, a nationally-chartered bank, and
Intervest Corporation of New York, a New York corporation investing in real
estate mortgage loans. At March 31, 2001, the Company had consolidated total
assets of $423.1 million, net loans of $276.7 million, deposits of $301.8
million, debentures and related interest payable of $75.5 million, and
stockholders' equity of $37.1 million.
Intervest Bank is a community-oriented, full service, commercial bank
serving the Clearwater area of the State of Florida. Intervest National Bank,
which opened for operations on April 1, 1999, is a full-service commercial bank
with its office in Rockefeller Plaza in New York City. Intervest Corporation of
New York is located in Rockefeller Plaza in New York City and is in the business
of investing in commercial and multifamily residential mortgage loans. The
Company completed its acquisition of Intervest Corporation of New York in March
of 2000. Unless the context otherwise requires, references in this prospectus to
the "Company" include Intervest Bancshares Corporation and its subsidiaries.
Intervest Bank and Intervest National Bank are sometimes referred to as the
"Banks."
The principal business of the Banks is to attract deposits and to loan
or invest those deposits on profitable terms. Each Bank offers a variety of
deposit accounts which are insured by the Federal Deposit Insurance Corporation
("FDIC") up to $100,000 per depositor. The lending of the Banks consists
primarily of real estate loans, commercial loans and consumer loans. Each of the
Banks is one of several providers of funds for such purposes in its market area,
and their lending policies, deposit products and related services are intended
to meet the needs of individuals and businesses in their market area. The
principal business of Intervest Corporation of New York is investing in real
estate mortgage loans secured by income-producing real property.
On March 5, 2001, the Banks agreed to merge into one nationally
chartered bank. The resulting institution, Intervest National Bank, will retain
its headquarters and full-service banking office at One Rockefeller Plaza in New
York City and will have a total of five full-service banking offices in Pinellas
County, Florida. The consummation of the merger, which is subject to receipt of
approvals from regulatory authorities, is expected to close in the third quarter
of 2001.
The Offering
Securities Offered..................... 2,455,218 shares of Class A Common
Stock issuable upon exercise of
Warrants and 195,000 shares of Class
B Common Stock issuable upon
exercise of Warrants, and 616,838
shares of Class A Common Stock
currently issuable upon conversion
of Debentures. See "Description of
Capital Stock" and "Description of
Debentures."
Shares of Class A Common
Stock currently outstanding......... 3,544,629(1)
Shares of Class A Common
Stock outstanding after
Exercise of Class A Warrants
and conversion of Debentures...... 6,616,685
Shares of Class B Common
Stock currently outstanding.......... 355,000
Shares of Class B Common
Stock outstanding after
Exercise of Class B Warrants....... 550,000
3
Class A Common Stock............... The Class A Common Stock is listed
on the Nasdaq Stock Market's
SmallCap Market under the symbol
"IBCA."
Use of Proceeds......................... We intend to apply the net proceeds
of this Offering to our capital for
general corporate purposes,
including the financing of the
expansion of our operations through
the infusion of capital to our
subsidiaries. See "Use of Proceeds."
Investment Considerations............. Investors should consider the
information discussed under the
heading "Risk Factors."
(1) Does not include: (i) 355,000 shares of Class A Common stock issuable upon
the conversion of issued and outstanding shares of Class B Common Stock;
(ii) 2,455,218 shares of Class A Common Stock issuable upon exercise of
Warrants for Class A Common Stock; (iii) 195,000 shares of Class A Common
Stock issuable upon conversion of Class B Common Stock issuable upon
exercise of Warrants for Class B Common Stock; and (iv) 616,838 shares of
Class A Common Stock issuable upon conversion of the Company's Convertible
Subordinated Debentures.
The Company and Its Subsidiaries
Intervest Bancshares Corporation
- --------------------------------
Intervest Bancshares Corporation (the "Holding Company"), is a Delaware
corporation organized in 1993 as a bank holding company registered under the
Bank Holding Company Act of 1956, as amended (the "BHCA"). The principal
executive offices of the Holding Company are located at 10 Rockefeller Plaza
(Suite 1015), New York, New York 10020, and its telephone number is (212)
218-2800. The Holding Company's primary business is the ownership and operation
of Intervest Bank, Intervest National Bank and Intervest Corporation of New
York. Intervest Bank and Intervest National Bank are collectively referred to in
this prospectus as the "Banks". Unless the context otherwise requires,
references in this prospectus to the Company include Intervest Bancshares
Corporation and its subsidiaries. The Holding Company, through its ownership of
the Banks, is engaged in the commercial banking business and its primary source
of earnings is derived from income generated by its ownership and operation of
the Banks. In March of 2000, the Holding Company completed the acquisition of
Intervest Corporation of New York. As of March 31, 2001, the Company, on a
consolidated basis, had total assets of $423.1 million, net portfolio loans of
$276.7 million, total deposits of $301.8 million, and stockholders' equity of
$37.1 million.
The Holding Company is a legal entity separate and distinct from the Banks
and Intervest Corporation of New York. There are 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
Federal Reserve Bank of Atlanta (the "Atlanta FRB"), as well as the Florida
Department of Banking and Finance, is required if the total amount of all
dividends declared by Intervest Bank in any calendar year exceeds that Bank's
net profits for that year, combined with its retained net profits for the
proceeding two years. The Atlanta FRB also has the authority to limit further
the payment of dividends by Intervest Bank under certain circumstances. In
addition, federal banking laws prohibit or restrict the Banks from extending
credit to the Holding Company under certain circumstances.
On March 5, 2001, the Banks agreed to merge into one nationally chartered
bank. The resulting institution, Intervest National Bank, will retain its
headquarters and full-service banking office at One Rockefeller Plaza in New
York City and will have a total of five full-service banking offices in Pinellas
County, Florida. The consummation of the merger, which is subject to receipt of
approvals from regulatory authorities, is expected to close in the third quarter
of 2001.
Intervest Bank
- --------------
Intervest Bank is a Florida chartered banking corporation, which was
organized in December, 1987. Intervest Bank engages in commercial banking from
five offices, four of which are located in Clearwater, Florida and one of which
is in South Pasadena, Florida. The principal executive offices of Intervest Bank
are located at 625 Court Street, Clearwater, Florida 33756, and its telephone
number is (727) 442-2551. In addition to its principal office, Intervest Bank
has three branch offices in Clearwater, Florida, located at: (i) 2575 Ulmerton
Road; (ii) 2175 Nursery Road; and (iii) 1875 Belcher Road North, and has a
fourth branch in South Pasadena, Florida at 6750 Gulfport Blvd.
4
Intervest National Bank
- -----------------------
Intervest National Bank is a national bank which received its charter from
the Office of the Comptroller of the Currency ("OCC") and opened for operations
on April 1, 1999. Intervest National Bank is a full-service commercial bank and
is subject to the supervision of and examination by the OCC. The principal
executive office of Intervest National Bank is located at One Rockefeller Plaza,
Suite 300, New York, New York 10020 and its telephone number is (212) 218-8383.
The Banks primarily focus on providing personalized banking services to
businesses and individuals within their market area. The Banks originate
commercial loans to businesses, collateralized and uncollateralized consumer
loans, and real estate loans (primarily commercial and multifamily real estate
loans). The Banks' income is derived principally from interest and fees earned
in connection with their lending activities, interest and dividends on
securities, short-term investments and other services. Provisions for loan loss
reserves also affect the Banks' income. Their principal expenses are interest
paid on deposits and operating expenses. The Banks' operations are also
significantly affected by local economic and competitive conditions in their
market areas. Changes in market interest rates, government legislation and
policies concerning monetary and fiscal affairs, and the attendant actions of
the regulatory authorities all have an impact on the Banks' operations.
The Banks are subject to examination and comprehensive regulation by the
Federal Reserve Board (the "FRB") and their deposits are insured by the Federal
Deposit Insurance Corporation (the "FDIC") to the extent permitted by law. The
Banks are members of the Federal Reserve Banking System. Intervest Bank is also
subject to the supervision of and examination by the Florida Department of
Banking and Finance, while Intervest National Bank is subject to the supervision
of and examination of the OCC.
Intervest Corporation of New York
- ---------------------------------
Intervest Corporation of New York is a New York corporation engaged in the
business of investing in commercial and multi-family mortgage loans on
income-producing property. The principal executive office of Intervest
Corporation of New York is located at 10 Rockefeller Plaza, Suite 1015, New
York, New York 10020, and its telephone number is (212) 218-2800.
RISK FACTORS
A prospective investor should review and consider carefully the following
risk factors, together with the other information contained in this prospectus
in evaluating an investment. The prospectus contains certain forward-looking
statements and actual results could differ materially from those projected in
the forward-looking statements as a result of numerous factors, including those
set forth below and elsewhere in the prospectus.
Management's Broad Discretion Over Proceeds
- -------------------------------------------
None of the proceeds of the Offering have yet been committed to specific
applications. All determinations concerning the use and investment of the
proceeds will be made by management of the Company. See "Use of Proceeds."
Dividends
- ---------
Since its inception, the Holding Company has not paid any dividends on its
common stock and there is no immediate prospect or contemplation of the payment
of such dividends.
Dividends paid by the Holding Company are subject to the financial
conditions of both the Holding Company and its subsidiaries as well as other
business considerations. In addition, banking regulations limit the amount of
dividends that may be paid by the Banks to the Holding Company without prior
regulatory approval. The amount of allowable dividends which could be payable by
the Holding Company are in substance limited to net profits earned by the
Holding Company, less any earnings retention consistent with the Holding
Company's capital needs, asset quality and overall financial condition.
Distributions paid by the Holding Company to shareholders will be taxable to the
shareholders as dividends, to the extent of the Holding Company's accumulated
current earnings and profits.
The payment of dividends by the Banks to the Holding Company is regulated
by various state and federal laws and by regulations promulgated by the FRB and
the OCC, which restrict the payment of dividends under certain circumstances. In
5
addition, such regulations also impose certain minimum capital requirements
which affect the amount of cash available for the payment of dividends by
regulated banking institutions such as the Banks. Even if the Banks are able to
generate sufficient earnings to pay dividends, there is no assurance that the
Board of Directors might not decide or be required to retain a greater portion
of the Banks' earnings in order to maintain or achieve the capital deemed
necessary or appropriate. The occurrence of any of these events would decrease
the amount of funds potentially available for the payment of dividends by the
Banks to the Holding Company. In addition, in some cases, the Banks' regulators
could take the position that it has the power to prevent one or both of the
Banks from paying dividends if, in its view, such payments would constitute
unsafe or unsound banking practices. Further, the determination of whether
dividends are paid and their frequency and amount will depend upon the financial
condition and performance of the Banks and the Company, and other factors deemed
appropriate by the Boards of Directors of the Banks and of the Holding Company.
Accordingly, there can be no assurance that any dividends will be paid in the
future by the Banks or the Holding Company.
Adequacy of Allowance For Loan Losses
- -------------------------------------
There is a risk that losses may be experienced in the Company's loan
portfolio. The risk of loss will vary with, among other things, general economic
conditions, the type of loan being made, the creditworthiness of the borrower
over the term of the loan and, in the case of a collateralized loan, the quality
of the collateral for the loan. Management maintains an allowance for loan
losses which is established through a provision for loan losses charged to
operations. Loans are charged against the allowance for loan losses when
management believes that the collectability of the principal is unlikely.
Subsequent recoveries are added to the allowance. The allowance is an amount
that management believes will be adequate to absorb possible losses inherent in
existing loans and loan commitments, based on evaluations of collectability and
prior loss experience. Management evaluates the adequacy of the allowance
monthly, or more frequently if considered necessary. The evaluation takes into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, loan concentrations, specific problem
loans and commitments and current and anticipated economic conditions that may
affect the borrower's ability to repay.
As of March 31, 2001, the Company had a net loan portfolio of $276.7
million and the allowance for loan losses was $2.8 million, which represented
1.00% of the total amount of loans. Intervest Corporation of New York does not
have an allowance for loan losses. At March 31, 2001, there were no
non-performing assets. The Banks actively manage their nonperforming loans in an
effort to minimize credit losses and monitor their asset quality to maintain an
adequate loan loss allowance. Although management believes that its allowance
for loan losses is adequate, there can be no assurance that the allowance will
prove sufficient to cover future loan losses. Further, although management uses
the best information available to make determinations with respect to the
allowance for loan losses, future adjustments may be necessary if economic
conditions differ substantially from the assumptions used or adverse
developments arise with respect to the Banks' nonperforming or performing loans.
Material additions to the Banks' allowances for loan losses would result in a
decrease of the Company's net income, and possibly its capital, and could result
in the inability to pay dividends, among other adverse consequences. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Asset Quality and Loan Impairment and Losses."
Supervision and Regulation
- --------------------------
Bank holding companies and banks operate in a highly regulated environment
and are subject to the supervision and examination by several federal and state
regulatory agencies. The Company is subject to the BHCA and to regulation and
supervision by the FRB. Intervest Bank is also subject to the regulation and
supervision of the FDIC and the Florida Department of Banking and Finance and
Intervest National Bank is subject to the regulation and supervision of the OCC.
Federal and state laws and regulations govern matters ranging from the
regulation of certain debt obligations, changes in control of bank holding
companies, and the maintenance of adequate capital for the general business
operations and financial condition of the Banks, including permissible types,
amounts and terms of loans and investments, the amount of reserves against
deposits, restrictions on dividends, establishment of branch offices, and the
maximum rate of interest that may be charged by law. The FRB also possesses
cease and desist powers over bank holding companies to prevent or remedy unsafe
or unsound practices or violations of law. These and other restrictions limit
the manner by which the Banks and the Company may conduct their business and
obtain financing. Furthermore, the commercial banking business is affected not
only by general economic conditions, but also by the monetary policies of the
FRB. These monetary policies have had and/or are expected to continue to have
significant effects on the operating results of commercial banks. Although the
Company believes that it is in compliance in all material respects with
applicable state and federal laws, rules and regulations, there can be no
assurance that more restrictive laws, rules and regulations will not be adopted
in the future which could make compliance more difficult or expensive, or
otherwise affect the ability of the Banks to attract deposits and make loans.
See "Supervision and Regulation."
6
Competition
- -----------
Competition in the banking and financial services industry is intense. In
their primary market areas, the Banks compete with other commercial banks,
savings and loan associations, credit unions, finance companies, mutual funds,
insurance companies, brokerage and investment banking firms, and other lenders
and investors operating locally and elsewhere. Most of these competitors have
substantially greater resources and lending limits than the Banks and may offer
certain services that the Banks do not provide at this time. In making its
investments, Intervest Corporation of New York also faces 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 with the same or similar
investment objectives. The profitability of the Company depends upon the ability
of the Banks and Intervest Corporation of New York to compete in their market
areas. See "Business - Competition."
Local Economic Conditions
- -------------------------
The success of the Company and its subsidiaries is dependent to a certain
extent upon the general economic conditions in geographic markets served by its
subsidiaries. Intervest Bank focuses on Pinellas County, Florida and the
immediate surrounding areas. Intervest Bank's primary market area is
particularly dependent on the economic conditions within Clearwater, Florida.
Although the Company expects economic conditions will continue to improve in
this market area, there is no assurance that favorable economic development will
occur or that Intervest Bank's expectation of corresponding growth will be
achieved. In the case of Intervest National Bank and Intervest Corporation of
New York, their primary market area is the New York City metropolitan region.
Adverse changes in their geographic markets would likely impair the Banks' and
Intervest Corporation of New York's ability to collect loans and could otherwise
have a negative effect on the financial condition of the Company. See "Business
- - Market Area."
Lack of Diversification
- -----------------------
The primary business activity of the Holding Company consists of its
ownership and control of the capital stock of the Banks and Intervest
Corporation of New York. As a result, the Company presently lacks
diversification as to business activities and market areas, and any event
affecting either Bank or Intervest Corporation of New York will have a direct
impact on the Company. See "Business."
Dependence on Key Personnel
- ---------------------------
The Company and its subsidiaries are dependent upon the services of their
principal officers. If the services of any of these persons were to become
unavailable for any reason, the operation of the Company and its subsidiaries
might be adversely affected in a material manner. Intervest Bank presently has a
written employment agreement with its President, and Intervest Corporation of
New York has an employment agreement with its Chairman. Neither the Company nor
any of its subsidiaries maintains key man life insurance policies on executives
and do not have any immediate plans to obtain such policies. The successful
development of the Company's business will depend, in part, on its and the
Banks' ability to attract or retain qualified officers and employees. See
"Management."
Voting Control
- --------------
As of the date of this Prospectus, the three original shareholders of the
Company and a related party own 2,221,000 shares of Class A Common Stock or
approximately 63% of the issued and outstanding shares of Class A Common Stock
of the Company. These same persons own all of the issued and outstanding shares
of Class B Common Stock. See "Management -- Security Ownership of Certain
Beneficial Owners and Management." The shares of Class B Common Stock, as a
separate class, are entitled to elect two-thirds of the directors of the
Company. As a result, voting control will continue to rest with the three
persons.
Interest Rates
- --------------
The principal source of income for the Company is its net interest income,
which is affected by movements in interest rates. Although the Banks monitor
their interest rate sensitivity and attempt to reduce the risk of the
significant decrease in net interest income caused by a change in interest
rates, rising interest rates could nevertheless adversely affect the Banks'
results of operations.
7
USE OF PROCEEDS
The net proceeds to the Company will depend upon the number of Warrants
actually exercised and cannot be determined at this time. However, assuming all
of the Warrants were to be exercised, the net proceeds to the Company would be
approximately $24.6 million.
The net proceeds of the Offering will become a part of the Company's
capital funds to be used for general corporate purposes, including, without
limitation, the financing of the expansion of the Company, the Banks' or
Intervest Corporation of New York's business through acquisitions, the
establishment of new branches or subsidiaries, and the infusion of capital to
the Banks and Intervest Corporation of New York and any future subsidiaries of
the Company. Neither the Company nor any of its subsidiaries currently has any
plans, understandings, arrangements or agreements, written or oral, with respect
to the establishment of any branches or subsidiaries, or with respect to any
specific acquisition prospect, and none of them is presently negotiating with
any party with respect thereto.
The actual application of the net proceeds will depend on the capital
needs of the Holding Company's subsidiaries, the Company's own financial
requirements and available business opportunities. None of the uses described
herein constitute a commitment by the Company to expend the proceeds in a
particular manner. The Company reserves the right to make shifts in the
allocation of the proceeds from this offering if future events, including
changes in the economic climate or the Company's planned operations, make such
shifts necessary or desirable. In such events, proceeds may be applied to the
working capital requirements of the Company, the Banks or Intervest Corporation
of New York. Pending their ultimate application, the net proceeds will be
invested in such relatively short-term investments or otherwise applied as
management may determine.
MARKET FOR SECURITIES
The Company's Class A common stock is traded over the counter and quoted on the
NASDAQ SmallCap Market under the symbol: IBCA. At March 31, 2001, there were
approximately 700 holders of record of the Company's Class A common stock, which
includes persons or entities who hold their stock in nominee form or in street
name through various brokerage firms. At March 31, 2001, 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 2001, 2000 and 1999 are as follows:
2001 2000 1999
---- ---- ----
High Low High Low High Low
---- ---- ---- --- ---- ---
First quarter $6.50 $3.75 $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
The closing price for the Company's Class A common stock on June 19, 2001 was
$6.84.
DIVIDENDS
Holders of the Holding Company's Class A and Class B common stock are
entitled to receive dividends when and if declared by the Board of Directors out
of funds legally available therefor. 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
8
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 proceeding 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.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 2001, and as adjusted at that date after giving effect to the receipt
of the estimated net proceeds from the exercise of all of the Warrants and
conversion of Debentures.
Actual As Adjusted(1)
(Dollars in thousands)
Stockholders' Equity:
Class A Common Stock, $1.00 par value, 9,500,000
shares authorized, 3,544,629 shares issued
and outstanding(2) ...................................... $ 3,545 $ 6,617
Class B Common Stock, $1.00 par value, 700,000
shares authorized, 355,000 shares issued and outstanding 355 550
Additional Paid-in Capital ................................. 18,981 48,942
Retained Earnings .......................................... 14,186 14,186
Accumulated Other Comprehensive Income:
Net Unrealized Gain on Securities
Available For Sale, net of tax .......................... 59 59
Total Stockholders' Equity ................................. $37,126 $70,354
- -------------------------
<FN>
(1) Reflects the 2,455,218 shares of Class A Common Stock and 195,000
shares of Class B Common Stock issuable upon exercise of the Warrants,
and the 616,938 shares of Class A Common Stock currently issuable upon
conversion of debentures.
(2) Does not include shares of Class A Common Stock issuable upon
conversion of Class B Common Stock.
</FN>
9
Selected Financial Data
The table below presents selected consolidated financial data. This data should
be read in conjunction with, and are qualified in their entirety by, the
Consolidated Financial Statements and the Notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this prospectus.
- ------------------------------------------------------------------------------------------------------------------------------------
At or For The Three
Months Ended March
31, (unaudited) At or For The Year Ended December 31,
-------------------------------------------------------------------------------
($ in thousands, except per share amounts) 2001 2000 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Condition Data:
Total assets ...................................... $ 423,081 $ 367,119 $ 416,927 $ 340,481
Cash and cash equivalents ......................... 79,801 29,664 42,938 32,095
Securities available for sale ..................... 38,094 - 74,789 -
Securities held to maturity, net .................. 16,926 83,183 20,970 83,132
Loans receivable, net ............................. 276,701 241,687 266,326 212,937
Deposits .......................................... 301,824 239,370 300,241 201,080
Federal funds purchased ........................... - - - 6,955
Debentures and related accrued interest payable.... 75,466 84,756 72,813 92,422
Stockholders' equity .............................. 37,126 34,185 36,228 33,604
Nonaccrual loans .................................. - - - -
Allowance for loan loss reserves .................. 2,768 2,648 2,768 2,493
Loan chargeoffs ................................... - - - -
Loan recoveries ................................... - - - 1
- ------------------------------------------------------------------------------------------------------------------------------------
Operations Data:
Interest and dividend income ...................... $ 8,684 $ 7,256 $ 31,908 $ 25,501
Interest expense .................................. 6,621 5,412 23,325 18,419
------------------------------------------------------------------------------
Net interest and dividend income .................. 2,063 1,844 8,583 7,082
Provision for loan loss reserves .................. - 155 275 830
------------------------------------------------------------------------------
Net interest and dividend income after
provision for loan loss reserves ............. 2,063 1,689 8,308 6,252
Noninterest income ................................ 224 162 983 900
Noninterest expenses .............................. 1,324 1,251 4,568 4,059
------------------------------------------------------------------------------
Earnings before income taxes, extraordinary item
and change in accounting principle ........... 963 600 4,723 3,093
Provision for income taxes ........................ 382 210 1,909 1,198
------------------------------------------------------------------------------
Earnings before extraordinary item and
change in accounting principle ............... 581 390 2,814 1,895
Extraordinary item, net of tax (1) ................ - (206) - -
Cumulative effect of accounting change,
net of tax (2) .................................... - - - (128)
------------------------------------------------------------------------------
Net earnings ...................................... $ 581 $ 390 $ 2,608 $ 1,767
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Data:
Basic earnings per share .......................... $ 0.15 $ 0.10 $ 0.67 $ 0.47
Diluted earnings per share ........................ 0.15 0.10 0.67 0.44
Common book value per share ....................... 9.52 8.79 9.29 8.76
Dividends per share ............................... - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Other Data and Ratios:
Common shares outstanding ......................... 3,899,629 3,890,629 3,899,629 3,836,879
Average common shares used to calculate:
Basic earnings per share ..................... 3,884,560 3,851,384 3,884,560 3,760,293
Diluted earnings per share ................... 3,884,560 3,851,384 3,884,560 4,020,118
Adjusted net earnings for diluted earnings per
share.............................................. $ 581 $ 390 $ 2,608 $ 1,767
Full-service banking offices ...................... 6 6 6 6
Return on average assets .......................... 0.54% 0.57% 0.69% 0.57%
Return on average equity .......................... 6.31% 5.48% 7.48% 5.48%
Loans, net of unearned income to deposits ......... 91.68% 100.01% 88.70% 105.90%
Allowance for loan losses to total net loans....... 1.00% 1.10% 1.04% 1.17%
Average stockholders' equity to average total
assets............................................. 8.60% 9.51% 9.18% 10.37%
Stockholders' equity to total assets .............. 8.78% 9.31% 8.69% 9.87%
- ------------------------------------------------------------------------------------------------------------------------------------
At or For The Three
Months Ended March
31, (unaudited) At or For The Year Ended December 31,
-------------------------------------------------------------------------------
($ in thousands, except per share amounts) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets ...................................... $ 300,080 $ 245,262 $ 196,867
Cash and cash equivalents ......................... 40,977 24,043 23,038
Securities available for sale ..................... - - -
Securities held to maturity, net .................. 82,338 58,821 34,507
Loans receivable, net ............................. 164,986 150,832 129,676
Deposits .......................................... 170,420 130,412 93,228
Federal funds purchased ........................... - - -
Debentures and related accrued interest payable.... 93,090 82,966 79,006
Stockholders' equity .............................. 31,112 28,142 19,822
Nonaccrual loans .................................. - - -
Allowance for loan loss reserves .................. 1,662 1,173 811
Loan chargeoffs ................................... - - 65
Loan recoveries ................................... 10 10 33
- ------------------------------------------------------------------------------------------------------------------------------------
Operations Data:
Interest and dividend income ...................... $ 24,647 $ 19,807 $ 16,206
Interest expense .................................. 17,669 15,008 11,649
-------------------------------------------------------------------------------
Net interest and dividend income .................. 6,978 4,799 4,557
Provision for loan loss reserves .................. 479 352 250
-------------------------------------------------------------------------------
Net interest and dividend income after
provision for loan loss reserves ............. 6,499 4,447 4,307
Noninterest income ................................ 700 382 414
Noninterest expenses .............................. 3,077 2,679 2,499
-------------------------------------------------------------------------------
Earnings before income taxes, extraordinary item
and change in accounting principle ........... 4,122 2,150 2,222
Provision for income taxes ........................ 1,740 860 967
-------------------------------------------------------------------------------
Earnings before extraordinary item and
change in accounting principle ............... 2,382 1,290 1,255
Extraordinary item, net of tax (1) ................ - - -
Cumulative effect of accounting change,
net of tax (2) - - -
-------------------------------------------------------------------------------
Net earnings ...................................... $ 2,382 $ 1,290 $ 1,255
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Data:
Basic earnings per share .......................... $ 0.64 $ 0.44 $ 0.43
Diluted earnings per share ........................ 0.54 0.39 0.43
Common book value per share ....................... 8.33 7.66 6.84
Dividends per share ............................... -- ---
- ------------------------------------------------------------------------------------------------------------------------------------
Other Data and Ratios:
Common shares outstanding ......................... 3,734,515 3,674,415 2,900,000
Average common shares used to calculate:
Basic earnings per share ..................... 3,707,113 2,962,292 2,900,000
Diluted earnings per share ................... 4,723,516 3,322,459 2,900,000
Adjusted net earnings for diluted earnings per $ 2,554 $ 1,290 $ 1,255
share
Full-service banking offices ...................... 5 4 4
Return on average assets .......................... 0.87% 0.59% 0.75%
Return on average equity .......................... 8.05% 6.00% 6.54%
Loans, net of unearned income to deposits ......... 96.81% 115.66% 139.10%
Allowance for loan losses to total net loans....... 1.01% 0.78% 0.63%
Average stockholders' equity to average total
assets............................................. 10.82% 9.86% 11.41%
Stockholders' equity to total assets .............. 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>
10
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 prospectus.
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. On March 5, 2001, the Banks agreed to merge
into one nationally chartered bank. The resulting institution, Intervest
National Bank, will retain its headquarters and full-service banking office at
One Rockefeller Plaza in New York City and will have a total of five
full-service banking offices in Pinellas County, Florida. The consummation of
the merger, which is subject to receipt of approvals from regulatory
authorities, is expected to close in the third quarter of 2001.
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 prospectus
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.
11
Comparison of Results of Operations for the Quarters Ended March 31, 2001 and
- --------------------------------------------------------------------------------
2000
- ----
Overview
- --------
Consolidated net earnings for the first quarter of 2001 increased to $581,000,
or $0.15 per fully diluted share, from $390,000, or $0.10 per fully diluted
share, in the first quarter of 2000, or a 49% year-to-year increase. The
increase in net earnings was primarily due to a $219,000 increase in net
interest and dividend income and a $155,000 decrease in the provision for loan
losses. These items were partially offset by a $172,000 increase in the
provision for income taxes.
Net Interest and Dividend Income
- --------------------------------
Net interest and dividend income is the Company's primary source of earnings and
is influenced primarily by the amount, distribution and repricing
characteristics of its interest-earning assets and interest-bearing liabilities
as well as by the relative levels and movements of interest rates.
The following table provides information on average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for the periods indicated. The yields and rates
shown are based on a computation of income/expense (including any related fee
income or expense) for each period divided by average interest-earning
assets/interest-bearing liabilities during each period. Average balances are
derived mainly from daily balances. Net interest margin is computed by dividing
net interest and dividend income by the average of total interest-earning assets
during each period.
Quarter Ended
-----------------------------------------------------------------------------
March 31, 2001 March 31, 2000
-----------------------------------------------------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- -------------------------------------------------------------------------------------------------------------------------------
Assets
Interest-earning assets:
Loans $270,307 $ 6,603 9.91% $230,710 $ 5,646 9.84%
Securities 102,832 1,496 5.90 104,361 1,520 5.86
Other interest-earning assets 42,920 585 5.53 6,426 90 5.63
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 416,059 $ 8,684 8.46% 341,497 $ 7,256 8.55%
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 12,312 14,429
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $428,371 $355,926
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest checking deposits $ 6,960 $ 53 3.09% $ 7,288 $ 55 3.04%
Savings deposits 16,308 208 5.17 17,357 215 4.98
Money market deposits 57,595 755 5.32 51,839 662 5.14
Certificates of deposit 224,633 3,590 6.48 130,444 1,912 5.90
Total deposit accounts 305,496 4,606 6.11 206,928 2,844 5.53
Federal funds purchased 10,101 146 5.81
Debentures and accrued interest payable 73,542 2,015 11.11 91,033 2,422 10.70
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 379,038 $ 6,621 7.08% 308,062 $ 5,412 7.07%
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 5,513 7,467
Noninterest-bearing liabilities 6,994 6,531
Stockholders' equity 36,826 33,866
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $428,371 $355,926
- -------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $ 2,063 1.38% $ 1,844 1.48%
- -------------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 37,021 2.01% $ 33,435 2.17%
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.10x 1.11x
- -------------------------------------------------------------------------------------------------------------------------------
Other Ratios:
Return on average assets (1) 0.54% 0.44%
Return on average equity (1) 6.31% 4.61%
Noninterest expense to average assets (1) 1.24% 1.41%
Average stockholders' equity to average assets 8.60% 9.51%
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Annualized
</FN>
12
Net interest and dividend income increased to $2,063,000 in the first quarter of
2001, from $1,844,000 in the first quarter of 2000. The increase was
attributable to growth in the Company's balance sheet, partially offset by a
decrease in the net interest margin from 2.17% in the first quarter of 2000, to
2.01% in the first quarter of 2001. The decrease in the margin was due to a
lower yield earned on interest-earning assets.
The Company's yield on interest-earning assets decreased 9 basis points to 8.46%
in the first quarter of 2001, primarily due an increase in the average balance
of short-term investments, as well as a decrease in the yield earned on such
investments. The Company's short-term investments have a lower yield than its
loan portfolio. The Company's cost of funds remained relatively unchanged at
7.08% in the first quarter of 2001, compared to 7.07% in the same period of
2000.
Provision for Loan Loss Reserves
- --------------------------------
In the first quarter of 2001, the Company did not have a provision for loan
losses, compared to a provision of $155,000 in the first quarter of 2000. 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 as discussed on page 13 of this report.
Noninterest Income
- ------------------
Noninterest income increased to $224,000 in the first quarter of 2001, from
$162,000 in the first quarter of 2000, primarily due to higher fee income from
the prepayment and servicing of loans. Noninterest income includes fees from
customer service charges and income from mortgage lending activities, which is
comprised of loan prepayment fees, fees earned on expired loan commitments, and
loan service, inspection and maintenance charges.
Noninterest Expenses
- --------------------
Noninterest expenses increased to $1,324,000 in the first quarter of 2001, from
$1,251,000 in the comparable quarter of 2000. Expenses for the 2001 period
include $65,000 of merger expenses associated with the proposed merger of
Intervest National Bank and Intervest Bank. Expenses for the 2000 period include
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. Absent the aforementioned
expenses, noninterest expenses totaled $1,259,000 in the first quarter of 2001,
compared to $1,041,000 in the first quarter of 2000. The increase was due to
higher compensation, occupancy and equipment expenses.
Provision for Income Taxes
- --------------------------
The provision for income taxes amounted to $382,000 in the first quarter of
2001, compared to $210,000 in the first quarter of 2000. The increase was
primarily due to higher pre-tax earnings. The Company's effective tax rate
(inclusive of state and local taxes) amounted to 39.7% in the 2001 period,
compared to 35.0% in the 2000 period.
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 $210,000 of nonrecurring expenses associated with the acquisition
of Intervest Corporation of New York in March of 2000.
13
Selected information regarding results of operations for the Holding Company and
its subsidiaries for 2000 follows:
Intervest Intervest Inter-
Holding Intervest National Corporation company
($ 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
---------------------------------------------------------------------------
(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
$78,008,000 increase in average deposits.
The Company's cost of funds in 2000 increased 16 basis points to 7.04% due to
the rising interest rate environment, as evidenced by the Federal Reserve Board
increasing the federal funds target rate on six occasions between June 1999 and
June 2000, for a total of 175 basis points. This resulted in higher rates paid
for deposit accounts and floating-rate debentures, as well as an increase in
depositors' preference for certificates of deposit accounts, which normally have
higher rates than savings and money market accounts.
The Company's yield on earning assets in 2000 increased 11 basis point to 8.68%
due to higher yields earned on investment securities and other short-term
investments, partially offset by a decline in the yield on the loan portfolio.
Despite the higher rate environment, the average yield on the loan portfolio
declined to 9.93% from 10.68%, due to competitive lending conditions (which
resulted in originations of new loans with lower rates than the average yield of
the portfolio in 1999, as well as prepayments of higher-yielding loans). The
effect of the preceding was partially offset by rate increases on floating-rate
loans.
14
The following table provides information on average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for 2000 and 1999. The yields and rates shown
are based on a computation of income/expense (including any related fee income
or expense) for each year divided by average interest-earning
assets/interest-bearing liabilities during each year. Average balances are
derived mainly from daily balances. Net interest margin is computed by dividing
net interest and dividend income by the average of total interest-earning assets
during each year.
For the Year Ended December 31,
2000 1999
----------------------------------- ------------------------------------
Average Interest Yield/ Average Interest Yield/
($ 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
- -------------------------------------------------------------------------------------------------------------------
15
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.
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 $128,000
in connection with the required adoption of a new accounting standard related to
the costs of start-up activities. Intervest National Bank opened for business on
April 1, 1999.
16
Selected information regarding results of operations of the Holding Company and
its subsidiaries for 1999 follows:
Intervest Intervest Inter-
Holding Intervest National Corporation company
($ 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 $37,944,000 increase in
interest-earning assets, partially offset by a decline in the net interest
margin from 2.69% in 1998, to 2.38% in 1999.
The decline in the margin was a function of a lower interest rate spread caused
by the yield on the Company's earning assets declining at faster pace than its
cost of funds. The yield on earning assets declined by 93 basis points to 8.57%
in 1999, largely due to a lower yield on the loan portfolio, as well as an
increase in securities and short-term investments as a percentage of total
interest-earning assets. Securities and short-term investments have a lower
yield than the Company's loan portfolio. The Company's cost of funds declined by
65 basis points in 1999 to 6.88%, due to a decline in the average cost of
deposits and debentures payable.
17
The following table provides information on average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for 1999 and 1998. The yields and rates shown
are based on a computation of income/expense (including any related fee income
or expense) for each year divided by average interest-earning
assets/interest-bearing liabilities during each year. Average balances are
derived mainly from daily balances. Net interest margin is computed by dividing
net interest and dividend income by the average of total interest-earning assets
during each year.
For the Year Ended December 31,
1999 1998
---------------------------------- ----------------------------------
Average Interest Yield/ Average Interest Yield/
($ 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 4.84
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 297,405 $ 25,501 8.57% 2 59,461 $ 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).
18
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
- ----------------------------------------------------------------------------------------------------------------------------
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 New York 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.
19
Comparison of Financial Condition at March 31, 2001 and December 31, 2000
- -------------------------------------------------------------------------
Overview
- --------
Total assets at March 31, 2001 increased to $423,081,000, from $416,927,000 at
December 31, 2000. The growth primarily reflected an increase in commercial real
estate and multifamily mortgage loans. Total liabilities at March 31, 2001
increased to $385,955,000, from $380,699,000 at December 31, 2000, primarily due
to the sale of new debentures and an increase in deposits. Stockholders' equity
increased to $37,126,000 at March 31, 2001, from $36,228,000 at year-end 2000.
The increase reflected earnings of $581,000 for the first quarter of 2001 and an
increase in unrealized gains, net of tax, of $311,000 from securities available
for sale. Book value per common share increased to $9.52 per share at March 31,
2001, from $9.29 at December 31, 2000.
Selected balance sheet information for the Holding Company and its subsidiaries
as of March 31, 2001 follows:
Intervest Intervest Inter-
Holding Intervest National Corporation Company
($ in thousands) Company Bank Bank of New York Balances Consolidated
- ------------------------------------------------------------------------------------------------------------------------------
Assets $ 49,464 $216,971 $122,597 $ 74,106 $(40,057) $423,081
Cash and cash equivalents 3,149 41,624 20,110 16,074 (1,156) 79,801
Securities available for sale - 38,094 - - - 38,094
Securities held to maturity, net - - 16,926 - - 16,926
Loans receivable, net of deferred fees 6,659 131,373 83,894 54,775 - 276,701
Allowance for loan loss reserves 35 1,913 820 - - 2,768
Deposits - 198,347 104,758 - (1,281) 301,824
Debentures and accrued interest payable 12,136 - - 63,330 - 75,466
Stockholders' equity 37,126 15,271 14,310 9,215 (38,796) 37,126
- ------------------------------------------------------------------------------------------------------------------------------
A comparison of the Company's consolidated balance sheet as of March 31, 2001
and December 31, 2000 follows:
At March 31, 2001 At December 31, 2000
Carrying % of Carrying % of
($ in thousands) Value Total Assets Value Total Assets
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 79,801 18.9% $ 42,938 10.3%
Securities available for sale 38,094 9.0 74,789 17.9
Securities held to maturity, net 16,926 4.0 20,970 5.0
Federal Reserve Bank stock 639 0.2 605 0.2
Loans receivable, net of deferred fees and loan loss reserves 273,933 64.7 263,558 63.2
All other assets 13,688 3.2 14,067 3.4
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $423,081 100.0% $416,927 100.0%
- -------------------------------------------------------------------------------------------------------------------------------
Deposits $301,824 71.3% $300,241 72.0%
Debentures payable 66,180 15.6 64,080 15.4
Accrued interest payable on debentures 9,286 2.2 8,733 2.1
All other liabilities 8,665 2.1 7,645 1.8
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 385,955 91.2 380,699 91.3
- -------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 37,126 8.8 36,228 8.7
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $423,081 100.0% $416,927 100.0%
- -------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents increased to $79,801,000 at March 31, 2001, from
$42,938,000 at December 31, 2000. The increase was due to early redemptions by
various agencies of Intervest Bank's holdings of U.S Government agencies
securities. The redemptions were brought about by a decrease in market interest
rates during the quarter. The resulting proceeds from the redemptions were
temporarily invested in the overnight Federal funds market pending investment in
mortgages as opportunities arise.
In addition to Federal funds investments, cash and cash equivalents include
interest-bearing and noninterest-bearing cash balances with banks, and other
short-term investments that have original maturities of three months or less.
These short-term investments are normally comprised of commercial paper issued
by large commercial banks, certificates of deposit and U.S. government
securities. The level of cash and cash equivalents fluctuates based on various
factors, including liquidity needs, loan demand, deposit flows, calls of
securities, repayments of borrowed funds and alternative investment
opportunities.
20
Securities Available for Sale
- -----------------------------
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 estimated fair value. Securities available
for sale amounted to $38,094,000 at March 31, 2001, compared to $74,789,000 at
December 31, 2000. The decrease was due to the early redemptions discussed
above.
At March 31, 2001, the portfolio consisted of Intervest Bank's remaining
holdings of U.S. government agency securities. Most of the securities have terms
that allow the issuer the right to call or prepay its obligation without
prepayment penalty. In April 2001, approximately $10,000,000 of additional
securities were redeemed early by the issuers.
At March 31, 2001, the portfolio had a unrealized gain, net of tax, of $59,000,
compared to an unrealized loss, net of tax, of $252,000 at December 31, 2000.
Unrealized gains and losses on securities available for sale, net of related
income taxes, are reported as a separate component of comprehensive income and
included in stockholders' equity.
Securities Held to Maturity
- ---------------------------
Securities for which the Company has the intent and ability to hold to maturity
are classified as held to maturity and carried at amortized cost. Securities
held to maturity totaled $16,926,000 at March 31, 2001, compared to $20,970,000
at December 31, 2000. The decrease was due to maturities exceeding new purchases
during the quarter. The portfolio consists of Intervest National Bank's holdings
of short-term U.S. government agency securities.
Federal Reserve Bank Stock
- --------------------------
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 investment, which amounted to
$639,000 at March 31, 2001 and $605,000 at December 31, 2000, fluctuates based
on each Bank's capital level.
Loans Receivable, Net of Deferred Fees and Loan Loss Reserves
- -------------------------------------------------------------
Loans receivable, net of deferred fees and the allowance for loan loss reserves,
increased to $273,933,000 at March 31, 2001, from $263,558,000 at December 31,
2000. The growth primarily reflected new originations of commercial real estate
and multifamily mortgage loans, partially offset by principal repayments.
Commercial real estate and multifamily real estate properties collateralized
almost all of the loans in the Company's loan portfolio.
At March 31, 2001 and December 31, 2000, the allowance for loan loss reserves
amounted to $2,768,000. The allowance represented 1.00% of total loans
outstanding at March 31, 2001, compared to 1.04% at December 31, 2000. At March
31, 2001 and December 31, 2000, the Company did not have any loans on a
nonaccrual status or classified as impaired. The Company monitors its loan
portfolio to determine the appropriate level of the allowance for loan loss
reserves based on various factors. These factors include: the type and level of
loans outstanding; volume of loan originations; overall portfolio quality; loan
concentrations; specific problem loans, historical chargeoffs and recoveries;
adverse situations which may affect the borrowers' ability to repay; and
management's assessment of the current and anticipated economic conditions in
the Company's lending regions.
All Other Assets
- ----------------
The following table sets forth the composition of all other assets in the table
on page 12:
At At
March 31, December 31,
($ in thousands) 2001 2000
- ------------------------------------------------------------------------
Accrued interest receivable $ 2,480 $ 2,961
Loans fee receivable 1,354 1,276
Premises and equipment, net 5,691 5,731
Deferred income tax asset 913 1,105
Deferred debenture offering costs 2,915 2,835
All other 335 159
- ------------------------------------------------------------------------
$13,688 $14,067
- ------------------------------------------------------------------------
21
Accrued interest receivable fluctuates based on the amount of loans, investments
and other interest-earning assets outstanding and the timing of interest
payments received.
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.
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 is not
maintained.
Deferred debenture offering costs consist primarily of underwriters' commissions
and are amortized over the terms of the debentures. The increase was due to
additional costs incurred with the sale of new debentures in the first quarter
of 2001, partially offset by normal amortization.
Deposit Liabilities
- -------------------
Deposit liabilities increased to $301,824,000 at March 31, 2001, from
$300,241,000 at December 31, 2000, due to growth in deposit accounts. At March
31, 2001, certificate of deposit accounts totaled $213,981,000 and demand
deposit, savings, NOW and money market accounts aggregated $87,843,000. The same
categories of deposit accounts totaled $217,656,000 and $82,585,000,
respectively, at December 31, 2000. Certificate of deposit accounts represented
71% of total deposits at March 31, 2001, compared to 72% at year-end 2000.
Debentures Payable and Related Accrued Interest Payable
- -------------------------------------------------------
At March 31, 2001, debentures payable amounted to $66,180,000, compared to
$64,080,000 at December 31, 2000. The increase was due to the sale of debentures
in the aggregate principal amount of $3,500,000 by the Holding Company. The sale
resulted in net proceeds of $3,260,000 after underwriter's commissions and other
issuance costs. From time to time, the Holding Company sells debentures and the
proceeds are used for working capital purposes. The sale of the aforementioned
debentures was partially offset by the maturity on January 1, 2001, of
$1,400,000 of Intervest Corporation of New York's debentures.
At March 31, 2001, Intervest Corporation of New York had $55,750,000 of
debentures payable outstanding and the Holding Company had $10,430,000 of
debentures payable outstanding, of which $6,930,000 were convertible into the
Holding Company's Class A common stock.
At March 31, 2001, accrued interest payable on debentures amounted to
$9,286,000, compared to $8,733,000 at year-end 2000. Nearly all of the accrued
interest payable at March 31, 2001 is due and payable at the maturity of various
debentures. For a further discussion of the debentures, including conversion
prices and redemption premiums, see note 8 to the consolidated financial
statements included in the Company's Annual Report to Stockholders on Form 10-K
for the year ended December 31, 2000.
All Other Liabilities
- ---------------------
The following table shows the composition of all other liabilities in the table
on page 12:
At At
March 31, December 31,
($ in thousands) 2001 2000
- --------------------------------------------------------------------------------
Mortgage escrow funds payable $4,841 $3,397
Accrued interest payable on deposits 861 856
Official checks outstanding 1,776 2,281
All other 1,187 1,111
- --------------------------------------------------------------------------------
$8,665 $7,645
- --------------------------------------------------------------------------------
22
Mortgage escrow funds payable represent advance payments made by borrowers for
taxes and insurance that are remitted by the Company to third parties. The
increase reflects the timing of payments to taxing authorities as well as the
growth in the loan portfolio. The level of official checks outstanding varies
and fluctuates based on banking activity.
Stockholders' Equity and Regulatory Capital
- -------------------------------------------
Stockholders equity increased to $37,126,000 at March 31, 2001, from $36,228,000
at December 31, 2000. The increase was due to net earnings of $581,000 and a
$311,000 increase in unrealized gains, net of tax, on securities available for
sale.
Intervest Bank and Intervest National Bank are both well-capitalized
institutions as defined by FDIC regulations. See note 4 to the condensed
consolidated financial statements in this report for their respective capital
ratios.
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%
- ------------------------------------------------------------------------------------------------------------------------------
23
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.
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
$208,718,000 of adjustable-rate loans.
At December 31, 2000 and 1999, the loan portfolio was concentrated in commercial
real estate and multifamily mortgage loans. Such loans represented 98% and 97%
of the total loan portfolio in 2000 and 1999, respectively. Loan concentrations
are defined as amounts loaned to a number of borrowers engaged in similar
activities, which would cause the loans to be similarly impacted by economic or
other conditions. Credit risk, which represents the possibility of the Company
not recovering amounts due from its borrowers, is significantly related to local
economic conditions in the areas the properties are located, as well as the
Company's underwriting standards. Economic conditions affect the market value of
the underlying collateral as well as the levels of occupancy of income-producing
properties (such as office buildings, shopping centers and rental and
cooperative apartment buildings).
24
The following table sets forth information concerning the loan portfolio:
At December 31, 2000 At December 31, 1999
# of % of # of % of
($ 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;
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.
25
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 $175,980
- --------------------------------------------------------------------------------
Foreclosed Real Estate
- ----------------------
During 2000 and 1999, the Company did not have any foreclosed real estate.
26
All Other Assets
- ----------------
The following table sets forth the composition of all other assets:
At December 31,
($ 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 $78,286,000, respectively, at December 31, 1999. Certificates
of deposit accounts represented 73% of total deposits at December 31, 2000,
compared to 61% at year-end 1999.
Management believes the Banks do not have a concentration of deposits from any
one source. Management believes that a large portion of the Banks' depositors
are residents in their primary market areas, although there has been growth in
deposits from outside the primary areas resulting from Intervest National Bank's
deposit-gathering activities through its Web Site on the Internet:
www.intervestnatbank.com. The Banks do not accept brokered deposits.
The following table sets forth the distribution of deposit accounts by type:
At December 31, 2000 At December 31, 1999
-------------------- --------------------
($ 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%
- --------------------------------------------------------------------------------
(1) Includes individual retirement accounts totaling $22,307,000 and $11,483,000
at December 31, 2000 and 1999, respectively, nearly all of which are
certificates of deposit.
27
The following table sets forth certificates of deposits by maturity for the
periods indicated:
At December 31, 2000 At December 31, 1999
Wtd-Avg Wtd-Avg
($ 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
- -----------------------
Fromtime 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
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 $8,092,000 at year-end 1999, as the
payment of interest in connection with the early retirement of the debentures
discussed above was partially offset by additional accruals in 2000. The accrued
interest at December 31, 2000 is due and payable at the maturity of various
debentures. For a further discussion of the debentures, including conversion
prices and redemption premiums, see note 8 to the consolidated financial
statements.
28
All Other Liabilities
- ---------------------
The following table shows the composition of all other liabilities:
At December 31,
($ 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
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
29
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 ____% at March
31, 2001, 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.
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.
Over 1-4 Over 4
($ in thousands) 0-3 4-12 Years Years Total
Months Months
- -------------------------------------------------------------------------------------------------------------
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 92,875 65,511 18,712 217,656 40,558
-----------------------------------------------------------------
Total deposits 118,108 92,875 65,511 18,712 295,206
Debentures payable 14,030 64,080 42,900 - 7,150
Accrued interest on debentures 827 8,733 5,541 - 2,365
- -------------------------------------------------------------------------------------------------------------
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%
- -------------------------------------------------------------------------------------------------------------
Significant assumptions used in preparing the table above:
<FN>
(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>
30
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 prospectus.
At March 31, 2001, the Company's total commitment to lend aggregated
approximately $41.5 million. 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 March 31, 2001, 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
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.
31
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.
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."
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 prospectus 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
Bank, Intervest National Bank and Intervest Corporation of New York.
Hereinafter, the Holding Company, Intervest Bank, Intervest National Bank and
Intervest Corporation of New York are 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 March 31, 2001, the Company had total assets of $423,081,000, net loans of
$273,933,000, deposits of $301,824,000, debentures and related interest payable
of $75,466,000 and stockholder's equity of $37,126,000. 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
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$72,813,000, and stockholders' equity of $36,228,000. At December 31, 1999, the
Company had 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, and at December 31, 1998, the Company had
total assets of $300,080,000, net loans of $164,986,000, deposits of
$170,420,000, debentures and related interest payable of $93,090,000 and
stockholders' equity of $31,112,000.
The Holding Company's primary business is the operation of the Banks and
Intervest Corporation. It does not engage in any other substantial business
activities other than a limited amount of mortgage lending. In 1998 and February
2001, the Holding Company also sold convertible subordinated debentures in the
aggregate principal amounts of $7,000,000 and $3,500,000, respectively, for
working capital purposes.
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 March 31, 2001, Intervest Bank had total assets of $216,971,000, net loans of
$131,373,000, deposits of $198,347,000, and stockholder's equity of $15,271,000.
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 March 31, 2001, Intervest National Bank had total assets of $122,597,000, net
loans of $83,894,000, deposits of $104,758,000 and stockholders' equity of
$14,310,000.
The Holding Company and Intervest Bank are subject to examination and regulation
by the Federal Reserve Board (the "FRB") and the Banks' deposits are insured by
the Federal Deposit Insurance Corporation (the "FDIC") to the extent permitted
by law. Intervest Bank is also subject to the supervision of and examination by
the Florida Department of Banking and Finance, while Intervest National Bank is
subject to the supervision and regulation of the Office of the Comptroller of
the Currency (the "OCC").
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.
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, FDIC, OCC
and Florida Department of Banking and Finance. Deposit flows and the rates paid
thereon are influenced by interest rates on competing investments and general
market rates of interest. Lending activities are affected by the demand for
financing of real estate and other types of loans, which in turn is affected by
the interest rates at which such financing may be offered and other factors
affecting local demand and availability of funds. The Banks face strong
competition in the attraction of deposits and in the origination of loans.
The revenues of the Banks are primarily derived from interest on and fees
received in connection with loans, and from interest and dividends from
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.
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 action
towards bringing Intervest National Bank into full compliance with the
memorandum.
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On March 5, 2001, the Banks agreed to merge into one nationally
chartered bank. The resulting institution, Intervest National Bank, will retain
its headquarters and full-service banking office at One Rockefeller Plaza in New
York City and will have a total of five full-service banking offices in Pinellas
County, Florida. The consummation of the merger, which is subject to receipt of
approvals from regulatory authorities, is expected to close in the third quarter
of 2001.
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 or 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 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 financial information in this prospectus 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 March 31, 2001, Intervest Corporation of New York had total assets of
$74,106,000 net loans of $54,775,000, debentures and related interest payable of
$63,330,000, and stockholders' equity of $9,125,000. In 2000, Intervest
Corporation of New York paid a $3,000,000 dividend to the Holding Company.
Intervest Corporation has filed a registration statement related to the issuance
of up to $7,250,000 principal amount of its subordinated debentures. It is
anticipated that the debentures will be issued later this year.
Intervest Corporation of New York's operations are significantly influenced by
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 its primary
market area and is 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 deposit gathering and lending 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 area. 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
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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, other credit terms (including origination fees and restrictive
covenants) 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
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 in 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's current investment policy related to
mortgages emphasizes investments in short-term real estate mortgages secured by
income producing real property. The properties to be mortgaged are personally
inspected by management, and mortgage loans are made only on those properties
where management is knowledgeable as to operating income and expense. Intervest
Corporation of New York generally relies upon its management in connection with
the valuation of properties. From time to time, however, it may engage
independent appraisers and other agents to assist in determining the value of
income producing properties underlying mortgages, in which case the costs
associated with such services are generally paid by the mortgagor.
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,
or 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 March 31, 2001 and December 31, 2000, 1999 and 1998, the
Company did not have any nonperforming assets or impaired loans.
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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 Company'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 March 31, 2001, the Company's net loan portfolio amounted to $276,701,000. At
December 31, 2000, the Company's net loan portfolio amounted to $266,326,000,
compared to $212,937,000 at December 31, 1999 and $164,986,000 at December 31,
1998. At March 31, 2001 and December 31, 2000, 1999 and 1998, the loan portfolio
consisted predominantly of commercial and multifamily residential real estate
mortgage loans.
Commercial and Multifamily Real Estate Mortgage Lending
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Almost all of the Company's 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 real estate 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 financing, 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 its 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 loans 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 pose 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.
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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;
inspections by management of properties being considered for mortgage loans;
mortgage title insurance and hazard insurance; and an appraisal of the property
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. An appraisal, where required, of any real estate intended
to collateralize the proposed loan is undertaken by an appraiser approved by the
Company.
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 Boards 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 and 1998, there were no securities classified as available
for sale.
Securities held to maturity totaled $16,926,000 at March 31, 2001. Securities
held to maturity totaled $20,970,000 at December 31, 2000, compared to
$83,132,000 at December 31, 1999 and $82,338,000 at December 31, 1998. At March
31, 2001 and 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
certificates of deposit. These investments are used to temporarily invest
available funds resulting from deposit-gathering operations and normal cash flow
from operations. Cash and short-term investments at March 31, 2001 amounted to
$79,801,000. Cash and short-term investments at December 31, 2000 amounted to
$42,938,000, compared to $32,095,000 at December 31, 1999 and $40,977,000 at
December 31, 1998.
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; the maturities and calls of securities;
and cash provided by operating activities.
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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 March
31, 2001, deposit liabilities totaled $301,824,000. At December 31, 2000,
deposit liabilities totaled $300,241,000 compared to $201,080,000 at December
31, 1999 and $170,420,000 at December 31, 1998. Deposit services include the
following: 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 also 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 in order to determine whether to add to
or modify them, consistent with market opportunities and available resources.
Other Sources of Funds
From time to time, the Banks purchase federal funds to manage liquidity needs.
At March 31, 2001 and at December 31, 2000, there were no such funds
outstanding, compared to $6,955,000 outstanding at December 31, 1999. Such funds
were not emphasized in 1998.
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, 1999 or 1998.
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 March 31, 2001, Intervest Corporation of New
York had outstanding debentures of $55,750,000. At December 31, 2000, Intervest
Corporation of New York had outstanding debentures of $57,150,000, compared to
$77,400,000 at December 31, 1999 and $80,300,000 at December 31, 1998. Intervest
Corporation of New York has filed a registration statement related to up to
$7,250,000 principal amount of additional subordinated debentures which it
expects to issue later this year. The Holding Company has sold debentures for
working capital purposes. At March 31, 2001, $10,430,000 of the Holding
Company's debentures were outstanding. At December 31, 2000 and 1999, $6,930,000
of the Holding Company's debentures were outstanding, compared to $7,000,000
outstanding at December 31, 1998. For a further discussion of all the
debentures, including conversion prices and redemption premiums, see note 8 to
the consolidated financial statements.
Employees
At March 31, 2001, the Company employed 50 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. Banks and bank holding companies
are subject to Federal and state income taxes in the same manner as other
corporations. 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
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City taxable income is calculated under applicable sections of the Internal
Revenue Code of 1986, as amended (the "Code"), with same modifications required
by state law.
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' Earnings (Loss) for the
-------------------- Years Ended December 31,
($ in thousands) % of Equity in
Voting Total Underlying
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 by
its subsidiaries 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 anticompetitive 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.
39
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 March 31,
2001, the Company's consolidated ratio of total capital to risk-weighted assets
was 12.40% and its risk-based Tier 1 capital ratio was 11.52%. 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 March 31, 2001, 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 primary 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 transaction 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
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.
40
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
institution's 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
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.
41
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 and
baking 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,
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.
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, New York, 10020. The lease expires in
September 2004.
Intervest National Bank's office is located on the third floor of One
Rockefeller Plaza, New York, New York 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
tenants. 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.
Legal Proceedings
The Company is periodically 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
42
adversely, would have a material effect on the business, results of operations,
or financial position of the Company.
MANAGEMENT
Directors and Executive Officers of the Company
- -----------------------------------------------
The directors and executive officers of the Company, their ages and positions
with the Company are as set forth below.
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.
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
Director, Vice-President and Secretary of Intervest Corporation of New York.
Michael A. Callen, age 60, serves as a Director of the Company, and has
served in such capacity since May, 1994. Mr. Callen received a Bachelor of Arts
degree from the University of Wisconsin in Economics and Russian. Mr. Callen is
President of Avalon Argus Associates, a financial consulting firm. Mr. Callen
had been Senior Advisor, The National Commercial Bank, Jeddah, Kingdom of Saudi
Arabia for more than five years and prior to 1993 was a Director and Sector
Executive at Citicorp/Citibank, responsible for corporate banking activities in
North America, Europe and Japan. Mr. Callen is also a Director of Intervest
National Bank and Intervest Corporation of New York, and also serves as a
director of AMBAC, Inc.
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 a 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.
Wayne F. Holly, age 44, serves as a Director of the Company and has
served in such capacity since June, 1999. Mr. Holly received a Bachelor of Arts
degree in Economics from Alfred University. Mr. Holly is President of Sage,
Rutty & Co., Inc., members of the Boston Stock Exchange, with offices in
Rochester, New York and Canandaigua, New York, and is also a Director of
43
Intervest National Bank and Intervest Corporation of New York. Mr. Holly has
been an officer and director of Sage, Rutty & Co., Inc. for more than five
years.
Edward J. Merz, age 69, serves as a Director of the Company and has
served in such capacity since February, 1998. Mr. Merz received a Bachelor of
Business Administration from City College of New York and is a graduate of the
Stonier School of Banking at Rutgers University. Mr. Merz is Chairman of the
Board of Directors of the Suffolk County National Bank of Riverhead and of its
parent, Suffolk Bancorp, and has been an officer and director of those companies
for more than five years. He is also a director of Intervest National Bank and
Intervest Corporation of New York and he is a director and treasurer of Cornell
Cooperative Extension Institute.
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.
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.
Lawton Swan, III, age 58, serves as a Director of the Company and has
served in that capacity since February, 2000. Mr. Swan received a Bachelor of
Science Degree from Florida State University in Business Administration and
Insurance. Mr. Swan is President of Interisk Corporation, a consulting firm
specializing in risk management and employee benefit plans, which he founded in
1978. He is also a Director of Intervest National Bank, Intervest Bank and
Intervest Corporation of New York.
Thomas E. Willett, age 53, serves as a Director of the Company, and has
served in such capacity since March, 1999. Mr. Willett received a Bachelor of
Science Degree from the United States Air Force Academy and a law degree from
Cornell University School of Law. Mr. Willett has been a partner of Harris Beach
& Wilcox, LLP, a law firm in Rochester, New York, for more than five years and
is a director of Intervest National Bank and Intervest Corporation of New York.
David J. Willmott, age 62, serves as a Director of the Company, and has
served in such capacity since March, 1994. Mr. Willmott is a graduate of Becker
Junior College and attended New York University Extension and Long Island
University Extension of Southampton College. Mr. Willmott is the Editor and
Publisher of Suffolk Life Newspapers, which he founded more than 25 years ago
and is a Director of Intervest National Bank and Intervest Corporation of New
York.
Wesley T. Wood, age 58, serves as a Director of the Company, and has
served in such capacity since March, 1994. Mr. Wood received a Bachelor of
Science degree from New York University, School of Commerce. Mr. Wood is
President of Marketing Capital Corporation, an international marketing
consulting and investment firm which he founded in 1973. He is also a Director
of Intervest National Bank and Intervest Corporation of New York, a Director of
the Center of Direct Marketing at New York University, a member of the Marketing
Committee at Fairfield University in Connecticut, and a Trustee of St. Dominics
R.C. Church in Oyster Bay, New York
Mr. Bergman's wife is the sister of Lowell S. Dansker, and Jerome Dansker is the
father of Lowell S. Dansker and Mrs. Bergman. Otherwise, there are no family
relationships between any director, executive officer or any person nominated or
chosen by the Board of Directors to become a director or executive officer.
Directors of the Company receive a fee of $500 per Board meeting attended. The
Chairman of the Executive Committee receives $100 per meeting attended and the
other members of the Executive Committee receive $25 per meeting attended. The
Chairman of the Audit Committe receives $150 per meeting attended and the other
members of the Audit Committee receive $100 per meeting attended.
44
Executive Compensation
The following table sets forth information concerning total compensation paid
during the last three years to the Company Chairman and to the executive
officers of the Company or any of its subsidiaries who had annual compensation
in excess of $100,000.
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Principal Other Annual
Position Year Salary Bonuses Compensation Awards Pay-Outs
- ------------------ ---- ------ ------- ------------ ------ --------
Jerome Dansker 2000 $191,585(1) ---- ---- 50,000(2) ----
Chairman, Executive
Vice President
1999 $193,409(1) $9,305 ---- ---- ----
1998 $155,839(1) $100,000 ---- 70,000(3) ----
Keith A. Olsen, 2000 $130,323(4) $20,000 ---- ---- ----
President -
Intervest Bank 1999 $130,867(4) $17,500 ---- ---- ----
1998 $130,211(4) $10,000 ---- 5,000(5) ----
______________________________
<FN>
(1) Includes director fees paid by the Company and its subsidiaries.
(2) This represents an award of 50,000 shares of Class B restricted common
stock, valued at $159,000.
(3) These represent warrants to purchase 50,000 shares of Class B common
stock at $10.00 per share, and 20,000 warrants to purchase Class A
common stock at a current exercise price of $16.00 per share.
(4) Includes matching Company contributions under the 401(k) plan.
(5) These represent warrants to purchase 5,000 shares of Class A common
stock at a current exercise price of $16.00 per share.
</FN>
Employment Agreements
Intervest Corporation of New York has an employment agreement with Jerome
Dansker that expires June 30, 2005. The agreement provides for an annual salary
in the present amount of $167,279, which is subject to increase annually by six
percent or by the percentage increase in the consumer price index, if higher.
The agreement also provides for monthly expense account payments, the use of a
car and medical benefits. In the event of Mr. Dansker's death or disability,
monthly payments of one-half of the amount which would otherwise have been paid
to Mr. Dansker will continue until the longer of (i) the balance of the term of
employment, or (ii) three years. In 1998, the agreement was modified to provide
for additional compensation of $1,000 per month for each $10.0 million of gross
assets of the Company in excess of $100 million.
Intervest Bank has an employment agreement with Mr. Keith A. Olsen that expires
December 31, 2002. The agreement provides for a base annual salary of not less
than $125,000 and also provides for the payment of up to two years' severance in
certain circumstances upon termination of employment.
The Board of Directors does not have a compensation committee and the
compensation of the executive officers of the Company and its subsidiaries is
approved by the full Board of Directors.
The Company's executive compensation programs are principally designed to give
executives strong incentives to focus on and achieve the Company's business
objectives. Key elements of its compensation programs are competitive base
salaries and annual performance-based bonuses, which seek to recognize
individual performance each year. The Company has, from time to time, granted
stock options, which provide long term financial rewards to executives only if
stockholders also gain long term stock price appreciation over the period of
exercisability.
45
The board reviews compensation of executive officers annually in the context of
total compensation packages awarded to executives with similar responsibilities
at similar companies in the financial sector.
The bonuses paid to the chief executive officers of the Company's bank
subsidiaries were approved based on the recommendations of the executive
officers of the Company and were intended to recognize significant
accomplishments of the subsidiaries with respect to financial performance.
Certain Relationships and Related Transactions
The Company's subsidiary banks had, and expect to have in the future, various
loan and other banking transactions in the ordinary course of business with
directors and executive officers of the Company and its subsidiaries (or
associates of such persons). In the opinion of management, all such
transactions: (i) have been or will be made in the ordinary course of business,
(ii) have been and will be made on substantially the same terms, including
interest rates and collateral on loans, as those generally prevailing at the
time for comparable transactions with unrelated persons, and (iii) have not and
will not involve more than the normal risk of collectability or present other
unfavorable features. The total dollar amount of extensions of credit, including
unused lines of credit, to directors and executive officers and any of their
associates was $3.3 million as of December 31, 2000, which represented
approximately 9.1% of total stockholders' equity of the Company.
The Company, as well as directors of the Company and corporations affiliated
with certain directors of the Company, have in the past and may in the future
participate in mortgage loans originated by the Company's subsidiary banks. Such
participations are on substantially the same terms as would apply for comparable
transactions with other persons and the interest of the participants in the
collateral securing those loans is pari passu with the originating bank.
Intervest Bank leases office space from a corporation in which Robert J.
Carroll, Esq., a director of Intervest Bank, is an officer and in which he has
an ownership interest. Thomas E. Willett, Esq., a director of Intervest
Corporation of New York, is a partner in the law firm of Harris Beach LLP, which
firm provided legal services to the Company and its subsidiaries during 2000.
Mr. Wayne F. Holly, who is a director of the Company, also serves as President
of Sage, Rutty & Co., Inc., which firm has acted as underwriter or placement
agent in connection with securities offerings of the Company and one of its
subsidiaries.
During 2000, the Holding Company acquired Intervest Corporation of New York. The
shareholders of Intervest Corporation of New York included officers and
directors of the Holding Company. The merger was approved by the boards of
directors of both companies, the shareholders of both companies and the Federal
Reserve Bank of Atlanta. In the merger, the shareholders of Intervest
Corporation of New York received an aggregate of 1,250,000 shares of Class A
Common Stock of the Holding Company in exchange for all of the shares of stock
of Intervest Corporation of New York. Those shares are included in the shares
disclosed in the table below under "Securities Ownership of Certain Beneficial
Owners and Management." The merger became effective in March 2000.
Except for the transactions described above and outside of normal customer
relationships, none of the directors, officers or present shareholders of the
Company and no corporations or firms with such persons or entities are
associated, currently maintains or has maintained since the beginning of the
last fiscal year, any significant business or personal relationship with the
Company or with its subsidiary banks other than such as arises by virtue of such
position or ownership interest in the Company.
46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 2001 by (i) each person
who is known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock of the Company, (ii) each of the Company's directors,
(iii) each executive officer of the Company and (iv) all current directors and
executive officers of the Company as a group.
Class A Common Stock Class B Common Stock
-------------------- --------------------
Name and Address of
- -------------------
Beneficial Holder Number of Shares Percent of Class(1) Number of Shares Percent of Class(1)
- ----------------- ---------------- ---------------- ---------------- ----------------
Helene D. Bergman 475,750(2) 13.24% 75,000 21.13%
201 E. 62nd Street
New York, NY 10021
Directors and Executive Officers
- --------------------------------
Lawrence G. Bergman, Director, 475,750(2) 13.24% 75,000 21.13%
Vice President and Secretary
Michael A. Callen, Director 50,000(3) 1.40% 0 0%
Lowell S. Dansker, Director, 962,000(4) 26.61% 150,000 42.25%
President and Treasurer
Jerome Dansker, Chairman, 1,005,965(5) 24.67% 250,000(5) 45.45%
Executive Vice President, Director
Wayne F. Holly, Director 16,200 0.46% 0 0%
Edward J. Merz, Director 5,200(6) 0.15% 0 0%
Lawton Swan, III, Director 2,500(7) 0.07% 0 0%
Thomas E. Willett, Director 6,000(8) 0.17% 0 0%
David J. Willmott, Director 97,500(9) 2.71% 0 0%
Wesley T. Wood, Director 102,500(10) 2.84% 0 0%
All directors and executive
officers as a group (10 persons) 2,723,615 61.70% 550,000 86.36%
_____________________________
<FN>
(1) Percentages have been computed based upon the total outstanding shares
of the Company plus, for each person and the group, shares tht person
or the group has the right to acquire pursuant to warrants.
(2) Includes 47,500 shares of Class A common stock issuable upon the
exercise of warrants.
(3) Includes 38,750 shares of Class A common stock issuable upon the
exercise of warrants.
(4) Includes 70,000 shares of Class A common stock issuable upon the
exercise of warrants and 10,500 shares held as custodian for minor
children.
(5) Includes 533,465 shares of Class A common stock issuable upon the
exercise of warrants. Also includes 4,000 shares held by his spouse.
The shares of Class B common stock include 195,000 shares issuable upon
exercise of warrants.
(6) Includes 5,000 shares of Class A common stock issuable upon the
exercise of warrants.
(7) Includes 2,000 shares of Class A common stock issuable upon the
exercise of warrants.
(8) Includes 3,000 shares of Class A common stock issuable upon the
exercise of warrants.
(9) Includes 57,500 shares of Class A common stock issuable upon the
exercise of warrants.
(10) Includes 65,000 shares of Class A common stock issuable upon the
exercise of warrants.
</FN>
47
DESCRIPTION OF SECURITIES
Description of Capital Stock
General
- -------
The Company's Certificate of Incorporation provides for two classes of
common capital stock consisting of 9,500,000 shares of Class A Common Stock, par
value $1.00 per share, and 700,000 shares of Class B Common Stock, par value
$1.00 per share. In addition, the Company's Certificate of Incorporation
provides for 300,000 shares of preferred stock, par value $1.00 per share
("Preferred Stock"). The Company's Certificate of Incorporation authorizes the
Board of Directors, without shareholder approval, to fix the preferences,
limitations and relative rights of the Preferred Stock, to establish one or more
series or classes of Preferred Stock, and to determine the variations between
each such series or class. No shares of Preferred Stock are issued or
outstanding.
As of the date of this Prospectus, there were issued and outstanding
3,544,629 shares of Class A Common Stock, 2,221,000 of which are held by the
initial stockholders of the Company and a related party and 355,000 shares of
Class B Common Stock were held by the same initial stockholders.
Common Stock
- ------------
Both classes of 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
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 Company. Under Delaware law, the holders of Class A
and Class B Common Stock would be entitled to vote as separate classes upon
certain matters which would adversely affect or subordinate the rights of a
class.
Subject to preferences that may be applicable to any outstanding shares
of Preferred Stock (none of which are presently outstanding), holders of Class A
Common Stock are entitled to share ratably in dividends when and as declared by
the Company's Board of Directors out of funds legally available therefor. See
"Dividends."
The holders of Class A Common Stock and Class B Common Stock share
ratably in dividends when and as declared by the Board of Directors.
The shares of Class B Common Stock are convertible, on a share for
share basis, into Class A Common Stock, at any time and from time to time after
January 1, 2000. Neither Class A nor Class B Common Stock holders have any
preemptive rights as to additional issues of common stock. Shareholders are
subject to no assessments and, upon liquidation, both Class A and Class B common
shareholders would be entitled to participate equally per share in the assets of
the Company available to common shareholders.
Class A Warrants
- ----------------
As of the date of this prospectus, 2,455,218 warrants were outstanding
to purchase the Company's Class A Common Stock as follows:
Warrants totaling 1,370,815 entitle the registered holders thereof to
purchase one share of Class A Common Stock at a price of $6.67 per share. These
warrants expire on December 31, 2001, except for 501,465, which expire on
January 31, 2006;
Warrants totaling 962,403 entitle the registered holders thereof to
purchase one share of Class A Common Stock at a price of $12.50 per share from
January 1, 2001 through December 31, 2001; and $13.50 per share from January 1,
2002 to December 31, 2002. These warrants expire on December 31, 2002; and
Warrants totaling 122,000 entitle the registered holders thereof to
purchase one share of Class A common stock at a price of $16.00 per share in
2001 and $17.00 per share in 2002. These warrants also expire on December 31,
2002.
Except for the exercise price, the expiration dates and the redemption
provisions, all of the outstanding warrants related to Class A Shares are alike
in all respects and the following discussions apply to all of the warrants for
Class A Common Stock.
48
The exercise price is subject to adjustment in accordance with the
anti-dilution and other provisions referred to below. The holder of any Warrant
may exercise such Warrant or any portion thereof by surrendering the certificate
representing the Warrant to the Company's transfer and warrant agent, with the
subscription on the reverse side of such certificate properly completed and
executed, together with payment of the exercise price. The Warrant may be
exercised at any time until expiration of the Warrant. No fractional shares will
be issued upon the exercise of the Warrants. Warrants may not be exercised as to
fewer than 100 shares unless exercised as to all Warrants held by the holder
thereof. The exercise prices of the Warrants have been arbitrarily determined by
the Company and are not necessarily related to the Company's book value, net
worth or other established criteria of value. The exercise price should in no
event be regarded as an indication of any future market price of the securities
offered hereby.
The Warrants are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the shares of common stock issuable
upon exercise of such Warrants and such shares have been registered, qualified
or deemed to be exempt under the securities law of the state of residence of the
holders of such Warrants. Although the Company will use its best efforts to have
all such shares so registered or qualified on or before the exercise date and to
maintain a current prospectus relating thereto until the expiration of such
Warrants, there can be no assurance that it will be able to do so.
The exercise price and the number of shares of Class A Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications on or of the Class A Common Stock or sales by
the Company of shares of its Class A Common Stock at a price below the then
applicable exercise price of the Warrants. Additionally, an adjustment will be
made in the case of a reclassification or exchange of Class A Common Stock,
consolidation or merger of the Company with or into another corporation or sale
of all or substantially all of the assets of the Company in order to enable
warrant holders to acquire the kind and number of shares of stock or other
securities or property receivable in such event by a holder of the number of
shares of Class A Common Stock that might otherwise have been purchased upon the
exercise of the Warrant. In most cases, no adjustment will be made until the
number of shares issued by the Company exceeds 5% of the number of shares
outstanding after the offering and thereafter no adjustments will be made until
the cumulative adjustments and exercise price per share amount to $.05 or more.
No adjustment to the exercise price of the shares subject to the Warrants will
be made for dividends (other than stock dividends), if any paid on the Class A
Common Stock or for securities issued pursuant to a company stock option plan,
if any, or other employee benefit plans of the Company.
The Warrants are fully registered and may be presented to the transfer
and warrant agent for transfer, exchange or exercise at any time at or prior to
the close of business on the expiration date for such Warrant, at which time the
Warrant becomes wholly void and of no value. If a market for the Warrants
develops, the holder may sell the Warrants instead of exercising them. There can
be no assurance, however, that a market for the Warrants will develop or
continue.
The Warrants do not confer upon holders any voting or any other rights
as a shareholder of the Company.
Class B Warrants
- ----------------
As of the date of this prospectus, there were outstanding warrants to
purchase up to 195,000 shares of Class B Common Stock, of which 145,000 allow
the purchase at any time prior to January 31, 2007, at a purchase price of $6.67
per share, and 50,000 that allow the purchase at any time prior to January 31,
2008, at a purchase price of $10.00 per share. The warrant contains terms and
conditions substantially in conformity with the Warrants related to shares of
Class A Common Stock. In addition, the Warrant provides for an adjustment in the
number of shares of Class B Common Stock purchasable upon the exercise of the
Warrant and the exercise price per share in accordance with anti-dilution and
other provisions which are in substantial conformity with those described above,
but which relate to share issuances and recapitalizations for both Class A and
Class B Common Stock.
Transfer Agent and Warrant Agent
- -------------------------------
The registrar and transfer agent for the Common Stock and the Warrant
Agent for the Warrants is The Bank of New York.
49
Preferred Stock
- ---------------
The Company's Certificate of Incorporation authorizes the Board of
Directors, without further shareholder approval, to issue shares of Preferred
Stock in one or more series with powers, preferences, rights, restrictions,
limitations, and other qualifications that could adversely affect the voting and
other rights of the holders of Common Stock.
The Board of Directors has the authority to issue up to 300,000 shares
of the Preferred Stock of the Company in any number of series (to designate the
rights and preferences of such series) which could operate to render more
difficult the accomplishment of mergers or other business combinations. The
Board of Directors of the Company has no present intent to issue any Preferred
Stock at this time. Under certain circumstances, and when, in the judgment of
the Board of Directors, the action will be in the best interest of the
stockholders and the Company, such shares could be used to create voting
impediments or to frustrate persons seeking to gain control of the Company. Such
shares could be privately placed with purchasers friendly to the Board of
Directors in opposing a hostile takeover bid. In addition, the Board of
Directors could authorize holders of a series of Preferred Stock to vote either
separately as a class or with the holders of the Company's Common Stock on any
merger, sale or exchange of assets by the Company or any other extraordinary
corporate transaction. The existence of the additional authorized shares could
have the effect of discouraging unsolicited takeover attempts or delaying,
deferring or preventing a change in control of the Company. Such an occurrence,
in the event of a hostile takeover attempt, may have an adverse impact on
stockholders who may wish to participate in such offer. The issuance of new
shares could be used to dilute the stock ownership of a person or entity seeking
to obtain control of the Company should the Board of Directors consider the
action of such entity or person not to be in the best interest of the
stockholders and the Company. The Board of Directors is not aware of any present
attempt or effort by any person to accumulate the Company's securities or obtain
control of the Company.
Restrictions on Changes in Control
- ----------------------------------
Under the Federal Change in Bank Control Act (the "Control Act"), a
notice must be submitted to the FRB if any person, or group acting in concert,
seeks to acquire 10% or more of any class of outstanding voting securities of
the Company, unless the FRB determines that the acquisition will not result in a
change of control of the Company. Both the Class A Common Stock and the Warrants
are deemed to be voting securities for these purposes. Under the Control Act,
the FRB has 60 days within which to act on such notice, taking into
consideration certain factors, including the financial and managerial resources
of the acquiror, the convenience and needs of the community served by the bank
holding company and its subsidiary banks, and the antitrust effects of the
acquisition. Under the BHCA a company is generally required to obtain prior
approval of the FRB before it may obtain control of a bank holding company.
Control is generally described to mean the beneficial ownership of 25% or more
of all outstanding voting securities of a company.
Description of the Series 5/14/98 Convertible Subordinated Debentures
General
The Debentures are unsecured subordinated obligations of the Company,
limited to an aggregate principal amount of $6,930,000 and mature on July 1,
2008. The Debentures were issued pursuant to an Indenture dated as of June 1,
1998 (the "Indenture") between the Company and the Bank of New York, as trustee
(the "Trustee"). Interest on the Debentures accrues each calendar quarter at the
rate of 8% per annum. In addition, interest accrues each calendar quarter on the
balance of the accrued interest as of the last day of the preceding calendar
quarter at the same interest rate. All accrued interest on the Debentures is
payable at the maturity of the Debentures, whether by acceleration, redemption
or otherwise.
Any debenture holder may, on or before July 1 of each year, commencing
July 1, 2003, elect to be paid all accrued interest on the Debentures and to
thereafter receive payments of quarterly interest. The election must be made
after April 1 and before May 31 and the holder will receive a payment of accrued
interest on July 1 and will thereafter receive quarterly payments of interest on
the first day of each January, April, July and October until the maturity date.
Once made, an election to receive interest is irrevocable. Quarterly interest is
payable to holders of record on the first day of the month preceding the
interest payment date.
Subordination of Debentures
The Debentures are general unsecured obligations of the Company limited
to $6,930,000 principal amount. The Debentures are subordinated in payment of
principal and interest to all Senior Indebtedness. The term Senior Indebtedness
is defined in the Indenture to mean all indebtedness of the Company, whether
outstanding on the date of the Indenture or thereafter created, which (i) is
secured, in whole or in part, by any asset or assets owned by the Company or by
50
a corporation, a majority of whose voting stock is owned by the Company or a
subsidiary of the Company ("Subsidiary"), or (ii) arises from unsecured
borrowings by the Company from commercial banks, savings banks, savings and loan
associations, insurance companies, companies whose securities are traded in a
national securities market, or any majority-owned subsidiary of any of the
foregoing, or (iii) arises from unsecured borrowings by the Company from any
pension plan (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended), or (iv) arises from borrowings by the Company
which are evidenced by commercial paper, or (v) other unsecured borrowings by
the Company which are subordinate to indebtedness of a type described in clauses
(i), (ii) or (iv) above, or (vi) is a guaranty or other liability of the Company
of, or with respect to any indebtedness of, the subsidiary of the type described
in clauses (ii), (iii) or (iv) above. As of December 31, 1997, the Company had
no senior indebtedness. There is no limitation or restriction in the Debentures
or the Indenture on the creation of senior indebtedness by the Company on the
amount of such senior indebtedness to which the Debentures may be subordinated.
There is also no limitation on the creation or amount of indebtedness which is
pari passu with (i.e. having no priority of payment over and not subordinated in
right of payment to) the Debentures.
Upon any distributions of any assets of the Company in connection with
any dissolution, winding-up, liquidation or reorganization of the Company, the
holders of all senior indebtedness will first be entitled to receive payment in
full of the principal and premium, if any, thereof and any interest due thereof,
before the holders of the Debentures are entitled to receive any payment upon
the principal of or interest on the Debentures, and thereafter payments to the
debenture holders will be pro rata with payments to holders of pari passu
indebtedness. In the absence of any such events, the Company is obligated to pay
principal of and interest on the Debentures in accordance with their terms. The
Company will not maintain any sinking fun for the retirement of any of the
Debentures.
Conversion Rights
The Debentures are convertible, at the option of the holder, into
shares of Class A Common Stock of the Company at any time prior to April 1, 2008
(subject to prior redemption by the Company on not less than 30 days notice and
not more than 90 days notice), at a current conversion price of $14.00 per share
through December 31, 2001, which conversion price increases annually on July 1
of each year. The Company reserves the right, from time to time in its
discretion to establish conversion prices per share which are less than the
conversion prices set forth above, which lower prices shall remain in effect for
such periods as the Company may determine and as shall be set forth in a written
notice to the holders of Debentures.
The conversion price is subject to adjustment in certain events,
including (i) dividends (and other distributions) payable in Class A Common
Stock on any class of capital stock of the Company, (ii) the issuance to all
holders of common stock of rights or warrants entitling them to subscribe for or
purchase Class A Common Stock at less than the current market price (as
defined), (iii) subdivisions, combinations and reclassifications of common
stock, (iv) distributions to all holders of Class A Common Stock of evidence of
indebtedness of the Company or assets (including securities, but excluding those
dividends, rights, warrants and distributions referred to above and any dividend
or distribution paid exclusively in cash.
Fractional shares of Class A Common Stock will not be issued upon
conversion, but, in lieu thereof, the Company will pay cash adjustment equal to
the portion of the principal and/or interest not converted into whole shares.
Transfers
The Debentures are transferable on the books of the Company by the
registered holders thereof upon surrender of the Debentures to the Registrar
appointed by the Company and, if requested by the Registrar, shall be
accompanied by a written instrument of transfer in form satisfactory to the
registrar. The Company has appointed The Bank of New York as the "Registrar" for
the Debentures. The person in whose name any Debenture is registered shall be
treated as the absolute owner of the Debenture for all purposes, and shall not
be affected by any notice to the contrary. Upon transfer, the Debentures will be
canceled, and one or more new registered Debentures, in the same aggregate
principal amount, of the same maturity and with the same terms, will be issued
to the transferee in exchange therefor. (Art. 2, Sec. 2.07(a)).
Duties of the Trustee
The Indenture provides that in case an Event of Default (as defined)
shall occur and continue, the Trustee will be required to use the same degree of
care and skill as a prudent person would exercise or use under the circumstances
in the conduct of his own affairs in the exercise of its power. While the
Trustee may pursue any available remedies to enforce any provision of the
Indenture or the Debentures, the holders of a majority in principal amount of
all outstanding Debentures may direct the time, method, and place of conducting
51
any proceeding for exercising any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any of the Debenture holders, unless they
shall have offered to the Trustee security and indemnity satisfactory to it.
Redemption
The Company may, at its option, at any time call all or any part of the
Debentures for payment, and redeem the same at any time prior to the maturity
thereof. The redemption price for any redemption of Debentures on or after July
1, 2000 is the face amount. In all cases, the Debenture Holder will also receive
interest accrued to the date of redemption. Notice of redemption must be sent by
first class mail, postage prepaid, to the registered holders of the Debentures
not less than 30 days nor more than 90 days prior to the date the redemption is
to be made. In the event of a call for redemption, no further interest shall
accrue after the redemption date on any Debentures called for redemption. (Art.
3, Section 3.03, Paragraph 5). Since the payment of principal of, interest on,
or any other amounts due on the Debentures is subordinate in right of payment to
the prior payment in full of all Senior Indebtedness upon the dissolution,
winding up, liquidation or reorganization of the Company, no redemption will be
permitted upon the happening of such an event.
Limitation On Dividends and Other Payments
The Indenture provides that the Company will not declare or pay any
dividend or make any distribution on its Capital Stock (i.e. any and all shares,
interests, participations, rights or other equivalents of the Company's stock)
or to its shareholders (other than dividends or distributions payable in Capital
Stock), or purchase, redeem or otherwise acquire or retire for value, or permit
any Subsidiary to purchase or otherwise acquire for value, Capital Stock of the
Company, if at the time of such payment, or after giving effect thereto, an
Event of Default, as hereinafter defined, shall have occurred and be continuing
or a default shall occur as a result thereof; provided, however, that the
foregoing limitation shall not prevent (A) the payment of any dividend within 60
days after the date of declaration thereof, if at said date of declaration such
payment complied with the provisions of such limitation, or (B) the acquisition
or retirement of any shares of the Company's Capital Stock by exchange for, or
out of the proceeds of the sale of shares of, its Capital Stock. (Art. 4,
Section 4.04).
Discharge Prior to Redemption or Maturity
If the Company at any time deposits with the Trustee money or U.S.
Government Obligations sufficient to pay principal and interest on the
Debentures prior to their redemption or maturity, the Company will be discharged
from the Indenture, provided certain other conditions specified in the Indenture
are satisfied. In the event of such deposit, which is irrevocable, Debenture
Holders must look only to the deposited money and securities for payment. U.S.
Government Obligations are securities backed by the full faith and credit of the
United States. (Art. 8, Section 8.01(2)).
Access of Information to Security Holders
Debenture Holders may obtain from the Trustee information necessary to
communicate with other Debenture Holders. Upon written application to the
Trustee by any three or more Debenture Holders stating that such Debenture
Holders desire to communicate with other Debenture Holders with respect to their
rights under the Indenture or under the Debentures, and upon providing the
Trustee with the form of proxy or other communication which the Debenture
Holders propose to transmit, and upon receipt by the Trustee from the Debenture
Holders of reasonable proof that each such Debenture Holder has owned a
Debenture for a period of at least six months preceding the date of such
application, the Trustee shall, within five business days after the receipt of
such information, either (a) provide the applicant Debenture Holders access to
all information in the Trustee's possession with respect to the names and
addresses of the Debenture Holders; or (b) provide the applicant Debenture
Holders with information as to the number of Debenture Holders and the
approximate cost of mailing to such Debenture Holders the form of proxy or other
communication, if any, specified in the applicant Debenture Holders'
application, and upon written request from such applicant Debenture Holders and
receipt of the material to be mailed and of payment, the Trustee shall mail to
all the Debenture Holders copies of the from of proxy or other communication so
specified in the request. (Art. 2, Section 2.08).
Compliance with Conditions and Covenants
Upon any request by the Company to the Trustee to take any action under
the Indenture, the Company is required to furnish to the Trustee (i) an
officers' certificate of the Company stating that all conditions and covenants
in the Indenture relating to the proposed action have been complied with and
52
(ii) an opinion of counsel stating that, in the opinion of such counsel, all
such conditions and covenants have been complied with. (Art. 11, Sec. 11.03).
Amendment, Supplement and Waiver
Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented, and compliance by the Company with any provision of the
Indenture or the Debentures may be waived, with the consent of the holders of a
majority in principal amount of the Debentures outstanding. Without notice to or
consent of any holders of Debentures, the Company may amend or supplement the
Indenture or the Debentures to cure any ambiguity, omission, defect or
inconsistency, or to make any change that does not adversely affect the rights
of any holders of Debentures. However, without the consent of each holder of
Debentures affected, an amendment, supplement or waiver may not reduce the
amount of Debentures whose holders must consent to an amendment, supplement or
waiver, reduce the rate or extend the time for payment of interest on any
Debentures (except that the payment of interest on Debentures may be postponed
for a period not exceeding three years from its due date with the consent of
holders of not less than 75% in principal amount of Debentures at the time
outstanding, which consent shall be binding upon all holders), reduce the
principal of or extend the fixed maturity of any Debentures, make any Debentures
payable in money other than that stated in the Indenture, make any change in the
subordination provisions of the Indenture that adversely affects the rights of
any holder of Debentures or waive a default in the payment of principal of or
interest on, or other redemption payment on any Debentures. (Art. 9, Sec. 9.02).
Defaults and Remedies
Each of the following is an "Event of Default" under the Indenture: (a)
failure by the Company to pay any principal on the Debentures when due; (b)
failure by the Company to pay any interest installment on the Debentures within
thirty days after the due date; (c) failure to perform any other covenant or
agreement of the Company made in the Indenture or the Debentures, continued for
sixty days after receipt of notice thereof from the Trustee or the holders of at
least 25% in principal amount of the Debentures; and (d) certain events of
bankruptcy, insolvency or reorganization. (Art. 6, Sec. 6.01). If an Event of
Default (other than those described in clause (d) above) occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the Debentures, by notice to the Company, may declare the principal of and
accrued interest on all of the Debentures to be due and payable immediately. If
an Event of Default of the type described in clause (d) above occurs, all unpaid
principal and accrued interest on the Debentures shall automatically become due
and payable without any declaration or other act on the part of the Trustee or
any holder. (Art. 6, Sec. 6.02). Holders of Debentures may not enforce the
Indenture or the Debentures except as provided in the Indenture. The Trustee may
refuse to enforce the Indenture or the Debentures unless it receives indemnity
and security satisfactory to it. Subject to certain limitations, the holders of
a majority in principal amount of the Debentures may direct the Trustee in its
exercise of any trust or power conferred on the Trustee, and may rescind an
acceleration of the Debentures. The Trustee may withhold from holders of
Debentures notice of any continuing default (except a default in payment of
principal or interest) if it determines that withholding notice is in their
interest. (Art. 6, Secs. 6.05 and 6.06).
The Indenture requires the Company to furnish to the Trustee an annual
statement, signed by specified officers of the Company, stating whether or not
such officers have knowledge of any Default under the Indenture, and, if so,
specifying each such Default and the nature thereof. (Art. 4, Sec. 4.03).
Federal Income Tax Consequences
Holders of the Debentures are required to include in their income for
federal income tax purposes all of the accrued but unpaid interest for each
taxable year, since such amounts constitute interest income within the meaning
of the applicable provisions of the Internal Revenue Code of 1986, as amended to
date (the "Code"). As a result, such debenture holders are required to pay taxes
on interest which has accrued, although such interest will not be paid until
maturity of the Debenture.
Interest payments received by holders of Debentures who have elected to
received quarterly payments of interest will be includable in the income of such
holders for federal income tax purposes for the taxable year in which the
interest was received, except with respect to the payment of accrued interest
that has been included in their income in prior years.
Holders who hold the Debentures for investment purposes should treat
all reportable interest (whether actually received or accrued) as portfolio
income under applicable code provisions.
53
The Company's deposit of funds with the Trustee to effect the discharge
of the Company's obligations under the Debentures and the Indenture prior to
redemption or maturity of the Debentures, will have no effect on the amount of
income realized or recognized (gain or loss) by the Debenture Holders or the
timing of recognition of gain or loss for federal income tax purposes.
PLAN OF DISTRIBUTION
The Company's Warrants are not exercisable and its Debentures are not
convertible unless the Company has a current prospectus covering the shares
issuable upon exercise of the Warrants or conversion of the Debentures and this
prospectus covers those shares.
With respect to the shares of Class A Common Stock and Class B Common
Stock issuable upon exercise of the Warrants, those shares shall be issued by
the Company, from time to time, upon exercise by the holders thereof of the
Warrants. Shares of Class A Common Stock or Class B Common Stock may be
purchased by the holders of Warrants only by mailing or delivering a completed
and duly executed Election to Purchase Form which is on the reverse side of the
Warrant Certificate, together with payment of the then applicable exercise price
per share for each warrant surrendered to the Bank of New York, the Company's
warrant agent, prior to expiration of the warrant. Payment may be made in
certified funds, cashier check, bank draft or bank check, payable to the order
of the Warrant Agent. All funds received by the Warrant Agent from the exercise
of warrants will be forwarded to the Company.
With respect to the shares of Class A Common Stock issuable upon
conversion of the Debentures, those shares will be issued upon written notice to
the Company at the office maintained for that purpose and delivery of the
certificate representing the Debentures to be converted.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Harris Beach LLP, Rochester, New York.
EXPERTS
The consolidated balance sheets of Intervest Bancshares Corporation and
Subsidiaries as of December 31, 2000 and 1999 and the related consolidated
statements of earnings, comprehensive income, changes in stockholders' equity
and cash flows for the three-year period ended December 31, 2000 included in
this Prospectus, have been included herein in reliance on the reports of Hacker,
Johnson & Smith PA, Tampa, Florida, independent auditors, as set forth in their
report thereon appearing elsewhere herein, which is based in part on the report
of Richard A. Eisner & Company, LLP, New York, New York, independent auditors
appearing elsewhere herein. The financial statements referred to above are
included in reliance upon such reports given on the authority of those firms as
experts in accounting and auditing.
54
Index to Financial Statements
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
Intervest Bancshares Corporation and Subsidiaries Page
- ------------------------------------------------- ----
Independent Auditors' Report - Hacker, Johnson & Smith PA ...................................................... F-2
Independent Auditors' Report - Richard A. Eisner & Company, LLP ................................................ F-3
Consolidated Balance Sheets at December 31, 2000 and 1999 ...................................................... F-4
Consolidated Statements of Earnings for the Years Ended December 31, 2000, 1999 and 1998 ....................... F-5
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2000,
1999 and 1998 ............................................................................................... F-6
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31,
2000, 1999 and 1998 ......................................................................................... F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 ..................... F-8
Notes to Consolidated Financial Statements ..................................................................... F-9 to F31
Condensed Consolidated Balance Sheets at March 31, 2001 and December 31, 2000 .................................. F-32
Condensed Consolidated Statements of Earnings for the Quarters Ended March 31, 2001
(unaudited) and March 31, 2000 (unaudited) .................................................................. F-33
Condensed Consolidated Statements of Comprehensive Income for the Quarters Ended
March 31, 2001 (unaudited) and March 31, 2000 (unaudited) ................................................... F-34
Condensed Consolidated Statements of Changes in Stockholders' Equity for the Quarters
Ended March 31, 2001 (unaudited) and March 31, 2000 (unaudited) ............................................. F-35
Condensed Consolidated Statements of Cash Flows for the Quarters Ended March 31, 2001
(unaudited) and March 30, 2000 (unaudited) .................................................................. F-36
Notes to Condensed Consolidated Financial Statements ........................................................... F-37
All schedules are omitted because of the absence of conditions under
which they are required or because the required information is included in the
Financial Statements and related Notes.
F-1
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
F-2
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 (not presented separately herein). 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.
/s/ Richard A. Eisner & Company, LLP
- ------------------------------------
Richard A. Eisner & Company, LLP
New York, New York
January 18, 2001
F-3
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 of $2,768 in 2000 and $2,493 in 1999) 263,558 210,444
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 $340,481
-----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
Intervest Bancshares Corporation and Subsidiaries
Consolidated Statements of Earnings
Year Ended December 31,
----------------------------------------
($ 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.
F-5
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 $2,382
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
Intervest Bancshares Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Year Ended December 31,
------------------------------------------
($ 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.
F-7
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.
F-8
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.
F-9
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.
F-10
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.
F-11
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.
F-12
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>
F-13
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>
F-14
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 $74,789
- --------------------------------------------------------------------------------
F-15
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
3. Securities, Continued
The carrying values (amortized cost) and estimated fair values of
securities held to maturity are summarized as follows:
Gross Gross Estimated
----- ----- ---------
Amortized Unrealized Unrealized Fair
--------- ---------- ---------- ----
($ 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 44
3,034 2,311
Commercial business loans 39 42
1,781 2,107
Consumer loans 18 24
206 242
- ---------------------------------------------------------------------------------------------------
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% $214,682 100.0%
- --------------------------------------------------------------------------------
F-16
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
5. Allowance for Loan Loss ReservesActivity in the allowance for loan loss
reserves is summarized as follows:
For the Year Ended December 31,
-------------------------------
($ 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 $1,662
- --------------------------------------------------------------------------------
No loans were on nonaccrual status or classified as impaired in 2000, 1999
or 1998.
6. Premises and Equipment, Lease Commitments and Rental ExpensePremises and
equipment is summarized as follows:
At December 31,
($ 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%
- -------------------------------------------------------------------------------
F-17
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 8 1/2% 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 8 1/2% 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 8 1/2% 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 9.50% 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.
F-18
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
- -----------------------------------------------------------------------------
F-19
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 $22,000 for 2000, 1999 and 1998,
respectively.
F-20
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
13. Related Party Transactions
Intervest Bank has made loans to certain of its directors and their related
entities. The activity is as follows:
For the Year Ended December 31,
($ 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 - 20 122,020 122,000 $ 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>
F-21
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
- --------------------------------------------------------------------------------
(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.
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 $936,000, respectively. The asset relates to the unrealized
benefit for: net temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases that will result in future tax deductions. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of such assets is dependent
upon the generation of sufficient taxable income during the periods in
which those temporary differences become deductible. Management believes
that it is more likely than not that the Company's deferred tax asset will
be realized and accordingly, a valuation allowance for deferred tax assets
was not maintained at any time during 2000, 1999 or 1998.
F-22
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
15. Income Taxes, Continued
The total tax expense (benefit) is as follows:
For the Year Ended December 31,
($ 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 $936
- --------------------------------------------------------------------------
F-23
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
15. Income Taxes, Continued
The reconciliation between the statutory federal income tax rate and the
Company's effective tax rate (including state and local taxes) is as
follows:
For the Year Ended December 31,
($ 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.
F-24
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% $13,720 4.00% NA NA
--------------------------------------------------------------------------------------------------------------
F-25
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
18. Regulatory Matters, Continued
Minimum to Be Well
Capitalized Under
Minimum Capital Prompt Corrective
Actual Requirements Action Provisions
($ 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.
F-26
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
- ------------------------------------------------------------------------------------------------
F-27
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.
F-28
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 $ - $ -
F-29
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 -
- ------------------------------------------------------------------------------------------------------------------------------------
F-30
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
- ------------------------------------------------------------------------------------------------------------------------------------
F-31
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
($ in thousands, except par value) 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 5,114 $ 5,016
Federal funds sold 57,398 20,268
Short-term investments 17,289 17,654
----------------------------
Total cash and cash equivalents 79,801 42,938
Securities available for sale at estimated fair value 38,094 74,789
Securities held to maturity, net
(estimated fair value of $16,958 and $20,978, respectively) 16,926 20,970
Federal Reserve Bank stock, at cost 639 605
Loans receivable (net of allowance for loan losses of $2,768 at each date) 273,933 263,558
Accrued interest receivable 2,480 2,961
Premises and equipment, net 5,691 5,731
Deferred income tax asset 913 1,105
Deferred debenture offering costs 2,915 2,835
Other assets 1,689 1,435
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 423,081 $ 416,927
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing demand deposit accounts $ 4,675 $ 5,035
Interest-bearing deposit accounts:
Checking (NOW) accounts 6,337 9,188
Savings accounts 17,197 15,743
Money-market accounts 59,634 52,619
Certificate of deposit accounts 213,981 217,656
----------------------------
Total deposit accounts 301,824 300,241
Subordinated debentures payable 66,180 64,080
Accrued interest payable on debentures 9,286 8,733
Mortgage escrow funds payable 4,841 3,397
Official checks outstanding 1,776 2,281
Other liabilities 2,048 1,967
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 385,955 380,699
- ------------------------------------------------------------------------------------------------------------------------------------
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 shares issued and outstanding at each date) 3,545 3,545
Class B common stock ($1.00 par value, 700,000 shares authorized,
355,000 shares issued and outstanding at each date) 355 355
Additional paid-in-capital, common 18,981 18,975
Retained earnings 14,186 13,605
Accumulated other comprehensive income:
Net unrealized gain (loss) on securities available for sale, net of tax 59 (252)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 37,126 36,228
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 423,081 $ 416,927
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
F-32
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited)
Quarter Ended
March 31,
---------------------------
($ in thousands, except per share data) 2001 2000
- ---------------------------------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Loans receivable $6,603 $5,646
Securities 1,496 1,520
Other interest-earning assets 585 90
- ---------------------------------------------------------------------------------------------------------------
Total interest and dividend income 8,684 7,256
- ---------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 4,606 2,844
Federal funds purchased - 146
Debentures payable 2,015 2,422
- ---------------------------------------------------------------------------------------------------------------
Total interest expense 6,621 5,412
- ---------------------------------------------------------------------------------------------------------------
Net interest and dividend income 2,063 1,844
Provision for loan loss reserves - 155
- ---------------------------------------------------------------------------------------------------------------
Net interest and dividend income after provision for loan loss reserves 2,063 1,689
- ---------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Customer service fees 38 35
Income from lending activities 183 127
All other 3 -
- ---------------------------------------------------------------------------------------------------------------
Total noninterest income 224 162
- ---------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and employee benefits 626 676
Occupancy and equipment, net 304 271
Advertising and promotion 8 13
Professional fees and services 97 104
Stationery, printing and supplies 33 38
All other 256 149
- ---------------------------------------------------------------------------------------------------------------
Total noninterest expenses 1,324 1,251
- ---------------------------------------------------------------------------------------------------------------
Earnings before income taxes 963 600
Provision for income taxes 382 210
- ---------------------------------------------------------------------------------------------------------------
Net earnings $ 581 $ 390
- ---------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.15 $ 0.10
Diluted earnings per share $ 0.15 $ 0.10
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
F-33
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Quarter Ended
March 31,
--------------------------
($ in thousands) 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings $581 $ 390
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized holding gains on securities arising during the period 499 -
Provision for income taxes related to unrealized holding gains on securities 188 -
- ---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax 311 -
- ---------------------------------------------------------------------------------------------------------------------------
Total comprehensive income, net of tax $892 $ 390
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
F-34
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Quarter Ended
March 31,
---------------------------
($ in thousands) 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
CLASS A COMMON STOCK
Balance at beginning of period $ 3,545 $ 3,532
Issuance of 3,750 shares upon the exercise of warrants in 2000 - 4
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of period 3,545 3,536
- ---------------------------------------------------------------------------------------------------------------------
CLASS B COMMON STOCK
Balance at beginning of period 355 305
Issuance of 50,000 shares of restricted stock compensation in 2000 - 50
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of period 355 355
- ---------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of period 18,975 18,770
Compensation related to issuance of Class B stock warrants 6 6
Issuance of 50,000 shares of restricted Class B stock compensation in 2000 - 109
Issuance of 3,750 shares upon the exercise of Class A stock warrants in 2000 - 22
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of period 18,981 18,907
- ---------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period 13,605 10,997
Net earnings for the period 581 390
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of period 14,186 11,387
- ---------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET
Balance at beginning of period (252) -
Net change in accumulated other comprehensive income, net 311 -
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of period 59 -
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity at end of period $ 37,126 $ 34,185
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
F-35
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Quarter Ended
March 31,
------------- -------------
($ in thousands) 2001 2000
- --------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 581 $ 390
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 114 115
Provision for loan loss reserves - 155
Deferred income tax expense (benefit) 4 (14)
Amortization of deferred debenture offering costs 176 230
Compensation expense from awards of common stock and warrants 6 165
Amortization of premiums, fees and discounts, net (394) (262)
Net increase (decrease) in accrued interest payable on debentures 553 (666)
Net (decrease) increase in official checks outstanding (505) 561
Net decrease (increase) in all other assets and liabilities 692 (6)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,227 668
- --------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Maturities and calls of securities available for sale 37,194 -
Maturities and calls of securities held to maturity 9,096 4,015
Purchases of securities held to maturity (5,077) (3,972)
Net increase in loans receivable (10,340) (28,852)
Purchases of Federal Reserve Bank stock, net (34) -
Purchases of premises and equipment, net (74) (66)
- --------------------------------------------------------------------------------------------------------------------
Net provided by (used in) investing activities 30,765 (28,875)
- --------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand, savings, NOW and money market deposits 5,258 6,982
Net (decrease) increase in certificates of deposit (3,675) 31,308
Net increase in mortgage escrow funds payable 1,444 1,415
Repayments of Federal funds purchased, net - (6,955)
Principal repayments of debentures (1,400) (7,000)
Proceeds from issuance of debentures, net of issuance costs 3,244 -
Proceeds from issuance of common stock, net of issuance costs - 26
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,871 25,776
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 36,863 (2,431)
Cash and cash equivalents at beginning of period 42,938 32,095
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 79,801 $ 29,664
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 5,887 $ 5,744
Income taxes 557 80
Noncash activities:
Accumulated other comprehensive income,
change in unrealized gain (loss) on securities available for sale, net of tax 311 -
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
F-36
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the Quarters Ended March 31, 2001 and 2000
- --------------------------------------------------------------------------------
Note 1 - General
The condensed consolidated financial statements of Intervest Bancshares
Corporation and Subsidiaries in this report have not been audited except for the
information derived from the audited Consolidated Balance Sheet as of December
31, 2000. The financial statements in this report should be read in conjunction
with the consolidated financial statements and related notes thereto included in
the Company's Annual Report to Stockholders on Form 10-K for the year ended
December 31, 2000.
The condensed consolidated financial statements include the accounts of
Intervest Bancshares Corporation (a bank holding company referred to by itself
as the "Holding Company") and its subsidiaries, Intervest National Bank,
Intervest Bank, and Intervest Corporation of New York. The banks are referred to
together as the "Banks." The Holding Company and its subsidiaries are referred
to as the "Company" on a consolidated basis. The Holding Company's primary
business activity is the ownership of the aforementioned subsidiaries.
Intervest National Bank is a nationally chartered commercial bank located in
Rockefeller Plaza in New York City. 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. On March 5, 2001, the Banks agreed to merge into one
nationally chartered bank. The resulting institution, Intervest National Bank,
will retain its headquarters and full-service banking office at One Rockefeller
Plaza, in New York City and will have a total of five full-service banking
offices in Clearwater and Pinellas County, Florida. The consummation of the
merger, which is subject to the receipt of approvals from regulatory
authorities, is expected to close in the third quarter of 2001.
In the opinion of management, all material adjustments necessary for a fair
presentation of financial condition and results of operations for the interim
periods presented in this report have been made. These adjustments are of a
normal recurring nature. The results of operations for the interim periods are
not necessarily indicative of results that may be expected for the entire year
or any other interim period. In preparing the condensed consolidated financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses. Actual
results could differ from those estimates.
Note 2 - Allowance for Loan Loss Reserves
The Company monitors its loan portfolio to determine the appropriate level of
the allowance for loan loss reserves based on various factors. These factors
include: the type and level of loans outstanding; volume of loan originations;
overall portfolio quality; loan concentrations; specific problem loans,
historical chargeoffs and recoveries; adverse situations which may affect the
borrowers' ability to repay; and management's assessment of the current and
anticipated economic conditions in the Company's lending regions. No loans were
classified as nonaccrual or impaired during the 2001 and 2000 reporting periods
in this report.
Activity in the allowance for loan loss reserves for the periods indicated is
summarized as follows:
Quarter Ended
March 31,
-------------- -------------
($ in thousands)
2001 2000
- --------------------------------------------------------------------------------
Balance at beginning of period $2,768 $2,493
Provision charged to operations - 155
- --------------------------------------------------------------------------------
Balance at end of period $2,768 $2,648
- --------------------------------------------------------------------------------
F-37
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the Quarters Ended March 31, 2001 and 2000
- --------------------------------------------------------------------------------
Note 3 - Earnings Per Share (EPS)
Basic EPS is calculated by dividing net earnings by the weighted-average number
of shares of common stock outstanding. Diluted EPS is calculated by dividing
adjusted net earnings by the weighted-average number of shares of common stock
outstanding and dilutive potential common stock shares that may be outstanding
in the future. Potential common stock shares may arise from outstanding dilutive
common stock warrants (as computed by the "treasury stock method") and
convertible debentures (as computed by the "if converted method").
Diluted EPS considers the potential dilution that could occur if the Company's
outstanding stock warrants and convertible debentures were converted into common
stock that then shared in the Company's adjusted earnings (as adjusted for
interest expense, net of tax, that would no longer occur if the debentures were
converted).
Net earnings applicable to common stock and the weighted-average number of
shares used for basic and diluted earnings per share computations are summarized
in the table that follows:
Quarter Ended
March 31,
--------------------------
2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE:
Net earnings applicable to common stockholders $581,000 $390,000
Average number of common shares outstanding 3,899,629 3,851,384
- -----------------------------------------------------------------------------------------------------------------------------
Basic earnings per share amount $0.15 $0.10
- -----------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
Net earnings applicable to common stockholders $581,000 $390,000
Average number of common shares outstanding:
Common shares outstanding per above 3,899,629 3,851,384
Potential dilutive shares resulting from exercise of warrants (1) - -
Potential dilutive shares resulting from conversion of debentures (1) - -
-------------------------
Total average number of common shares outstanding used for dilution 3,899,629 3,851,384
- -----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share amount $0.15 $0.10
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
(2) A total of 2,650,000 of common stock warrants with exercise prices ranging
from $6.67 to $16.00 were not considered in the computation of diluted EPS
for the 2001 period because they were not dilutive. A total of 2,659,000
common stock warrants with exercise prices ranging from $6.67 to $15.00
were not considered in the computation of diluted EPS for the 2000 period
because they were not dilutive. Additionally, convertible debentures
totaling $6,930,000 and convertible (at $14.00 per share in 2001 and $12.50
per share in 2000) into Class A common stock were excluded from all diluted
EPS computations because they were not dilutive.
</FN>
Note 4 - Regulatory Capital
The Banks are required to maintain certain minimum regulatory capital
requirements. The following is a summary at March 31, 2001 of those regulatory
capital requirements and the actual capital of each Bank on a percentage basis:
Actual Minimum To Be Considered
Ratios Requirement Well Capitalized
------ ----------- ----------------
Intervest Bank
Total capital to risk-weighted assets 10.93% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 9.68% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 6.55% 4.00% 5.00%
Intervest National Bank
Total capital to risk-weighted assets 16.05% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 15.17% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 11.51% 4.00% 5.00%
F-38
No dealer, salesman or any other person is authorized to give any information or
to make any representation not contained in this Prospectus. If given or made,
such information or representation must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer of any
securities other than the registered securities to which it relates or an offer
to any person in any jurisdiction where such an offer would be unlawful. Neither
the delivery of this Prospectus, nor any sale made hereunder, shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to its date.
________________
TABLE OF CONTENTS
Page
Where You Can Find More
Information.................................... 2
Prospectus Summary............................... 3
Risk Factors..................................... 5
Use of Proceeds.................................. 8
Market for Securities............................ 8
Dividends........................................ 8
Capitalization................................... 9
Selected Financial Data.......................... 10
Management's Discussion and
Analysis of Financial Condition
and Results of Operation....................... 11
Business......................................... 32
Management....................................... 43
Security ownership of Certain
Beneficial Owners and Management.............. 47
Description of Securities........................ 48
Plan of Distribution............................. 54
Legal Matters.................................... 54
Experts.......................................... 54
Index to Financial Statements.................... F-1
INTERVEST BANCSHARES CORPORATION
2,455,218 shares of Class A Common Stock
and
195,000 shares of Class B Common Stock
______________
PROSPECTUS
______________
__________, 2001
PART II
Information Not Required In Prospectus
Item 13. Other Expenses of Issuance and Distribution.
- ------- -------------------------------------------
The following table sets forth the estimated cost and expenses to be borne
by the company in connection with the offering described in the Registration
Statement, other than underwriting commissions and discounts. All amounts except
the registration fee are estimates.
Registration Fee $ -----
Printing and Engraving expenses $ 1,000
Accounting fees and expenses $ 2,000
Legal fees and expenses $ 5,000
Blue Sky fees and expenses $ 5,000
Transfer Agents and Registrar fees $ -----
Miscellaneous $ 5,000
-------
Total $18,000
Item 14. Indemnification of Directors and Officers.
- ------- -----------------------------------------
Section 145 of the General Corporation Law of Delaware provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any action, suit or proceeding, by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interest of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. No indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
The Company's bylaws provide that the Company will indemnify the officers
and directors of the Company to the fullest extent permitted under the laws of
the State of Delaware. In that regard, the Company is obligated to indemnify
officers and directors of the Company from and against any and all judgments,
fines, amounts paid in settlement, and reasonable expenses, including attorneys'
fees, actually and necessarily incurred by an officer or director as a result of
any action or proceeding, or any appeal therein, to the extent such amounts may
be indemnified under the laws of Delaware; and to pay any officer or director of
the Company in advance of the final disposition of any civil or criminal
proceeding, the expenses incurred by such officer or director in defending such
action or proceeding. The Company's obligation to indemnify its officers and
directors continues to individuals who have ceased to be officers or directors
of the Company and to the heirs and personal representatives of former officers
and directors of the Company.
Item 15. Recent Sales of Unregistered Securities.
- ------- ---------------------------------------
In March of 2000, 50,000 shares of Class B Common Stock were issued to the
Chairman of the Board of the Company. In addition, in March of 2000, an
aggregate of 1,250,000 shares of Class A Common Stock were issued to the eight
shareholders of Intervest Corporation of New York in connection with the merger
of a wholly-owned subsidiary of the Company into Intervest Corporation of New
York. These shares were issued without registration under the Securities Act of
1933, as amended, in reliance upon the exemption afforded by Section 4(2)
thereof. On March 10, 2000, ICNY Acquisition Corporation, a wholly-owned
subsidiary of Intervest Bancshares Corporation, was merged with and into the
Company in a transaction in which all of the issued and outstanding shares of
capital stock of Intervest Bancshares Corporation were exchanged for 1,250,000
shares of the Class A Common Stock of Intervest Bancshares Corporation, which
II-1
shares were issued to the six shareholders of Intervest Corporation of New York
in a transaction exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended. On February 1, 2001, Intervest Bancshares
Corporation issued $3.5 million principal amount of its Series 12/15/00
Subordinated Debentures (the "Debentures"). The Debentures were issued pursuant
to an Indenture of Trust dated as of January 1, 2001 between the Company and The
Bank of New York, as trustee. Sage, Rutty & Co. acted as placement agent and the
Company paid an aggregate of $210,000 in commissions. The Debentures were not
registered under the Securities Act of 1933, as amended, in reliance upon the
exemption afforded by Section 4(2) thereof and Rule 506 of Regulation D,
promulgated thereunder.
II-2
Item 16. Exhibits.
- ------- --------
Exhibit Number Description of Exhibit
- -------------- ----------------------
3.1 Restated Certificate of Incorporation of the Company1
3.2 Bylaws of the Company1
4.1 Form of Certificate for Shares of Class A Common Stock2
4.2 Form of Certificate for Shares of Class B Common Stock2
4.3 Form of Warrant for Class A Common Stock1
4.4 Form of Warrant Agreement between the Company and the Bank of New
York1
4.5 Form of Indenture between the Company and The Bank of New York, as
Trustee3
5.1 Opinion of Harris Beach LLP
24.1 Consent of Harris Beach LLP is included in the Opinion of Harris Beach
LLP, filed as Exhibit 5.1
24.2 Consent of Hacker, Johnson & Smith PA
24.3 Consent of Richard A. Eisner & Company, LLP
______________________
1 Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (No. 333-33419), filed with the
Commission on September 22, 1997.
2 Incorporated by reference from Pre-Effective Amendment No. 1 to the
Company's Registration Statement on Form SB-2 (No. 33-82246), filed with
the Commission on September 15, 1994.
3 Incorporated by reference from the Company's Registration Statement on Form
SB-2 (No. 333-50113), filed with the Commission on April 15, 1998.
Item 17. Undertakings.
- ------- ------------
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
II-3
(2) That, for purposes of determining liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed a new
registration statement relating to the securities offering therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this Registration Statement as of the
time the Commission declared it effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus as a
new registration statement for the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement or Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the day of June 20, 2001.
INTERVEST BANCSHARES CORPORATION
(Registrant)
By: /s/ Lowell S. Dansker
---------------------
Lowell S. Dansker, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendment has been signed by the following persons in
the capacities and on the dates indicated.
Title Date
----- ----
/s/ Lawrence G. Bergman Vice President, Secretary June 20, 2001
- ----------------------- and Director
(Lawrence G. Bergman)
- ------------------ Director June 20, 2001
(Michael A. Callen)
/s/ Jerome Dansker
- ------------------ Chairman of the Board, June 20, 2001
(Jerome Dansker) Executive Vice President, Director
/s/ Lowell S. Dansker President, Treasurer, June 20, 2001
- --------------------- and Director
(Lowell S. Dansker) (Principal Executive, Financial
and Accounting Officer)
/s/ Wayne F. Holly Director June 20, 2001
- ------------------
/s/ Edward J. Merz Director June 20, 2001
- ------------------
(Edward J. Merz)
/s/ Lawton Swan, III Director June 20, 2001
- --------------------
(Lawton Swan, III)
/s/ Thomas E. Willett Director June 20, 2001
- ---------------------
(Thomas E. Willett)
/s/ David J. Wilmott Director June 20, 2001
- --------------------
(David J. Wilmott)
/s/ Wesley T. Wood Director June 20, 2001
- ------------------
(Wesley T. Wood)
II-5
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
5.1 Opinion of Harris Beach LLP
24.1 Consent of Harris Beach LLP is
included in the Opinion of Harris Beach
LLP, filed as Exhibit 5.1
24.2 Consent of Hacker, Johnson & Smith PA
24.3 Consent of Richard A. Eisner & Company, LLP