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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
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Commission File No. 000-23377
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INTERVEST BANCSHARES CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-3699013
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation)
10 Rockefeller Plaza, Suite 1015
New York, New York 10020-1903
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(Address of principal executive offices)
(212) 218-2800
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
YES XX NO .
---- ----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Title of Each Class: Shares Outstanding:
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Class A Common Stock, $1.00 par value per share 3,544,629 Outstanding at November 1, 2001
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Class B Common Stock, $1.00 par value per share 355,000 Outstanding at November 1, 2001
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INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 2001
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of September 30, 2001 (Unaudited) and December 31, 2000 ........................................................ 2
Condensed Consolidated Statements of Earnings (Unaudited)
for the Quarters and Nine-Months Ended September 30, 2001 and 2000 ................................................ 3
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
for the Quarters and Nine-Months Ended September 30, 2001 and 2000 ................................................ 4
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
for the Nine-Months Ended September 30, 2001 and 2000.............................................................. 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Nine-Months Ended September 30, 2001 and 2000.............................................................. 6
Notes to Condensed Consolidated Financial Statements (Unaudited) ..................................................... 7
Review by Independent Certified Public Accountants ................................................................... 10
Report on Reviews by Independent Certified Public Accountants ........................................................ 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ..................................................................... 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................................... 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................................ 22
Item 2. Changes in Securities and Use of Proceeds.................................................................... 22
Item 3. Defaults Upon Senior Securities.............................................................................. 22
Item 4. Submission of Matters to a Vote of Security Holders.......................................................... 22
Item 5. Other Information............................................................................................ 22
Item 6. Exhibits and Reports on Form 8-K ............................................................................ 22
Signatures................................................................................................................. 22
Private Securities Litigation Reform Act Safe Harbor Statement
The Company is making this statement in order to satisfy the "Safe Harbor"
provision contained in the Private Securities Litigation Reform Act of 1995. The
statements contained in this report on Form 10-Q 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.
1
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
At At
September 30, December 31,
($ in thousands, except par value) 2001 2000
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ASSETS
Cash and due from banks $ 5,004 $ 5,016
Federal funds sold 14,421 20,268
Commercial paper 11,250 17,125
Other short-term investments 2,381 529
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Total cash and cash equivalents 33,056 42,938
Securities available for sale at estimated fair value 8,239 74,789
Time deposits with banks 350 -
Securities held to maturity, net (estimated fair value of $70,637 and $20,978, respectively) 70,377 20,970
Federal Reserve Bank stock, at cost 654 605
Loans receivable (net of allowance for loan losses of $3,132 and $2,768, respectively) 346,994 263,558
Accrued interest receivable 3,212 2,961
Premises and equipment, net 5,997 5,731
Deferred income tax asset 1,062 1,105
Deferred debenture offering costs 3,108 2,835
Other assets 2,667 1,435
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Total assets $ 475,716 $ 416,927
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LIABILITIES
Deposits:
Noninterest-bearing demand deposit accounts $ 4,029 $ 5,035
Interest-bearing deposit accounts:
Checking (NOW) accounts 7,375 9,188
Savings accounts 23,442 15,743
Money-market accounts 73,049 52,619
Certificate of deposit accounts 233,830 217,656
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Total deposit accounts 341,725 300,241
Subordinated debentures payable 73,430 64,080
Accrued interest payable on debentures 10,680 8,733
Accrued interest payable on deposits 791 856
Mortgage escrow funds payable 7,144 3,397
Official checks outstanding 1,611 2,281
Other liabilities 1,308 1,111
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Total liabilities 436,689 380,699
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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 18,995 18,975
Retained earnings 15,993 13,605
Accumulated other comprehensive income:
Net unrealized gain (loss) on securities available for sale, net of tax 139 (252)
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Total stockholders' equity 39,027 36,228
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Total liabilities and stockholders' equity $ 475,716 $ 416,927
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See accompanying notes to condensed consolidated financial statements.
2
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited)
Quarter Ended Nine-Months Ended
September 30, September 30,
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($ in thousands, except per share data) 2001 2000 2001 2000
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INTEREST AND DIVIDEND INCOME
Loans receivable $ 8,050 $ 6,538 $ 21,637 $ 18,214
Securities 463 1,462 2,643 4,413
Other interest-earning assets 437 324 1,758 611
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Total interest and dividend income 8,950 8,324 26,038 23,238
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INTEREST EXPENSE
Deposits 4,193 4,074 12,968 10,387
Federal funds purchased - - - 146
Subordinated debentures 1,821 1,869 5,722 6,374
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Total interest expense 6,014 5,943 18,690 16,907
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Net interest and dividend income 2,936 2,381 7,348 6,331
Provision for loan loss reserves 264 47 364 292
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Net interest and dividend income after provision for loan loss 2,672 2,334 6,984 6,039
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NONINTEREST INCOME
Customer service fees 37 38 110 104
Income from mortgage lending activities 198 268 915 541
All other 2 32 6 33
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Total noninterest income 237 338 1,031 678
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NONINTEREST EXPENSES
Salaries and employee benefits 611 491 1,823 1,675
Occupancy and equipment, net 277 286 859 835
Data processing 109 35 204 82
Advertising and promotion 6 6 20 31
Professional fees and services 72 100 269 320
Stationery, printing and supplies 32 31 100 104
All other 206 132 691 415
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Total noninterest expenses 1,313 1,081 3,966 3,462
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Earnings before taxes and extraordinary item 1,596 1,591 4,049 3,255
Provision for income taxes 667 662 1,661 1,299
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Earnings before extraordinary item 929 929 2,388 1,956
Extraordinary item, net of tax - - - (206)
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Net earnings $ 929 $ 929 $ 2,388 $ 1,750
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Basic earnings per share:
Earnings before extraordinary item $ 0.24 $ 0.24 $ 0.61 $ 0.50
Extraordinary item - - - (0.05)
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Net earnings per share $ 0.24 $ 0.24 $0. 61 $ 0.45
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Diluted earnings per share:
Earnings before extraordinary item $ 0.24 $ 0.24 $ 0.61 $ 0.50
Extraordinary item - - - (0.05)
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Net earnings per share $ 0.24 $ 0.24 $ 0.61 $ 0.45
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See accompanying notes to condensed consolidated financial statements.
3
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Quarter Nine-Months
Ended Ended
September 30, September 30,
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($ in thousands) 2001 2000 2001 2000
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Net earnings $ 929 $ 929 $2,388 $1,750
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Net unrealized holding gains on securities arising during the period 94 - 644 -
Provision for income taxes related to unrealized holding gains on securities 46 - 253 -
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Other comprehensive income, net of tax 48 - 391 -
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Total comprehensive income, net of tax $ 977 $ 929 $2,779 $1,750
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See accompanying notes to condensed consolidated financial statements.
4
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Nine-Months Ended
September 30,
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($ in thousands) 2001 2000
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CLASS A COMMON STOCK
Balance at beginning of period $ 3,545 $ 3,532
Issuance of 12,750 shares upon the exercise of warrants in 2000 - 13
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Balance at end of period 3,545 3,545
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CLASS B COMMON STOCK
Balance at beginning of period 355 305
Issuance of 50,000 shares of restricted stock compensation in 2000 - 50
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Balance at end of period 355 355
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ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of period 18,975 18,770
Compensation related to issuance of Class B stock warrants 20 19
Issuance of 50,000 shares of restricted Class B stock compensation in 2000 - 109
Issuance of 12,750 shares upon the exercise of Class A stock warrants in 2000 - 73
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Balance at end of period 18,995 18,971
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RETAINED EARNINGS
Balance at beginning of period 13,605 10,997
Net earnings for the period 2,388 1,750
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Balance at end of period 15,993 12,747
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ACCUMULATED OTHER COMPREHENSIVE INCOME, NET
Balance at beginning of period (252) -
Net change in accumulated other comprehensive income, net 391 -
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Balance at end of period 139 -
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Total stockholders' equity at end of period $ 39,027 $ 35,618
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See accompanying notes to condensed consolidated financial statements.
5
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine-Months Ended
September 30,
---------------------------
($ in thousands) 2001 2000
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OPERATING ACTIVITIES
Net earnings $ 2,388 $ 1,750
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 353 334
Provision for loan loss reserves 364 292
Deferred income tax benefit (210) (43)
Amortization of deferred debenture offering costs 545 964
Compensation expense from awards of common stock and warrants 20 178
Amortization of premiums, fees and discounts, net (1,777) (1,171)
Net increase (decrease) in accrued interest payable on debentures 1,947 (1,135)
Net decrease in official checks outstanding (670) (464)
Net decrease in all other assets and liabilities 2,544 1,196
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Net cash provided by operating activities 5,504 1,901
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INVESTING ACTIVITIES
Increase in interest-earning time deposits with banks (350) (2,050)
Maturities and calls of securities available for sale 66,789 -
Maturities and calls of securities held to maturity 31,284 19,841
Purchases of securities held to maturity (80,975) (27,608)
Net increase in loans receivable (85,229) (49,146)
Purchases of Federal Reserve Bank stock, net (49) (88)
Purchases of premises and equipment, net (619) (127)
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Net cash used in investing activities (69,149) (59,178)
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FINANCING ACTIVITIES
Net increase in demand, savings, NOW and money market deposits 25,310 1,098
Net increase in certificates of deposit 16,174 79,556
Net increase in mortgage escrow funds payable 3,747 2,757
Repayments of Federal funds purchased, net - (6,955)
Principal repayments of debentures (1,400) (24,000)
Proceeds from issuance of debentures, net of issuance costs 9,932 -
Proceeds from issuance of common stock, net of issuance costs - 86
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Net cash provided by financing activities 53,763 52,542
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Net decrease in cash and cash equivalents (9,882) (4,735)
Cash and cash equivalents at beginning of period 42,938 32,095
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Cash and cash equivalents at end of period $ 33,056 $ 27,360
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SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 16,263 $ 17,207
Income taxes
1,896 451
Noncash activities:
Accumulated other comprehensive income,
change in unrealized gain on securities available for sale, net of tax 391 -
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See accompanying notes to condensed consolidated financial statements.
6
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
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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 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.
Effective July 20, 2001, Intervest Bank merged into Intervest National Bank.
Intervest National Bank (the "Bank"), a nationally chartered bank, retains its
headquarters and full-service banking office at One Rockefeller Plaza, in New
York City, and now has a total of five full-service banking offices in
Clearwater and Pinellas County, Florida. The merger 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 banks are combined and recorded at their
historical cost amounts.
The Bank conducts 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.
The 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 a mortgage investment company.
In the opinion of management, all material adjustments necessary for a fair
presentation of financial condition and results of operations for the interim
periods presented in this report have been made. These adjustments are of a
normal recurring nature. The results of operations for the interim periods are
not necessarily indicative of results that may be expected for the entire year
or any other interim period. In preparing the condensed consolidated financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses. Actual
results could differ from those estimates. Certain reclassifications have been
made to prior period amounts to conform to the current periods' presentation.
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 Nine-Months Ended
September 30, September 30,
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($ in thousands)
2001 2000 2001 2000
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Balance at beginning of period $2,868 $2,738 $2,768 $2,493
Provision charged to operations 264 47 364 292
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Balance at end of period $3,132 $2,785 $3,132 $2,785
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7
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
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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 Nine-Months Ended
September 30, September 30,
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2001 2000 2001 2000
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BASIC EARNINGS PER SHARE
Net earnings:
Earnings before extraordinary item $ 929,000 $ 929,000 $ 2,388,000 $ 1,956,000
Extraordinary item (1) - - - (206,000)
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Net earnings $ 929,000 $ 929,000 $ 2,388,000 $ 1,750,000
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Average number of common shares outstanding 3,899,629 3,896,365 3,899,629 3,879,500
Per share amounts:
Earnings before extraordinary item $ 0.24 $ 0.24 $ 0.61 $ 0.50
Extraordinary item (1) - - - (0.05)
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Basic net earnings per share $ 0.24 $ 0.24 $ 0.61 $ 0.45
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DILUTED EARNINGS PER SHARE
Adjusted net earnings for diluted earnings per share computation (2) $ 929,000 $ 929,000 $ 2,388,000 $ 1,750,000
Average number of common shares outstanding for dilution:
Common shares outstanding per above 3,899,629 3,896,365 3,899,629 3,879,500
Potential dilutive shares resulting from exercise of warrants (3) 45,868 - - -
Potential dilutive shares resulting from conversion of debentures (2) - - - -
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Total average number of common shares outstanding 3,945,497 3,896,365 3,899,629 3,879,500
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Per share amounts:
Earnings before extraordinary item $ 0.24 $ 0.24 $ 0.61 $ 0.50
Extraordinary item (1) - - - (0.05)
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Diluted net earnings per share $ 0.24 $ 0.24 $ 0.61 $ 0.45
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<FN>
(1) Represents a charge, net of taxes, from the early retirement of debentures.
(2) 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.
(3) A total of 1,134,000 and 2,650,218 of common stock warrants with exercise
prices ranging from $6.67 to $16.00 were not included in the quarter and
nine-month computation of diluted EPS for 2001, respectively, because they
were not dilutive. A total of 2,650,000 common stock warrants with exercise
prices ranging from $6.67 to $15.00 were not included in the quarter and
nine-month computation of diluted EPS for 2000 because they were not
dilutive.
</FN>
8
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
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Note 4 - Regulatory Capital
Intervest National Bank is required to maintain certain minimum regulatory
capital requirements.
The following is a summary at September 30, 2001 of the minimum regulatory
capital requirements and the actual capital of the Bank on a percentage basis:
Actual Minimum To Be Considered
Ratios Requirement Well Capitalized
------ ----------- ----------------
Total capital to risk-weighted assets 10.78% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 9.76% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 9.45% 4.00% 5.00%
In September 2001, the Office of the Comptroller of the Currency terminated a
Memorandum of Understanding with Intervest National Bank that was in effect
since September 2000. The memorandum was a formal written agreement whereby,
among other things, Intervest National Bank had been required to review, revise,
develop and implement various policies and procedures with respect to its
lending and credit underwriting. Management implemented various actions in order
for Intervest National Bank to be in full compliance with the memorandum.
9
Intervest Bancshares Corporation and Subsidiaries
Review by Independent Certified Public Accountants
Hacker, Johnson & Smith PA, the Company's independent certified public
accountants, have made a limited review of the financial data as of September
30, 2001, and for the three- and nine-month periods ended September 30, 2001 and
2000 presented in this document, in accordance with standards established by the
American Institute of Certified Public Accountants.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
10
Report on Review by Independent Certified Public Accountants
The Board of Directors and Stockholders
Intervest Bancshares Corporation
New York, New York:
We have reviewed the accompanying condensed consolidated balance sheet of
Intervest Bancshares Corporation and Subsidiaries (the "Company") as of
September 30, 2001, and the related condensed consolidated statements of
earnings and comprehensive income for the three- and nine-month periods ended
September 30, 2001 and 2000, and the related condensed consolidated statements
of changes in stockholders' equity and cash flows for the nine-month periods
ended September 30, 2001 and 2000 included in this report. These financial
statements are the responsibility of the Company's management.
We were furnished with the report of other accountants on their reviews of
the interim financial information of Intervest Corporation of New York, whose
total assets as of September 30, 2001 constituted 17.3% of the related
consolidated total, and whose net interest income, noninterest income and net
earnings for the three- and nine-month periods then ended, constituted 13.2%,
16.9%, and 14.4%; and 9.1%, 41.7%, and 10.9%, respectively, and whose net
interest income, noninterest income and net earnings for the three- and
nine-month periods ended September 30, 2000, constituted 13.4%, 60.4% and 22.3%;
and 10.7%, 42.5% and 1.3%, respectively, of the related consolidated totals.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews and the report of other accountants, we are not aware
of any material modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in conformity with
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2000, and the related consolidated statements of earnings,
comprehensive income, changes in stockholders' equity and cash flows for the
year then ended (not presented herein); and in our report dated January 18,
2001, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2000 is fairly stated in
all material respects, in relation to the consolidated balance sheet from which
it has been derived.
/s/ HACKER, JOHNSON & SMITH PA
- ------------------------------
HACKER, JOHNSON & SMITH PA
Tampa, Florida
November 7, 2001
11
Report on Review by Independent Certified Public Accountants
Board of Directors and Stockholder
Intervest Corporation of New York
New York, New York:
We have reviewed the condensed consolidated balance sheet of Intervest
Corporation of New York and Subsidiaries (the "Company") as of September 30,
2001, and the related condensed consolidated statements of operations for the
three- and nine-month periods ended September 30, 2001 and 2000, and the related
condensed consolidated statements of changes in stockholder's equity and cash
flows for the nine-month periods ended September 30, 2001 and 2000 (all of which
are not presented herein). These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
for them to be in conformity with accounting principles generally accepted in
the United States of America.
We previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2000 and the related consolidated statements of operations, changes
in stockholder's equity and cash flows for the year then ended (not presented
herein), and in our report dated January 18, 2001, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 2000 is fairly stated in all material respects in relation to
the consolidated balance sheet from which it has been derived.
/s/ Richard A. Eisner & Company, LLP
- ------------------------------------
Richard A. Eisner & Company, LLP
New York, New York
October 18, 2001
12
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
-------
At September 30, 2001, Intervest Bancshares Corporation had two wholly owned
subsidiaries - Intervest National Bank and Intervest Corporation of New York
(hereafter referred to collectively as the "Company" on a consolidated basis).
Intervest National Bank may be referred to as the "Bank," 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.
Effective July 20, 2001, Intervest Bank (the Holding Company's other banking
subsidiary prior to this date) merged into Intervest National Bank. Intervest
National Bank, a nationally chartered bank, retains its headquarters and
full-service banking office at One Rockefeller Plaza, in New York City, and now
has a total of five full-service banking offices in Clearwater and Pinellas
County, Florida. The merger was accounted for at historical cost similar to the
pooling-of-interests method of accounting. Under this method of accounting, the
recorded assets, liabilities, shareholder's equity, income and expenses of both
banks are combined and recorded at their historical cost amounts.
The Bank conducts a personalized commercial and consumer banking business, which
consists of attracting deposits from the areas served by its banking offices.
The Bank also provides Internet banking services through its Web Site:
www.intervestnatbank.com, which can attract deposit customers from outside its
primary market areas. 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 Bank emphasizes multifamily and
commercial real estate lending.
Intervest Corporation of New York and its wholly owned subsidiaries, Intervest
Distribution Corporation and Intervest Realty Servicing Corporation, is a
mortgage investment company located in Rockefeller Center in New York City. It
is engaged in the real estate business, including the origination and purchase
of real estate mortgage loans, consisting of first mortgage, junior mortgage and
wraparound mortgage loans.
The Company's profitability depends primarily on net interest income, which is
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 expense,
occupancy and equipment expenses, data processing expenses, advertising
expenses, 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.
Comparison of Financial Condition at September 30, 2001 and December 31, 2000
-----------------------------------------------------------------------------
Overview
- --------
Total assets at September 30, 2001 increased to $475,716,000, from $416,927,000
at December 31, 2000. Total liabilities at September 30, 2001 increased to
$436,689,000, from $380,699,000 at December 31, 2000. Stockholders' equity
13
increased to $39,027,000 at September 30, 2001, from $36,228,000 at year-end
2000. Book value per common share rose to $10.01 per share at September 30,
2001, from $9.29 at December 31, 2000.
Selected balance sheet information for the Holding Company and its subsidiaries
as of September 30, 2001 follows:
Intervest Intervest Inter-
Holding National Corporation company
($ in thousands) Company Bank of New York Balances Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 4,766 $ 18,606 $ 13,692 $ (4,008) $ 33,056
Time deposits with banks - 250 100 - 350
Securities available for sale at estimated fair value - 8,239 - - 8,239
Securities held to maturity, net - 70,377 - - 70,377
Federal Reserve Bank stock - 654 - - 654
Loans receivable, net of deferred fees 5,907 279,483 64,736 - 350,126
Allowance for loan loss reserves (30) (3,102) - - (3,132)
All other assets 41,122 11,421 3,819 (40,316) 16,046
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 51,765 $ 385,928 $ 82,347 $ (44,324) $ 475,716
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits $ - $ 345,819 $ - $ (4,094) $ 341,725
Debentures and accrued interest payable 12,559 - 71,551 - 84,110
All other liabilities 179 9,354 1,266 55 10,854
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 12,738 355,173 72,817 (4,039) 436,689
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 39,027 30,755 9,530 (40,285) 39,027
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 51,765 $ 385,928 $ 82,347 $ (44,324) $ 475,716
- ------------------------------------------------------------------------------------------------------------------------------------
A comparison of the consolidated balance sheets as of September 30, 2001 and
December 31, 2000 follows:
At September 30, 2001 At December 31, 2000
Carrying % of Carrying % of
($ in thousands) Value Total Assets Value Total Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 33,056 6.9% $ 42,938 10.3%
Time deposits with banks 350 0.1 - -
Securities available for sale at estimated fair value 8,239 1.7 74,789 17.9
Securities held to maturity, net 70,377 14.8 20,970 5.0
Federal Reserve Bank stock 654 0.2 605 0.2
Loans receivable, net of deferred fees and loan loss reserves 346,994 72.9 263,558 63.2
All other assets 16,046 3.4 14,067 3.4
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $475,716 100.0% $416,927 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits $341,725 71.8% $300,241 72.0%
Debentures payable 73,430 15.4 64,080 15.4
Accrued interest payable on debentures 10,680 2.3 8,733 2.1
All other liabilities 10,854 2.3 7,645 1.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 436,689 91.8 380,699 91.3
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 39,027 8.2 36,228 8.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $475,716 100.0% $416,927 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents decreased to $33,056,000 at September 30, 2001, from
$42,938,000 at December 31, 2000, due to a lower level of Federal funds and
short-term commercial paper investments outstanding.
Cash and cash equivalents include Federal funds and 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.
14
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 (which consist of fixed-rate debt obligations of various U.S.
government agencies) decreased to $8,239,000 at September 30, 2001, from
$74,789,000 at December 31, 2000. The decrease was due to early redemptions by
various agencies brought about from the steady decline in market interest rates
during 2001. The resulting proceeds from the redemptions were used to partially
fund new mortgage loan originations and the remainder was reinvested in
shorter-term U.S. government agency securities classified as held to maturity.
At September 30, 2001, the portfolio consisted of U.S. government agency
securities with a weighted-average yield of 5.57% and maturing at various times
through 2005. Approximately $1,000,000 of the securities have terms that allow
the issuer the right to call or prepay its obligation without prepayment
penalty. At September 30, 2001, the portfolio had an unrealized gain, net of
tax, of $139,000. 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 $70,377,000 at September 30, 2001, compared to
$20,970,000 at December 31, 2000. The increase was due to new purchases
exceeding maturities during the year. The portfolio consists of short-term U.S.
government agency securities with a weighted-average yield of approximately
3.05% and an average term of approximately one year.
Federal Reserve Bank Stock
- --------------------------
In order for the Bank to be a member of the Federal Reserve Banking System, the
Bank maintains an investment in the capital stock of the Federal Reserve Bank,
which pays a dividend that is currently 6%. The investment, which amounted to
$654,000 at September 30, 2001 and $605,000 at December 31, 2000, fluctuates
based on the 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 $346,994,000 at September 30, 2001, from $263,558,000 at December
31, 2000. The growth 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 September 30, 2001, the allowance for loan loss reserves amounted to
$3,132,000, compared to $2,768,000 at December 31, 2000. The allowance
represented 0.89% of total loans outstanding at September 30, 2001, compared to
1.04% at December 31, 2000. At September 30, 2001 and December 31, 2000, the
Company did not have any loans on a nonaccrual status or classified as impaired.
The Company monitors its loan portfolio to determine the appropriate level of
the allowance for loan loss reserves based on various factors. These factors
include: the type and level of loans outstanding; volume of loan originations;
overall portfolio quality; loan concentrations; specific problem loans,
historical chargeoffs and recoveries; adverse situations which may affect the
borrowers' ability to repay; and management's assessment of the current and
anticipated economic conditions in the Company's lending regions.
All Other Assets
- ----------------
The following table sets forth the composition of all other assets in the table
on page 14:
At At
September 30, December 31,
($ in thousands) 2001 2000
- --------------------------------------------------------------------------------
Accrued interest receivable $3,212 $2,961
Loans fee receivable 2,403 1,276
Premises and equipment, net 5,997 5,731
Deferred income tax asset 1,062 1,105
Deferred debenture offering costs,net 3,108 2,835
All other 264 159
- --------------------------------------------------------------------------------
$16,046 $14,067
- --------------------------------------------------------------------------------
15
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 loan originations.
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 2001, partially
offset by normal amortization.
Deposit Liabilities
- -------------------
Deposit liabilities increased to $341,725,000 at September 30, 2001, from
$300,241,000 at December 31, 2000. At September 30, 2001, certificate of deposit
accounts totaled $233,830,000 and demand deposit, savings, NOW and money market
accounts aggregated $107,895,000. The same categories of deposit accounts
totaled $217,656,000 and $82,585,000, respectively, at December 31, 2000.
Certificate of deposit accounts represented 68% of total deposits at September
30, 2001, compared to 72% at year-end 2000.
Debentures Payable and Related Accrued Interest Payable
- -------------------------------------------------------
At September 30, 2001, total debentures payable amounted to $73,430,000,
compared to $64,080,000 at December 31, 2000. The increase was due to the sale
of additional debentures by Intervest Corporation of New York totaling
$7,250,000 (as part of its normal funding of its operations) and the sale of
$3,500,000 of debentures by Intervest Bancshares Corporation for working capital
purposes. The sale of these debentures was partially offset by the maturity on
January 1, 2001, of $1,400,000 of Intervest Corporation of New York's
debentures. The sale of debentures, after underwriter's commissions and other
issuance costs, resulted in net proceeds of $6,670,000 for Intervest Corporation
of New York and $3,260,000 for the Holding Company.
At September 30, 2001, Intervest Corporation of New York had $63,000,000 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 September 30, 2001, accrued interest
payable on debentures amounted to $10,680,000, compared to $8,733,000 at
year-end 2000. Nearly all of the accrued interest payable at September 30, 2001
is due and payable at the maturity of various debentures. For a further
discussion of the debentures, including conversion prices and redemption
premiums, see note 8 to the consolidated financial statements included in the
Company's Annual Report to Stockholders on Form 10-K for the year ended December
31, 2000.
All Other Liabilities
- ---------------------
The following table shows the composition of all other liabilities in the table
on page 14:
At At
September 30, December 31,
($ in thousands) 2001 2000
- --------------------------------------------------------------------------------
Accrued interest payable on deposits $ 791 $ 856
Mortgage escrow funds payable 7,144 3,397
Official checks outstanding 1,611 2,281
All other 1,308 1,111
- --------------------------------------------------------------------------------
$10,854 $7,645
- --------------------------------------------------------------------------------
16
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 $39,027,000 at September 30, 2001, from
$36,228,000 at December 31, 2000. The increase was due to net earnings of
$2,388,000 and a $391,000 increase in unrealized gains, net of tax, on
securities available for sale. Intervest National Bank is a well-capitalized
institution as defined by FDIC regulations. See note 4 to the condensed
consolidated financial statements herein for the Bank's capital ratios.
Liquidity and Capital Resources
-------------------------------
The Company manages its liquidity position on a daily basis to assure that funds
are available to meet operations, loan and investment funding commitments,
deposit withdrawals and the repayment of borrowed funds. The Company's primary
sources of funds consist of retail deposits obtained through the Banks' offices,
satisfactions and repayments of loans, the maturities and calls of securities,
and cash provided by operating activities. From time to time, the Company may
also borrow funds through the Federal funds market or sale of debentures. For
information about the cash flows from the Company's operating, investing and
financing activities, see the condensed consolidated statements of cash flows in
this report.
At September 30, 2001, the Company's total commitment to lend aggregated
approximately $26,000,000. Based on its cash flow projections, the Company
believes that it can fund all of its outstanding commitments from the
aforementioned sources of funds.
Interest Rate Risk
------------------
Interest rate risk arises from differences in the repricing of assets and
liabilities within a given time period. The 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. The Company uses "gap analysis," which measures the
difference between interest-earning assets and interest-bearing liabilities that
mature or reprice within a given time period, to monitor its interest rate
sensitivity. At September 30, 2001, the Company's one-year interest-rate
sensitivity gap was a positive $6,520,000, or 1.4% of total assets, compared to
a negative $12,411,000, or 3%, at December 31, 2000. The change in the gap was
largely due to the early redemptions of securities available for sale by U.S.
government agencies and the resulting proceeds being reinvested in shorter-term
securities and variable-rate loans. In computing the gap, the Company treats its
interest checking, money market and savings deposit accounts as immediately
repricing. For a further discussion of interest rate risk and gap analysis,
including all of the assumptions used in developing the Company's one-year gap
position, see the Company's 2000 Annual Report to Stockholders on Form 10-K,
pages 30 through 32.
Comparison of Results of Operations for the Quarters Ended September 30, 2001
- --------------------------------------------------------------------------------
and 2000
- --------
Overview
- --------
Consolidated net earnings for the third quarter of 2001 amounted to $929,000, or
$0.24 per fully diluted share, unchanged from the third quarter of 2000. Results
for the 2001 period reflected growth in the Company's net interest and dividend
income of $555,000, which was offset by a $232,000 increase in noninterest
expenses, a $217,000 increase in the provision for loan loss reserves primarily
due to growth in the loan portfolio, and a decrease of $101,000 in noninterest
income.
17
Net Interest and Dividend Income
- --------------------------------
Net interest and dividend income is the Company's primary source of earnings and
is influenced primarily by the amount, distribution and repricing
characteristics of its interest-earning assets and interest-bearing liabilities
as well as by the relative levels and movements of interest rates.
The following table provides information on average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for the periods indicated. The yields and rates
shown are based on a computation of income/expense (including any related fee
income or expense) for each period divided by average interest-earning
assets/interest-bearing liabilities during each period. Average balances are
derived mainly from daily balances. Net interest margin is computed by dividing
net interest and dividend income by the average of total interest-earning assets
during each period.
Quarter Ended
----------------------------------------------------------------------------------
September 30, 2001 September 30, 2000
----------------------------------------------------------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Interest-earning assets:
Loans $ 337,545 $ 8,050 9.46% $ 257,592 $ 6,538 10.10%
Securities 44,129 463 4.16 97,514 1,462 5.96
Other interest-earning assets 50,341 437 3.44 19,671 324 6.55
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 432,015 $ 8,950 8.22% 374,777 $ 8,324 8.84%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 11,897 13,378
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 443,912 $ 388,155
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest checking deposits $ 8,036 $ 62 3.06% $ 7,714 $ 58 2.99%
Savings deposits 20,292 206 4.03 17,341 233 5.35
Money market deposits 67,070 682 4.03 51,294 701 5.44
Certificates of deposit 216,820 3,243 5.93 193,640 3,082 6.33
--------- --------- ---- -------- -------- ----------
Total deposit accounts 312,218 4,193 5.33 269,989 4,074 6.00
Debentures and accrued interest payable 78,372 1,821 9.22 67,336 1,869 11.04
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 390,590 $ 6,014 6.11% 337,325 $ 5,943 7.01%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 5,134 6,766
Noninterest-bearing liabilities 9,785 8,940
Stockholders' equity 38,403 35,124
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 443,912 $ 388,155
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $ 2,936 2.11% $ 2,381 1.83%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 41,425 2.70% $ 37,452 2.53%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.11x 1.11x
- ------------------------------------------------------------------------------------------------------------------------------------
Other Ratios:
Return on average assets (1) 0.84% 0.96%
Return on average equity (1) 9.68% 10.58%
Noninterest expense to average assets (1) 1.18% 1.11%
Efficiency ratio 41.38% 39.76%
Average stockholders' equity to average assets 8.65% 9.05%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Annualized
</FN>
Net interest and dividend income increased to $2,936,000 in the third quarter of
2001, from $2,381,000 in the third quarter of 2000. The increase was
attributable to growth of $57,238,000 in the Company's average interest-earning
assets and an increase in the net interest margin from 2.53% in the third
quarter of 2000, to 2.70% in the third quarter of 2001.
The growth in earning assets was primarily due to $79,953,000 in new mortgage
loans, funded by $42,229,000 of new deposits, $11,036,000 of increased
debentures and interest payable and a net reduction in security and other
short-term investments aggregating $22,715,000.
18
The increase in the margin was due to the Company's cost of funds decreasing at
a faster pace than its yield earned on interest-earning assets in a declining
interest rate environment. The yield on interest-earning assets decreased 62
basis points to 8.22% in the third quarter of 2001 due to lower yields earned on
interest-earning assets. The cost of funds decreased 90 basis points to 6.11% in
the third quarter of 2001 due to lower rates paid on deposit accounts and
variable-rate debentures.
Provision for Loan Loss Reserves
- --------------------------------
In the third quarter of 2001, the Company recorded a provision for loan losses
of $264,000, compared to a provision of $47,000 in the third 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 15 of this report. The
increase was primarily due to the growth in the loan portfolio.
Noninterest Income
- ------------------
Noninterest income includes fees from customer service charges and income from
mortgage lending activities, which is comprised mostly of income from loan
prepayments, fees earned on expired loan commitments, and loan service,
inspection and maintenance charges.
Noninterest income decreased to $237,000 in the third quarter of 2001, from
$338,000 in the third quarter of 2000, due to lower income and fees from the
prepayment of mortgage loans. The number of instances of prepayment of mortgage
loans tends to increase during periods of declining interest rates and tends to
decrease during periods of increasing interest rates, although the amount and
timing of prepayments, if any cannot be predicted. Many of the Company's
mortgage loans include prepayment provisions, and others prohibit prepayment of
indebtedness entirely.
Noninterest Expenses
- --------------------
Noninterest expenses increased to $1,313,000 in the third quarter of 2001, from
$1,081,000 in the comparable quarter of 2000. The increase was due to a $120,000
increase in compensation and benefits (of which $97,000 was the result of salary
increases, additional staff and higher benefit expenses, and the remainder due
to a lower amount of SFAS No. 91 deferred origination costs), a $74,000 increase
in data processing expenses (due to growth in Intervest National Bank's assets)
and a $74,000 increase in all other noninterest expenses (partially due to
nonrecurring expenses of $20,000 associated with the merger of Intervest Bank
into Intervest National Bank and $8,000 of higher FDIC insurance premiums).
These increases were partially offset by lower professional fees and expenses of
$28,000.
Provision for Income Taxes
- --------------------------
The provision for income taxes amounted to $667,000 in the third quarter of
2001, compared to $662,000 in the third quarter of 2000. The Company's effective
tax rate (inclusive of state and local taxes) amounted to 41.8% in the 2001
period, compared to 41.6% in the 2000 period.
Comparison of Results of Operations for the Nine-Months Ended September 30, 2001
- --------------------------------------------------------------------------------
and 2000
- --------
Overview
- --------
Consolidated net earnings for the first nine months of 2001 increased $638,000
to $2,388,000, or $0.61 per fully diluted share, from $1,750,000, or $0.45 per
fully diluted share, in the same period of 2000. Increased earnings was
primarily due to growth in net interest and dividend income of $1,017,000 and an
increase of $353,000 in noninterest income (due to the early repayment of
mortgage loans). These items were partially offset by a $504,000 increase in
noninterest expenses (which included $175,000 of nonrecurring costs associated
with the merger of Intervest Bank into Intervest National Bank), and a $362,000
increase in the provision for income taxes. Results for the 2000 period included
an extraordinary charge, net of taxes, of $206,000, in connection with the early
retirement of various debentures by the Company's subsidiary, Intervest
Corporation of New York.
Net Interest and Dividend Income
- --------------------------------
Net interest and dividend income is the Company's primary source of earnings and
is influenced primarily by the amount, distribution and repricing
characteristics of its interest-earning assets and interest-bearing liabilities
as well as by the relative levels and movements of interest rates.
19
The following table provides information on average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for the periods indicated. The yields and rates
shown are based on a computation of income/expense (including any related fee
income or expense) for each period divided by average interest-earning
assets/interest-bearing liabilities during each period. Average balances are
derived mainly from daily balances. Net interest margin is computed by dividing
net interest and dividend income by the average of total interest-earning assets
during each period.
Nine-Months Ended
----------------------------------------------------------------------------------
September 30, 2001 September 30, 2000
----------------------------------------------------------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Interest-earning assets:
Loans $ 299,407 $ 21,637 9.66% $ 244,990 $ 18,214 9.93%
Securities 66,224 2,643 5.34 99,442 4,413 5.93
Other interest-earning assets 53,924 1,758 4.36 13,209 611 6.18
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 419,555 $ 26,038 8.30% 357,641 $ 23,238 8.68%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 11,721 13,787
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 431,276 $ 371,428
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest checking deposits $ 7,373 $ 165 2.99% $ 7,589 $ 172 3.03%
Savings deposits 18,079 591 4.37 17,545 678 5.16
Money market deposits 61,448 2,042 4.44 51,900 2,074 5.34
Certificates of deposit 217,429 10,170 6.25 163,823 7,463 6.09
--------------------------------------------------------------------------------
Total deposit accounts 304,329 12,968 5.70 240,857 10,387 5.76
Federal funds purchased - - - 3,321 146 5.87
Debentures and accrued interest payable 75,586 5,722 10.12 78,514 6,374 10.84
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 379,915 $ 18,690 6.58% 322,692 $ 16,907 7.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 6,586 5,980
Noninterest-bearing liabilities 7,312 8,297
Stockholders' equity 37,463 34,459
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 431,276 $ 371,428
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $ 7,348 1.72% $ 6,331 1.68%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 39,640 2.34% $ 34,949 2.36%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.10x 1.11x
- ------------------------------------------------------------------------------------------------------------------------------------
Other Ratios:
Return on average assets (1) 0.74% 0.63%
Return on average equity (1) 8.50% 6.77%
Noninterest expense to average assets (1) 1.23% 1.24%
Efficiency ratio 47.33% 49.39%
Average stockholders' equity to average assets 8.69% 9.28%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Annualized
</FN>
Net interest and dividend income increased to $7,348,000 in the first nine
months of 2001, from $6,331,000 in the first nine months of 2000. The increase
was attributable to growth of $61,914,000 in the Company's average
interest-earning assets, funded by increased deposits. The net interest margin
was relatively unchanged at 2.34% in the first nine months of 2001, compared to
2.36% in the first nine months of 2000.
Provision for Loan Loss Reserves
- --------------------------------
In the first nine months of 2001, the Company recorded a provision for loan
losses of $364,000, compared to a provision of $292,000 in the first nine months
of 2000. The provision is based on management's ongoing assessment of the
20
adequacy of the allowance for loan loss reserves, which takes into consideration
a number of factors as discussed on page 15 of this report. The increase was
primarily due to the growth in the loan portfolio.
Noninterest Income
- ------------------
Noninterest income increased to $1,031,000 in the first nine months of 2001,
from $678,000 in the first nine months of 2000. Noninterest income includes fees
from customer service charges and income from mortgage lending activities, which
are comprised of loan prepayment fees, fees earned on expired loan commitments,
and loan service, inspection and maintenance charges. The increase from the
prior year period was primarily due to higher prepayment fee income from
mortgage loans.
Noninterest Expenses
- --------------------
Noninterest expenses increased to $3,966,000 in the first nine months of 2001,
from $3,462,000 in the first nine months of 2000. Expenses for the 2001 period
include $175,000 of nonrecurring expenses associated with the merger of
Intervest Bank into Intervest National Bank. Expenses for the 2000 period
include approximately $210,000 of nonrecurring expenses (consisting of $51,000
of attorney fees, consulting fees and printing costs, and $159,000 of stock
compensation) associated with the acquisition of Intervest Corporation of New
York.
Absent the aforementioned expenses, noninterest expenses totaled $3,791,000 in
the first nine months of 2001, compared to $3,252,000 in the first nine months
of 2000. The increase was due to a $307,000 increase in compensation and
benefits (of which $170,000 was the result of salary increases, additional staff
and increased benefit expenses, and the remainder due to a lower amount of SFAS
No. 91 deferred origination costs), a $122,000 increase in data processing
expenses (due to Intervest National Bank's growth in assets) and a $24,000
increase in occupancy expenses (due to higher occupancy taxes), and a $101,000
increase in all other noninterest expenses (primarily due to $40,000 of higher
FDIC insurance premiums). These increases were partially offset by lower
advertising and promotion expenses of $11,000.
Provision for Income Taxes
- --------------------------
The provision for income taxes amounted to $1,661,000 in the first nine months
of 2001, compared to $1,299,000 in the first nine months of 2000. The increase
was almost entirely due to higher pre-tax earnings. The Company's effective tax
rate (inclusive of state and local taxes) amounted to 41.0% in the 2001 period,
compared to 39.9% in the 2000 period.
Extraordinary Item
- ------------------
In the second quarter of 2000, Intervest Corporation of New York redeemed its
Series 9/13/93, 1/28/94 and 10/28/94 debentures aggregating $17,000,000 in
principal amount prior to maturity for the outstanding principal plus accrued
interest. In connection with these early redemptions, $382,000 of unamortized
deferred debenture offering costs was charged to expense in the second quarter
of 2000 and reported as an extraordinary charge of $206,000 (net of a tax
benefit of $176,000).
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Company's market risk arises primarily from interest rate
risk inherent in its lending and deposit-taking activities. The Company does not
engage in and as such has no risk related to trading accounts, commodities or
foreign exchange.
Management actively monitors and manages the Company's interest rate risk
exposure. The primary objective in managing interest rate risk is to limit,
within established guidelines, the adverse impact of changes in interest rates
on the Company's net interest income and capital, while adjusting the Company's
asset-liability structure to obtain the maximum yield versus cost spread on that
structure. Management relies primarily on its asset-liability structure to
control interest rate risk. However, a sudden and substantial increase in
interest rates could adversely impact the Company's earnings, to the extent that
the interest rates borne by assets and liabilities do not change at the same
speed, to the same extent, or on the same basis. Management believes that there
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have been no significant changes in the Company's market risk exposure since
December 31, 2000.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Not Applicable
ITEM 2. Changes in Securities and Use of Proceeds
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
ITEM 3. Defaults Upon Senior Securities
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
ITEM 5. Other Information
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) No exhibits are filed with this report.
(b) No reports on Form 8-K were filed during the quarter ended September
30, 2001.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
Date: November 12, 2001 By: /s/ Lowell S. Dansker
-------------------------
Lowell S. Dansker, President and Treasurer
(Chief Financial Officer)
Date: November 12, 2001 By: /s/ Lawrence G. Bergman
---------------------------
Lawrence G. Bergman, Vice President and Secretary
22