As filed with the Securities and Exchange Commission on July 2, 1999
Registration No. 333-64177
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Post-Effective Amendment No. 1 to
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INTERVEST BANCSHARES CORPORATION
(Name of Small Business Issuer in Its charter)
Delaware 6060 13-3699013
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(State or Jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or Organization) Classification Code Number) Identification No.)
10 Rockefeller Plaza (Suite 1015), New York, New York 10020-1903, (212) 218-2800
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(Address and Telephone Number of Principal Executive Offices)
10 Rockefeller Plaza (Suite 1015), New York, New York 10020-1903
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(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
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(Name, Address and Telephone Number of Agent For Service)
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with copies to:
Thomas E. Willett, Esq.
Harris Beach & Wilcox
130 East Main Street
Rochester, New York 14604
Approximate Date of Proposed Sale to the Public: As soon as practicable.
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] ______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [ ].
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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 608,696 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.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 2, 1999
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 entitle the holders to purchase
up to 2,554,468 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 749,034
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.
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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.
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Underwriting
Discounts and Proceeds to
Price to Public Commissions(1) Company(2)
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Per Share(2) (3) $0 (3)
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Per Warrant(2)(4) -- $0 --
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Total(2) $14,545,754.00 $0 $14,545,754.00
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(1) The Company will not use brokers or dealers in connection with this
offering.
(2) Before deducting expenses estimated at $40,000. The Company will not
receive any proceeds in connection with the conversion of its
debentures.
(3) Warrants related to 1,471,065 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 $14.00 per share;
and the remaining Class A Warrants are at an exercise price of $10.00
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 ___________, 1999
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
subsidiaries are Intervest Bank, a Florida state-chartered bank and Intervest
National Bank, a nationally-chartered bank, both of which are members of the
Federal Reserve System. The Holding Company currently owns approximately 99% of
the issued and outstanding shares of Intervest Bank and 100% of the issued and
outstanding shares of Intervest National Bank. As of March 31, 1999, the Company
had consolidated assets and deposits of $197.1 million and $166.3 million,
respectively, and stockholders' equity of $19.9 million.
Intervest Bank is a community-oriented, full service, commercial bank
serving the Clearwater area of the State of Florida. Intervest National Bank is
a newly chartered full-service commercial bank with its office in the borough of
Manhattan in New York City. It opened for operations on April 1, 1999. Unless
the context otherwise requires, references in this prospectus to the Company
include Intervest Bancshares Corporation and its two 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 Offering
Securities Offered................... 2,554,468 shares of Class A Common Stock
and 195,000 shares of Class B Common
Stock issuable upon exercise of the
Warrants, and 749,034 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.......... 2,192,196(1)
Shares of Class A Common
Stock outstanding after
Exercise of Class A Warrants
and conversion of Debentures......... 5,489,590
Shares of Class B Common
Stock currently outstanding.......... 305,000
Shares of Class B Common
Stock outstanding after
Exercise of Class B Warrants......... 500,000
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 0ffering 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) 305,000 shares of Class A Common stock issuable
upon the conversion of issued and outstanding shares of Class B Common
Stock; (ii) 2,554,468 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)
749,034 shares of Class A Common Stock issuable upon conversion of the
Company's Convertible Subordinated Debentures.
3
SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share figures)
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At of For the Quarter
Ended March 31, At of For the Year Ended December 31,
($ in thousands, except per share amounts) 1999 1998 1998 1997 1996 1995 1994
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Financial Condition Data:
Total assets $ 197,071 $ 165,418 $ 200,522 $ 150,755 $ 105,196 $ 68,942 $ 40,117
Cash and cash equivalents 13,236 8,727 13,472 9,176 6,320 8,551 6,088
Loans receivable, net of unearned income 91,345 84,499 97,736 76,825 60,310 37,058 22,754
Securities, net 85,327 65,977 82,338 58,821 34,507 19,630 8,638
Deposits 166,283 143,409 170,467 131,167 93,447 58,601 30,092
Convertible debentures 6,990 -- 7,000 -- -- -- --
Stockholders' equity 19,859 18,013 19,544 17,620 9,747 9,189 8,884
Nonaccrual loans -- -- -- -- -- -- 101
Allowance for loan loss reserves $ 1,775 1,274 1,662 1,173 811 593 369
Loan chargeoffs -- -- -- -- 65 30 16
Loan recoveries 1 1 10 10 33 21 10
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Operations Data:
Interest and dividend income $ 3,476 $ 2,907 $ 12,934 $ 9,347 $ 6,381 $ 4,190 $ 2,158
Interest expense 2,171 1,838 8,297 5,894 3,745 2,225 803
Net interest and dividend income 1,305 1,069 4,637 3,453 2,636 1,965 1,355
Provision for loan loss reserves 112 100 479 352 250 233 124
Net interest and dividend income after
provision for loan loss reserves 1,193 969 4,158 3,101 2,386 1,732 1,231
Other noninterest income 123 50 349 136 106 89 112
Other noninterest expenses 647 509 2,133 1,906 1,551 1,415 1,054
Earnings before income taxes and change
in accounting principle 669 510 2,374 1,331 941 406 289
Provision for income taxes 275 202 939 487 383 136 108
Cumulative effect of accounting change (1) 128 -- -- -- -- -- --
Net earnings $ 266 $ 308 $ 1,435 $ 844 $ 558 $ 270 $ 181
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Per Share Data:
Basic earnings per share $ 0.11 $ 0.13 $ 0.58 $ 0.49 $ 0.34 $ 0.16 $ 0.11
Diluted earnings per share 0.10 0.09 0.46 0.41 0.34 0.16 0.11
Common book value per share 7.97 7.39 7.87 7.27 5.91 5.57 5.38
Dividends per share -- -- -- -- -- -- --
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Other Data and Ratios:
Common shares outstanding 2,491,088 2,436,665 2,484,515 2,424,415 1,650,000 1,650,000 1,650,000
Average common shares used to calculate:
Basic earnings per share 2,489,831 2,426,457 2,457,113 1,712,292 1,650,000 1,650,000 1,650,000
Diluted earnings per share 3,544,038 3,272,739 3,473,516 2,072,459 1,650,000 1,650,000 1,650,000
Adjusted net earnings for diluted
earnings per share $ 350 $ 308 $ 1,607 $ 844 $ 558 $ 270 $ 181
Full-service banking offices 5 5 5 5 4 4 1
Return on average assets 0.54% 0.77% 0.81% 0.68% 0.67% 0.51% 0.58%
Return on average equity 5.42% 6.55% 7.74% 7.53% 5.91% 3.01% 2.46%
Dividends declared to net earnings -- -- -- -- -- -- --
Loans (net of unearned income) to deposits 54.93% 58.92% 57.33% 58.57% 64.54% 63.24% 75.61%
Net chargeoffs to loans at period end -- -- (.01)% (.01)% .05% .02% .03%
Ratio of allowance for loan losses to loans
at period end .019 .015 .170 .015 .013 .016 .016
Ratio of allowance for loan losses to
nonperforming loans at period end -- -- -- -- -- -- 1.05%
Average stockholders' equity to average
total assets 9.89% 11.77% 10.49% 8.96% 11.29% 16.89% 20.05%
Stockholders' equity to total assets 10.07% 10.89% 9.75% 11.69% 9.27% 13.32% 22.15%
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(1) Represents a cumulative charge, net of applicable taxes, resulting from
the adoption on January 1, 1999 of the AICPA's Statement of Position
98-5, "Accounting for Start-Up Costs."
4
THE COMPANY AND THE BANK
Intervest Bancshares Corporation
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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 principal asset is its ownership interest of
approximately 99.8% of the issued and outstanding shares of Intervest Bank and
all of the issued and outstanding shares of Intervest National Bank. 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 two
subsidiaries. The 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. As of March 31,
1999, the Company, on a consolidated basis, had total assets of $197.1 million,
net portfolio loans of $91.3 million, total deposits of $166.3 million, and
stockholders' equity of $19.9 million.
The Company is a legal entity, separate and distinct from the Banks.
There are various legal limitations with respect to the Banks' financing or
otherwise supplying funds to the 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 bank regulators also have the
authority to limit further the payment of dividends by the Banks under certain
circumstances. In addition, federal banking laws prohibit or restrict the Banks
from extending credit to the Company under certain circumstances.
Intervest Bank
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The Bank is a Florida chartered banking corporation, which was
organized in December, 1987. The 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, Clearwater, and has a
fourth branch in South Pasadena, Florida at 6750 Gulfport Blvd.
Intervest National Bank
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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.
Both 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.
5
INVESTMENT CONSIDERATIONS AND 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
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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.
Dividends
- ---------
Since its inception, the 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 Company are subject to the financial
conditions of both the Banks and the Company as well as other business
considerations. In addition, banking regulations limit the amount of dividends
that may be paid by the Banks to the Company without prior regulatory approval.
The amount of allowable dividends which could be payable by the Company are in
substance limited to net profits earned by the Company, less any earnings
retention consistent with the Company's capital needs, asset quality and overall
financial condition. Distributions paid by the Company to shareholders will be
taxable to the shareholders as dividends, to the extent of the Company's
accumulated current earnings and profits.
The payment of dividends by the Banks to the 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. Such
regulations 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. If the Banks generate sufficient earnings to pay dividends,
there is no assurance that all or a portion of such earnings might not be
retained. In addition, in some cases, the Banks' regulators could prevent one or
both of the Banks from paying dividends if, in their 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 Board of Directors of each Bank and of the
Company. Accordingly, there can be no assurance that any dividends will be paid
in the future by the Banks or the Company.
Adequacy of Allowance For Loan Loss Reserves
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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 maintained at
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, 1999, the Company had a loan portfolio of $91.3 million
and the allowance for loan losses was $1.8 million, which represented 1.94% of
the total amount of loans. At March 31, 1999, there were no non-performing
assets. The Banks actively manage their loans in an effort to minimize credit
losses and monitor asset quality in order to maintain an adequate loan loss
allowance. Although management believes that the allowance for loan loss
reserves 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' loans. Material additions to the Banks' allowance for
loan losses would result in a decrease of the Company's net earnings, 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"
6
Supervision and Regulation
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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 FDIC and 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."
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 and brokerage and investment banking firms 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. The profitability of the Company depends upon the
Banks' ability to compete in their market areas. See "Business - Competition."
Local Economic Conditions
- -------------------------
The success of the Company and the Banks is dependent to a certain
extent upon the general economic conditions in geographic markets served by the
Banks. In the case of Intervest Bank, the primary market area is Pinellas
County, Florida and the immediate surrounding areas, with particular emphasis on
Clearwater, Florida. In the case of Intervest National Bank, its primary market
area is New York City and, more particularly, the borough of Manhattan. Adverse
changes in their geographic markets would likely impair the Banks' 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
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The primary business activity of the Company consists of its ownership
and control of the capital stock of the Banks. As a result, the Company
presently lacks diversification as to business activities and market areas, and
any event affecting either Bank will have a direct impact on the Company. See
"Business."
7
Dependence on Key Personnel
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The Company and the Banks 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 the Bank might be
adversely affected in a material manner. Neither the Company nor either Bank
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 900,000 shares of Class A Common Stock or
approximately 41% 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 four
persons.
Interest Rates
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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.
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
$22.6 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's or the Banks'
business through acquisitions, the establishment of new branches or
subsidiaries, and the infusion of capital to the Banks and any future
subsidiaries of the Company. Neither the Company nor its subsidiaries currently
have agreements, written or oral, with respect to the establishment of any
branches or subsidiaries, or with respect to any specific acquisition prospect.
The actual application of the net proceeds will depend on the capital
needs of the 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 or the Banks. 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 was approved for listing on the
NASDAQ SmallCap Market (Symbol: IBCA) in November 1997. Prior to then, there had
been no established public trading market for the securities of the Company. At
March 31, 1999, 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,
1999, there were four holders of record of Class B common stock. There is no
public-trading market for the Class B common stock.
8
The high and low sales prices (as obtained from NASDAQ) for the Class A
common stock by calendar quarter for 1998 and 1999 are as follows:
High Low
---- ---
1998 - First quarter $15.25 $11.00
1998 - Second quarter $16.00 $11.25
1998 - Third quarter $13.00 $ 8.25
1998 - Fourth quarter $10.00 $ 8.00
1999 - First quarter $11.00 $ 7.63
Dividends
Holders of the Company's Class A common stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds legally
available therefor. No dividends may be declared or paid with respect to shares
of Class B common stock until January 1, 2000. The Company has not paid any cash
dividends on its capital stock and there is no immediate prospect or
contemplation of the payment of dividends on its stock. The Company's ability to
pay dividends is generally limited to earnings from the prior year, although
retained earnings and dividends from its subsidiaries to the Company may also be
used to pay dividends under certain circumstances. The primary source of funds
for dividends payable by the Company to its shareholders is the dividends
payable to it by the Banks.
The payment of dividends by the Banks is subject to a determination by
each Banks' Board of Directors and is dependent upon a number of factors,
including capital requirements, regulatory limitations, the particular Banks'
results of operations and financial condition, tax considerations of the Bank
and the Company, the number of outstanding shares of stock, and general economic
conditions. There are various legal limitations with respect to the Banks
financing or otherwise supplying funds to the 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 as well as the Florida Department
of Banking and Finance, is required if the total amount of all dividends
declared in any calendar year exceeds Intervest 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
Intervest Bank under certain circumstances. In addition, Federal banking laws
prohibit or restrict each Bank from extending credit to the 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.
The FRB and Florida Department of Banking and Finance have publicly
stated their view that it is generally an unsafe and unsound practice to pay
cash dividends except out of current operating earnings. 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 the Company's capital needs, asset quality and overall financial
condition.
The ability of the Banks and the Company to pay cash dividends is
currently, and in the future could be further influenced by regulatory policies
or agreements and by capital guidelines. Accordingly, the actual amount, if any,
and timing of future dividends will depend on, among other things, future
earnings, the financial condition of the Banks and the Company, the amount of
cash on hand at the Company level, outstanding debt obligations and the
requirements imposed by regulatory authorities.
9
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1999, 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, 7,500,000
shares authorized, 2,186,088 shares issued
and outstanding(2)............................ $2,186 $5,490
Class B Common Stock, $1.00 par value, 700,000
shares authorized, 305,000 shares issued and
outstanding 305 500
Additional Paid-in Capital........................ 13,831 40,423
Retained Earnings................................. 3,537 3,537
------- -------
Total Stockholders' Equity......................... $19,859 $49,950
======= =======
- -------------------------
(1) Reflects the 2,554,468 shares of Class A Common Stock and 195,000
shares of Class B Common Stock issuable upon exercise of the Warrants,
and the 749,034 shares of Class A Common Stock currently issuable upon
conversion of debentures.
(2) Does not include shares of Class A Common Stock issuable upon
conversion of Class B Common Stock.
10
Selected Financial Data
The following table presents selected consolidated financial data for the
Company. The data set forth below for the years ended December 31, 1994 through
1998 are derived from the audited consolidated financial statements of the
Company. The data for the three months ended March 31, 1999 and 1998 have been
derived from the unaudited consolidated financial statements of the Company,
which include all adjustments, consisting only of normal, recurring accruals,
which the Company considers necessary for the fair presentation of the financial
position and results of operations for those periods. Operating results for the
three-month period ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the entire fiscal year. The selected financial
data should be read in conjunction with, and are qualified in their entirety by,
the Consolidated Financial Statements and the Notes thereto as well as
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this report.
- -----------------------------------------------------------------------------------------------------------------------------------
At of For the Quarter
Ended March 31, At of For the Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
($ in thousands, except per share amounts)
1999 1998 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Condition Data:
Total assets $ 197,071 $ 165,418 $ 200,522 $ 150,755 $ 105,196 $ 68,942 $ 40,117
Cash and cash equivalents 13,236 8,727 13,472 9,176 6,320 8,551 6,088
Loans receivable, net of deferred fees 91,345 84,499 97,736 76,825 60,310 37,058 22,754
Securities, net 85,327 65,977 82,338 58,821 34,507 19,630 8,638
Deposits 166,283 143,409 170,467 131,167 93,447 58,601 30,092
Convertible debentures 6,990 -- 7,000 -- -- -- --
Stockholders' equity 19,859 18,013 19,544 17,620 9,747 9,189 8,884
Nonaccrual loans -- -- -- -- -- -- 101
Allowance for loan loss reserves $ 1,775 1,274 1,662 1,173 811 593 369
Loan chargeoffs -- -- -- -- 65 30 16
Loan recoveries 1 1 10 10 33 21 10
- -----------------------------------------------------------------------------------------------------------------------------------
Operations Data:
Interest and dividend income 3,476 2,907 $ 12,934 $ 9,347 $ 6,381 $ 4,190 $ 2,158
Interest expense 2,171 1,838 8,297 5,894 3,745 2,225 803
Net interest and dividend income 1,305 1,069 4,637 3,453 2,636 1,965 1,355
Provision for loan loss reserves 112 100 479 352 250 233 124
Net interest and dividend income after
provision for loan loss reserves 1,193 969 4,158 3,101 2,386 1,732 1,231
Other noninterest income 123 50 349 136 106 89 112
Other noninterest expenses 647 509 2,133 1,906 1,551 1,415 1,054
Earnings before income taxes 669 510 2,374 1,331 941 406 289
Provision for income taxes 275 202 939 487 383 136 108
Cumulative effect of accounting change (1) 128 -- -- -- -- -- --
Net earnings $ 266 $ 308 $ 1,435 $ 844 $ 558 $ 270 $ 181
- -----------------------------------------------------------------------------------------------------------------------------------
Per Share Data:
Basic earnings per share $ 0.11 $ 0.13 $ 0.58 $ 0.49 $ 0.34 $ 0.16 $ 0.11
Diluted earnings per share 0.10 0.09 0.46 0.41 0.34 0.16 0.11
Common book value per share 7.97 7.39 7.87 7.27 5.91 5.57 5.38
Dividends per share - -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Other Data and Ratios:
Common shares outstanding 2,491,088 2,436,665 2,484,515 2,424,415 1,650,000 1,650,000 1,650,000
Average common shares used to calculate:
Basic earnings per share 2,489,831 2,426,457 2.457,113 1,712,292 1,650,000 1,650,000 1,650,000
Diluted earnings per share 3,544,038 3,272,739 3,473,516 2,072,459 1,650,000 1,650,000 1,650,000
Adjusted net earnings for diluted
earnings per share
$ 350 $ 308 $ 1,607 $ 844 $ 558 $ 270 $ 181
Full-service banking offices 5 5 5 5 4 4 1
Return on average assets 0.54% 0.77% 0.81% 0.68% 0.67% 0.51% 0.58%
Return on average equity 5.42% 6.55% 7.74% 7.53% 5.91% 3.01% 2.46%
Stockholders' equity to total assets 10.07% 11.89% 9.75% 11.69% 9.27% 13.32% 22.15%
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Represents a cumulative charge, net of applicable taxes, resulting from
the adoption on January 1, 1999 of the AICPA's Statement of Position
98-5, "Accounting for Start-Up Costs."
11
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 thereto included elsewhere in this prospectus.
Intervest Bancshares Corporation's principal assets are its 99.87% and
100% ownership interest in Intervest Bank's outstanding common and preferred
stock, respectively and all of the issued and outstanding shares of Intervest
National Bank. Intervest Bancshares Corporation (the "Holding Company") and
Intervest Bank and Intervest National Bank (the "Banks") are referred to
collectively as the "Company," on a consolidated basis. The Holding Company's
primary business is the operation of the Banks and it does not engage in any
other substantial business activities other than a limited amount of real estate
mortgage lending. As a result, the Company's results of operations are primarily
dependent upon the Banks' results of operations. The Banks conduct a commercial
banking business, which consists of attracting deposits from the general public
and investing those funds, together with other source of funds, through the
origination of commercial and residential real estate loans, commercial and
consumer loans, and the purchase of security investments.
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 interest-bearing
liabilities. Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities, and the interest-rate
earned and paid on these balances. 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. Additionally, the Company's profitability is affected by such
factors as the level of 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, 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.
In November 1997, the Holding Company completed a public offering of
747,500 Units for gross proceeds of $7,475,000 (the "1997 Offering"). Each Unit
consisted of one share of the Holding Company's Class A common stock and one
warrant to purchase an additional share of Class A common stock. In connection
with the 1997 Offering, the Holding Company also issued warrants related to
shares of Class A common stock to the underwriter and participating
broker/dealers.
In June 1998, the Holding Company completed the sale of Convertible
Subordinated Debentures (the "Debentures") in the principal amount of
$7,000,000, for net proceeds of approximately $6,500,000. The Debentures are due
July 1, 2008 and are convertible at the option of the holders at any time prior
to April 1, 2008 into shares of Class A common stock at various conversion
prices. The Holding Company can also redeem the Debentures at any time prior to
maturity at various redemption prices, including the payment of all accrued
interest. Interest on the Debentures accrues and compounds each calendar quarter
at 8%. All accrued interest 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 and to thereafter receive payments of interest quarterly.
On April 1, 1999, the Office of the Comptroller of the Currency granted
final approval of the Holding Company's application to form "Intervest National
Bank," a newly chartered commercial bank, which is a wholly owned subsidiary of
the Holding Company. Intervest National Bank received its national charter and
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. Intervest National Bank is a member of the Federal Reserve Banking
system and the Federal Deposit Insurance Corporation insures its deposits.
Because Intervest National Bank commenced operations on April 1, 1999, and
because the information that follows in this section relates primarily to
financial results through March 31, 1999, the information is based only upon the
results of operations and the financial condition of the Holding Company and
Intervest Bank.
12
Comparison of Financial Condition at March 31, 1999 and December 31, 1998
Total assets at March 31, 1999 declined to $197,071,000, from
$200,522,000 at December 31, 1998. The decrease was primarily due to a decline
in loans receivable, partially offset by additional investments in securities
held to maturity. Total liabilities decreased from $180,978,000 at December 31,
1998, to $177,212,000 at March 31, 1999, reflecting a decline in deposit
liabilities.
The Company's balance sheet was comprised of the following:
- --------------------------------------------------------------------------------------------
At March 31, 1999 At December 31, 1998
----------------- --------------------
($ in thousands) Carrying % of Carrying % of
Value Total Assets Value Total Assets
- --------------------------------------------------------------------------------------------
Cash and cash equivalents $ 13,236 6.7% $ 13,472 6.7%
Securities held to maturity, net 85,327 43.3 82,338 41.1
Loans receivable, net 89,570 45.5 96,074 47.9
All other assets 8,938 4.5 8,638 4.3
- --------------------------------------------------------------------------------------------
Total assets $197,071 100.0% $200,522 100.0%
- --------------------------------------------------------------------------------------------
Deposits $166,283 84.4% $170,467 85.0%
Convertible debentures 6,990 3.5 7,000 3.5
All other liabilities 3,939 2.0 3,511 1.8
- --------------------------------------------------------------------------------------------
Total liabilities 177,212 89.9 180,978 90.3
- --------------------------------------------------------------------------------------------
Stockholders' equity 19,859 10.1 19,544 9.7
- --------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $197,071 100.0% $200,522 100.0%
- --------------------------------------------------------------------------------------------
Securities held to maturity increased due to purchases of U.S.
government agency securities, partially offset by maturities and calls of
securities.
Loans receivable decreased due to sale of four real estate loans (with
an aggregate principal balance of $5,604,000) held by the Holding Company, as
well as principal repayments on the entire loan portfolio. These reductions
exceeded new loan originations during the quarter. The sale of the loans was
made by the Holding Company in order to increase its liquidity in anticipation
of funding Intervest National Bank's initial capital on April 1, 1999. The loans
were sold to Intervest Corporation of New York, a related party, at estimated
fair value. At March 31, 1999 and December 31, 1998, 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 that are
discussed on pages 22 and 23 of the Company's 1998 Annual Report on Form 10-KSB.
At March 31, 1999, the allowance amounted to $1,775,000, compared to $1,662,000
at year-end 1998. The increase reflected management's intent to maintain the
allowance at a level it believes to be adequate.
All other assets increased largely due to purchases of fixed assets and
other assets in connection with organizing Intervest National Bank, and a higher
level of deferred tax benefits.
Deposit liabilities decreased due to net deposit outflows, which
management attributes to a decline in rates offered by Intervest Bank for
deposits. At March 31, 1999, time deposit accounts totaled $91,140,000 and
demand deposit, savings, NOW and money-market accounts aggregated $75,143,000.
This compared to deposits of $99,033,000 and $71,434,000, respectively, at
December 31, 1998. Time deposits represented 55% of total deposits at March 31,
1999, compared to 58% at year-end 1998.
All other liabilities increased largely due to a higher level of
mortgage escrow funds, which represent advance payments by borrowers for taxes
and insurance, and an increase in accrued interest payable on convertible
debentures outstanding.
Stockholders' equity increased almost entirely as a result of net income
of $266,000, the issuance of 1,063 shares of Class A common stock upon the
conversion of a convertible debenture, 510 Class A shares in exchange for the
shares of minority shareholders of Intervest Bank, and the issuance of 5,000
Class B shares upon the exercise of stock warrants. The issuance of such shares
resulted in, net of issuance costs, a $43,000 aggregate increase in
stockholders' equity.
Intervest Bank's Tier 1 leverage capital ratio was 6.06% at March 31,
1999, compared to 6.04% at December 31, 1998. Intervest Bank's total risk-based
capital ratio amounted to 11.62% at March 31, 1999, compared to 11.15% at
year-end 1998. Intervest Bank is a well-capitalized institution.
13
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 Bank's branch offices; amortization, satisfactions and repayments of loans;
the maturities and calls of securities; and cash provided by operating
activities. For additional information about the cash flows from the Company's
operating, investing and financing activities, see the condensed consolidated
statements of cash flows in this report. At March 31, 1999, the Company's total
commitment to lend and invest aggregated $5,600,000. Based on its cash flow
projections, the Company believes that it can fund all of its outstanding
commitments and future capital expenditures from the aforementioned sources of
funds.
On April 1, 1999, the Holding Company acquired all the outstanding
common stock of Intervest National Bank for $9,000,000 in cash, which represents
the new Bank's initial capital base.
Interest Rate Risk
Interest rate risk arises from differences in the repricing of assets
and liabilities within a given time period. The principal objective of the
Company's asset/liability management strategy is to minimize its exposure to
changes in interest rates. The Company uses "gap analysis," which measures the
difference between interest-earning assets and interest-bearing liabilities that
mature or reprice within a given time period, to monitor its interest rate
sensitivity. At March 31, 1999, the Company's one-year negative interest-rate
sensitivity gap was $81,283,000, or 41.2% of total assets, compared to
$73,637,000, or 36.7%, at December 31, 1998. For a further discussion of
interest rate risk and gap analysis, including all the assumptions used in
developing the Company's one-year gap position, see pages 25 and 26.
Comparison of Results of Operations for the Quarters
Ended March 31, 1999 and 1998
The Company had net earnings of $266,000 in the first quarter of 1999,
compared to $308,000 in the first quarter of 1998. On a diluted per share basis,
net earnings was $0.10, compared to $0.09 in the first quarter of 1998.
Results for the 1999 first quarter included a one-time charge related
to the Company's adoption, on January 1, 1999, of 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.
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 in the first quarter of 1999. The charge represents the expensing,
net of a tax benefit, of cumulative start-up costs that had been capitalized
through December 31, 1998, associated with organizing Intervest National Bank
that are no longer capitalizable for financial statement purposes as a result of
SOP 98-5.
Absent this change in accounting principle, the Company's earnings for
the first quarter of 1999 would have been $394,000, an increase of 28% from
earnings reported in the same quarter last year. This increase was primarily due
to a $251,000 increase in net interest and dividend income, partially offset by
an increase in noninterest expenses of $138,000.
Net interest and dividend income is the Company's largest source of
earnings and is influenced primarily by the amount, distribution and repricing
characteristics of its interest-earning assets and interest-bearing liabilities
as well as by the relative levels and movements of interest rates.
The table that follows sets forth information on average assets,
liabilities and stockholders' equity; yields earned on interest-earning assets;
and rates paid on interest-bearing liabilities for the periods indicated. The
yields and rates shown are based on a computation of annualized income/expense
for each period divided by average interest-earning assets/interest-bearing
liabilities during each period. Certain yields and rates shown are adjusted for
related fee income or expense. Average balances are derived from daily balances.
Net interest margin is computed by dividing annualized net interest and dividend
income by the average of total interest-earning assets during each period.
14
- -------------------------------------------------------------------------------------------------------------
For the Quarter Ended
---------------------
March 31, 1999 March 31, 1998
-------------- --------------
($ in thousands)
Average Interest Yield/ Average Interest Yield/
Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- -------------------------------------------------------------------------------------------------------------
Assets
Interest-earning assets:
Loans $ 96,686 $ 2,141 8.86 $ 79,499 $ 1,793 9.02%
Securities 86,328 1,263 5.85 66,939 1,029 6.15
Other interest-earning assets 6,725 72 4.28 5,664 70 4.94
- -------------------------------------------------------------------------------------------------------------
Total interest-earning assets 189,739 $ 3,476 7.33 152,102 $ 2,892 7.61%
- -------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 8,591 7,672
- -------------------------------------------------------------------------------------------------------------
Total assets $198,330 $159,774
- -------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW deposits $ 7,321 $ 56 3.06 $ 4,852 $ 44 3.63%
Savings deposits 26,942 279 4.14 14,422 173 4.80
Money-market deposits 36,102 387 4.29 17,965 216 4.80
Time deposits 94,349 1,294 5.49 98,910 1,405 5.68
Total deposit accounts 164,714 2,016 4.90 136,149 1,838 5.40
Convertible debentures and accrued interest 7,351 155 8.43 -- -- --
- -------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 172,065 $ 2,171 5.05 136,149 $ 1,838 5.40%
- -------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 3,737 3,157
Noninterest-bearing liabilities 2,909 1,656
Stockholders' equity 19,619 18,812
- -------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $198,330 $159,774
- -------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $ 1,305 2.28% $ 1,054 2.21%
- -------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 17,674 2.75% $ 15,953 2.77%
- -------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.10x 1.12x
- -------------------------------------------------------------------------------------------------------------
Net interest and dividend income increased to $1,305,000 in the first
quarter of 1999, from $1,054,000 in the 1998 first quarter. The increase was
entirely due to growth in the Company's balance sheet. The Company's net
interest margin was 2.75% for the first quarter of 1999, relatively unchanged
from the same period of 1998, as an increase in the Company's interest rate
spread was offset by a decline in the ratio of its average interest-earning
assets to average interest-bearing liabilities.
The yield on the Company's earning assets declined by 28 basis points
due to calls of higher-yielding securities, new purchases of securities and
originations of loans at lower rates, rate resets downward on the loan portfolio
and an increase in the percentage of earning assets held as securities.
Investments in securities as well as other short-term investments have lower
yields than the Company's loan portfolio. The Company's cost of funds declined
by 35 basis points due to lower rates paid on deposit accounts as well as an
increase in lower-cost deposits held in checking, savings and money-market
accounts. These factors were partially offset by the higher-cost funds obtained
through the sale of convertible debentures in June 1998.
The table that follows sets forth information regarding changes in
interest and dividend income and interest expense of the Company for the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (1) changes in
rate (change in rate multiplied by prior volume), (2) changes in volume (change
in volume multiplied by prior rate) and (3) changes in rate-volume (change in
rate multiplied by change in volume).
15
- --------------------------------------------------------------------------------
For the Quarter Ended March 31, 1999 vs. 1998
---------------------------------------------
Increase (Decrease) Due to Change in:
-------------------------------------
($ in thousands) Rate Volume Rate/Volume Total
- --------------------------------------------------------------------------------
Interest-earning assets:
Loans $ (32) $ 388 $ (8) $ 348
Securities (50) 298 (14) 234
Other interest-earning assets (9) 13 (2) 2
- --------------------------------------------------------------------------------
Total interest-earning assets (91) 699 (24) 584
- --------------------------------------------------------------------------------
Interest-bearing liabilities:
NOW deposits (7) 22 (3) 12
Savings deposits (24) 150 (20) 106
Money-market deposits (23) 218 (24) 171
Time deposits (47) (65) 1 (111)
Total deposit accounts (101) 325 (46) 178
Convertible debentures -- -- 155 155
- --------------------------------------------------------------------------------
Total interest-bearing liabilities (101) 325 109 333
- --------------------------------------------------------------------------------
Net change in interest and dividend income $ 10 $ 374 $(133) $ 251
- --------------------------------------------------------------------------------
The provision for loan loss reserves is based on management's ongoing
assessment of the adequacy of the allowance for loan loss reserves. The
provision amounted to $112,000 in the first quarter of 1999, compared to
$100,000 in the first quarter of 1998.
Total noninterest income increased to $123,000 in the first quarter of
1999, from $65,000 in the first quarter of 1998. The increase from last year's
period was entirely due to a $56,000 gain from the sale of mortgage loans (see
page 13 under the caption "Loans Receivable").
Total noninterest expenses increased to $647,000 in the first quarter of
1999, from $509,000 in the first quarter of 1998. The increase over last year's
period was largely due to an increase in salaries and employee benefits,
resulting primarily from increased staff due to Intervest National Bank (which
opened on April 1, 1999) and normal salary increases.
The provision for income taxes increased to $275,000 in the first
quarter of 1999, from $202,000 in the first quarter of 1998, due to higher
pre-tax earnings. The Company's effective tax rate (inclusive of state and local
taxes) amounted to 41.1% in the first quarter of 1999, compared to 39.6% in the
same quarter of 1998.
The cumulative effect of change in accounting principle represents the
required adoption, on January 1, 1999, 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. Previously, a portion of
start-up costs were generally capitalized and amortized over a period of time.
The adoption of this statement resulted the immediate expensing of $193,000 in
start-up costs capitalized as of December 31, 1998 in connection with organizing
Intervest National Bank, a wholly owned subsidiary of Intervest Bancshares
Corporation that was chartered and began business on April 1, 1999. A deferred
tax benefit of $65,000 was recorded in conjunction with the expensing of the
start-up costs.
Comparison of Results of Operations for the Years Ended December 31, 1998 and
1997.
The Company earned $1,435,000 for the year ended December 31, 1998,
compared to $844,000 in 1997. On a diluted per share basis, net earnings were
$0.46 for 1998, compared to $0.41 for 1997. (The computation of earnings per
share for 1998 included a higher average number of common shares resulting from
the public offering of Class A common stock in November 1997 and an increase in
potentially dilutive common stock warrants and convertible debentures
outstanding.) The increase in net earnings was primarily due to higher net
interest and dividend income resulting from growth in interest-earning assets.
This improvement was partially offset by increases in the provisions for income
taxes and loan loss reserves, and higher operating expenses.
Net interest and dividend income is the Company's largest 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 Company's
net interest and dividend income increased to $4,637,000 in 1998, from
$3,453,000 in 1997. The increase was due to growth in interest-earning assets,
partially offset by a decline in the net interest margin from 2.92% in 1997 to
2.75% in 1998.
16
The decline in the margin was a function of a lower interest rate spread
caused by a decline in the yield on the Company's earning assets and an increase
in its cost of funds. The yield on earning assets declined by 22 basis points
largely due to a decline in the yield on the loan portfolio as well as an
increase in securities and short-term investments. Securities and short-term
investments have a lower yield than the Company's loan portfolio. The Company's
cost of funds increased by 4 basis points due to higher-cost funds obtained
through sale of the Debentures, partially offset by a slight decline in the
average cost for deposit accounts.
The effect of the decrease in the interest rate spread described above
was partially offset by an increase of $7,007,000 in net average
interest-earning assets. This increase was largely due to the investment of the
proceeds from the issuance of common stock as well as the reinvestment of
earnings generated from operations.
The table that follows sets forth information on the Company's average
assets, liabilities and stockholders' equity; yields earned on interest-earning
assets; and rates paid on interest-bearing liabilities for 1998 and 1997. The
yields and rates shown are based on a computation of income/expense for each
year divided by average interest-earning assets/interest-bearing liabilities
during each year. Certain yields and rates shown are adjusted for related fee
income or expense. Average balances are derived from daily balances. Net
interest margin is computed by dividing net interest and dividend income by the
average of total interest-earning assets during each year.
- -----------------------------------------------------------------------------------------------------------
For the Year Ended December 31,
-------------------------------
1998 1997
---- ----
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- -----------------------------------------------------------------------------------------------------------
Assets
Interest-earning assets:
Loans $ 90,470 $ 8,278 9.15 $ 68,711 $ 6,415 9.34%
Securities 69,508 4,224 6.08 42,763 2,632 6.15
Other interest-earning assets 8,344 432 5.18 6,913 300 4.34
- -----------------------------------------------------------------------------------------------------------
Total interest-earning assets 168,322 $ 12,934 7.68 118,387 $ 9,347 7.90%
- -----------------------------------------------------------------------------------------------------------
Noninterest-earning assets 8,395 6,619
- -----------------------------------------------------------------------------------------------------------
Total assets $176,717 $125,006
- -----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Demand, money market and NOW deposits $ 28,756 $ 1,324 4.60 $ 18,087 $ 816 4.51%
Savings deposits 17,210 832 4.83 9,128 446 4.89
Time deposits 101,547 5,821 5.73 81,149 4,631 5.71
Total deposit accounts 147,513 7,977 5.41 108,364 5,893 5.44
Federal funds purchased 20 1 5.00 18 1 5.56
Convertible debentures 3,777 319 8.45 -- -- --
- -----------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 151,310 $ 8,297 5.48 108,382 $ 5,894 5.44%
- -----------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 3,096 2,325
Noninterest-bearing liabilities 3,782 3,088
Stockholders' equity 18,529 11,211
- -----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $176,717 $125,006
- -----------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $ 4,637 2.20% $ 3,453 2.46%
- -----------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 17,012 2.75% $ 10,005 2.92%
- -----------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.11x 1.09x
- -----------------------------------------------------------------------------------------------------------
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).
17
For the Year Ended December 31, 1998 vs. 1997
---------------------------------------------
Increase (Decrease) Due To Change In:
-------------------------------------
($ in thousands) Rate Volume Rate/Volume Total
- --------------------------------------------------------------------------------
Interest-earning assets:
Loans $ (131) $2,032 $ (38) $1,863
Securities (30) 1,645 (23) 1,592
Other interest-earning assets 58 62 12 132
- --------------------------------------------------------------------------------
Total interest-earning assets (103) 3,739 (49) 3,587
- --------------------------------------------------------------------------------
Interest-bearing liabilities:
Demand, money market and NOW deposits 16 481 11 508
Savings deposits (5) 395 (4) 386
Time deposits 16 1,165 9 1,190
Total deposit accounts 27 2,041 16 2,084
Federal funds purchased -- -- -- --
Convertible debentures -- -- 319 319
- --------------------------------------------------------------------------------
Total interest-bearing liabilities 27 2,041 335 2,403
- --------------------------------------------------------------------------------
Net change in interest and dividend income $ (130) $1,698 $ (384) $1,184
- --------------------------------------------------------------------------------
The provision for loan loss reserves is based on management's ongoing
assessment of the adequacy of the allowance for loan loss reserves. The
provision amounted to $479,000 in 1998, compared to $352,000 in 1997. The
increase reflected a higher level of outstanding loans as well as management's
intent to maintain the allowance at a level it believes to be adequate. At
December 31, 1998 and 1997, the Company did not have any nonaccrual or impaired
loans.
Total noninterest income increased to $349,000 in 1998, from $136,000 in
1997. The increase primarily reflected an increase in service charge fee income
as well as a higher level of loan prepayment fees.
Total noninterest expenses increased to $2,133,000 in 1998, from
$1,906,000 in 1997. The increase was largely due to higher salaries and employee
benefits, as well as an increase in professional fees and services, resulting
primarily from the Company's growth, need for additional staff and normal merit
increases.
The provision for income taxes increased to $939,000 in 1998, from
$487,000 in 1997, largely due to higher pre-tax earnings. The Company's
effective tax rate (inclusive of state and local taxes) amounted to 39.6% in
1998, compared to 36.6% in 1997. The higher rate for 1998 reflects an increase
in the earnings of the Holding Company, which has a higher state income tax rate
than Intervest Bank.
Comparison of Results of Operations for the Years Ended December 31, 1997 and
1996.
Net earnings for the year ended December 31, 1997 were $844,000,
compared to $558,000 for the year ended December 31, 1996. On a diluted per
share basis, net earnings was $0.41 for 1997, compared to $0.34 for 1996. The
increase in the Company's net earnings was primarily due to higher net interest
and dividend income, partially offset by increases in noninterest expenses, the
provision for income taxes and provision for loan loss reserves.
Net interest and dividend income increased to $3,453,000 in 1997, from
$2,636,000 in 1996. The increase was due to growth in the Company's
interest-earning assets, partially offset by a lower net interest margin. The
lower margin was a function of a lower yield on earning assets, an increase in
deposit rates and a decline in the ratio of interest-earning assets to
interest-bearing liabilities. The yield on earning assets declined by 12 basis
points primarily due to a lower yield earned on loans and an increase in
securities and short-term investments. The cost of funds increased slightly by 4
basis points due to higher rates paid on deposits.
The table that follows sets forth information on the Company's average
assets, liabilities and stockholders' equity; yields earned on interest-earning
assets; and rates paid on interest-bearing liabilities for 1997 and 1996. The
yields and rates shown are based on a computation of interest income/expense for
each year divided by average interest-earning assets/interest-bearing
liabilities during each year. Certain yields and rates shown are adjusted for
related fee income or expense. Average balances are derived from daily balances.
Net interest margin is computed by dividing net interest and dividend income by
the average of total interest-earning assets during each year.
18
- ------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31,
-------------------------------
1997 1996
---- ----
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- ------------------------------------------------------------------------------------------------------------------
Assets
Interest-earning assets:
Loans $ 68,711 $ 6,415 9.34 $ 49,266 $ 4,624 9.39%
Securities 42,763 2,632 6.15 25,577 1,514 5.92
Other interest-earning assets 6,913 300 4.34 4,730 243 5.14
- ------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 118,387 $ 9,347 7.90 79,573 $ 6,381 8.02%
- ------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 6,619 4,089
- ------------------------------------------------------------------------------------------------------------------
Total assets $125,006 $ 83,662
- ------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Demand, money market and NOW deposits $ 18,087 $ 816 4.51 $ 8,432 $ 310 3.68%
Savings deposits 9,128 446 4.89 1,470 62 4.22
Time deposits 81,149 4,631 5.71 59,437 3,371 5.67
Total deposit accounts 108,364 5,893 5.44 69,339 3,743 5.40
Federal funds purchased 18 1 5.56 34 2 5.88
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 108,382 $ 5,894 5.44 69,373 $ 3,745 5.40%
- ------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 2,325 2,709
Noninterest-bearing liabilities 3,088 2,131
Stockholders' equity 11,211 9,449
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $125,006 $ 83,662
- ------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $ 3,453 2.46% $ 2,636 2.62%
- ------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 10,005 2.92% $ 10,200 3.31%
- ------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.09x 1.15x
- ------------------------------------------------------------------------------------------------------------------
The 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, 1997 vs. 1996
---------------------------------------------
Increase (Decrease) Due To Change In:
-------------------------------------
($ in thousands) Rate Volume Rate/Volume Total
- -----------------------------------------------------------------------------------
Interest-earning assets:
Loans $ (25) $ 1,826 $ (10) $ 1,791
Securities 59 1,020 39 1,118
Other interest-earning assets (38) 112 (17) 57
- -----------------------------------------------------------------------------------
Total interest-earning assets (4) $ 2,958 12 $ 2,966
- -----------------------------------------------------------------------------------
Interest-bearing liabilities:
Demand, money market and NOW deposits 70 $ 356 80 $ 506
Savings deposits 10 323 51 384
Time deposits 24 1,228 8 1,260
Total deposit accounts 104 1,907 139 2,150
Federal funds purchased (2) (2) 3 (1)
- -----------------------------------------------------------------------------------
Total interest-bearing liabilities 102 1,905 142 2,149
- -----------------------------------------------------------------------------------
Net change in interest and dividend income $ (106) $ 1,053 $ (130) $ 817
- -----------------------------------------------------------------------------------
The provision for loan loss reserves is based on management's ongoing
assessment of the adequacy of the allowance for loan loss reserves. The
provision increased from $250,000 for the year ended December 31, 1996, to
$352,000 for the year ended December 31, 1997, reflecting growth in the
Company's loan portfolio. At December 31, 1997, there were no nonperforming or
impaired loans.
Total noninterest income increased $30,000 to $136,000 in 1997, from
$106,000 1996, reflecting increased fee income. Total noninterest expenses
increased $355,000 to $1,906,000 for the year ended December 31, 1997, compared
to $1,551,000 in 1996. The increase was primarily due to higher salaries and
benefits and occupancy and equipment expense resulting from additional costs for
the Bank's new branches and overall growth of the Company.
19
The provision for income taxes in 1997 amounted to $487,000, an
effective income tax rate of 36.6%, as compared to $383,000 and 40.7%,
respectively, in 1996. In 1996, a greater portion of the consolidated earnings
was generated by the Holding Company, which has a higher state income tax rate
than Intervest Bank.
Comparison of Financial Condition at December 31, 1998 and December 31, 1997.
At December 31, 1998, the Company had total assets of $200,522,000,
deposits of $170,467,000, convertible debentures of $7,000,000 and stockholders'
equity of $19,544,000. The Company's net earnings increased 70% to $1,435,000 in
1998, from $844,000 in 1997. Return on average assets amounted to 0.81% in 1998,
up from 0.68% in 1997. Return on average equity amounted to 7.74% for 1998, also
up from 7.53% in 1997. Asset quality continued to remain strong as there were no
loans on a nonaccrual or impaired status at December 31, 1998 or 1997. Book
value per common share rose to $7.87 at December 31, 1998, from $7.27 a year
ago. At December 31, 1998 and 1997, the Bank exceeded all regulatory capital
requirements for designation as a well-capitalized institution.
Total assets increased from $150,755,000 at December 31, 1997, to
$200,522,000 at December 31, 1998, reflecting a higher level of securities held
to maturity, loans receivable and cash and cash equivalents. Total liabilities
increased from $133,135,000 at December 31, 1997, to $180,978,000 at December
31, 1998, reflecting an increase in deposit liabilities and the borrowing of
funds through the sale of the Debentures. Stockholders' equity grew from
$17,620,000 at December 31, 1997, to $19,544,000 at year-end 1998, reflecting an
increase in retained earnings and additional common stock outstanding.
The Company's balance sheet was comprised of the following:
At December 31, 1998 At December 31, 1997
-------------------- --------------------
Carrying % of Carrying % of
($ in thousands) Value Total Assets Value Total Assets
- --------------------------------------------------------------------------------------
Cash and cash equivalents $ 13,472 6.7% $ 9,176 6.1%
Securities held to maturity, net 82,338 41.1 58,821 39.0
Loans receivable, net 96,074 47.9 75,652 50.2
All other assets 8,638 4.3 7,106 4.7
- --------------------------------------------------------------------------------------
Total assets $200,522 100.0% $150,755 100.0%
- --------------------------------------------------------------------------------------
Deposits $170,467 85.0% $131,167 87.0%
Convertible debentures 7,000 3.5 -- --
All other liabilities 3,511 1.8 1,968 1.3
- --------------------------------------------------------------------------------------
Total liabilities 180,978 90.3 133,135 88.3
- --------------------------------------------------------------------------------------
Stockholders' equity 19,544 9.7 17,620 11.7
- --------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $200,522 100.0% $150,755 100.0%
- --------------------------------------------------------------------------------------
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.
Accordingly, the Company's investments in securities carry lower yields, but
also have 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.
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 $82,338,000 at December 31, 1998, compared
to $58,821,000 at December 31, 1997. The increase reflected purchases of
securities, partially offset by principal repayments and calls. The estimated
fair value of the held-to-maturity portfolio was $82,173,000 at December 31,
1998 and $58,836,000 at December 31, 1997. At December 31, 1998, the securities
portfolio consisted of fixed-rate debt obligations of the Federal Home Loan
Bank, Federal Farm Credit Bank and Federal National Mortgage Association. The
securities have terms that allow the issuer the right to call or prepay its
obligation without prepayment penalty.
From time to time, the Banks may also maintain securities
available-for-sale accounts to provide flexibility in the management of
asset/liability strategies. During 1998 and 1997, there were no securities
classified as available for sale. The Company does not engage in trading
activities.
20
The investment in the capital stock of the Federal Reserve Bank (FRB),
which pays a dividend, is required in order to be a member of the Federal
Reserve Banking System. The amount of the investment was $233,000 at December
31, 1998 and 1997.
Loans Receivable
- ----------------
Loans receivable, before the allowance for loan loss reserves, increased
to $97,736,000 at December 31, 1998, from $76,825,000 at December 31, 1997, due
to new originations of commercial real estate and multifamily loans, partially
offset by principal repayments on the loan portfolio. The portfolio consisted of
$28,944,000 of fixed-rate loans and $69,277,000 of adjustable-rate loans. At
December 31, 1998 and 1997, the Company did not have any loans on a nonaccrual
status or classified as impaired.
Almost all of the loans in the Company's loan portfolio are
collateralized by commercial real estate and multifamily properties. As of
December 31, 1998, 94% of the loan portfolio was concentrated in loans
collateralized by such properties, compared to 92% at December 31, 1997. Loan
concentrations are defined as amounts loaned to a number of borrowers engaged in
similar activities, which would cause them to be similarly impacted by economic
or other conditions.
Credit risk, which represents the possibility of the Company not
recovering amounts due from its borrowers, is significantly related to local
economic conditions as well as the Company's underwriting standards. Economic
conditions affect the income levels of borrowers and the market value of the
underlying collateral. In addition, although commercial real estate and
multifamily loans typically bear higher interest rates than 1-4 family
residential loans, they entail certain risks not normally found in 1-4 family
residential mortgage lending. Commercial real estate and multifamily loans
usually involve larger loans to single borrowers. In addition, satisfactory
payment experience on loans secured by income-producing properties (such as
office buildings, shopping centers and rental and cooperative apartment
buildings) is largely dependent on high levels of occupancy. Thus, these loans
are more subject to adverse conditions in the real estate market and economy or
specific conditions at or in the vicinity of the property's location.
The following table sets forth information concerning the Company's loan
portfolio by type of loan:
At December 31, 1998 At December 31, 1997
-------------------- --------------------
# of % of # of % of
($ in thousands) loans Amount Total loans Amount Total
- ---------------------------------------------------------------------------------------------
Commercial real estate loans 95 $ 68,828 70.1% 106 $ 64,270 83.2%
Residential multifamily loans 51 23,707 24.1 34 6,903 8.9
Residential 1-4 family loans 47 2,627 2.7 49 3,162 4.1
Construction loans -- -- -- 1 158 0.2
Commercial loans 49 2,875 2.9 49 2,641 3.4
Consumer loans 17 184 0.2 13 92 0.2
- ---------------------------------------------------------------------------------------------
Total gross loans receivable 259 98,221 100.0% 252 77,226 100.0%
- ---------------------------------------------------------------------------------------------
Deferred loan fees (485) (401)
Allowance for loan loss reserves (1,662) (1,173)
- ---------------------------------------------------------------------------------------------
Loans receivable, net $ 96,074 $ 75,652
- ---------------------------------------------------------------------------------------------
The following table shows the scheduled contractual principal repayments
by period of the Company's loan portfolio:
At December 31,
---------------
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
Within one year $15,674 $ 8,383
Over one to five years 69,416 49,195
Over five years 13,131 19,648
- --------------------------------------------------------------------------------
$98,221 $77,226
- --------------------------------------------------------------------------------
At December 31, 1998, $56,551,000 of loans with adjustable rates and $25,996,000
of loans with fixed rates were due after one year.
21
The following table sets forth the activity in the loan portfolio:
For the Year Ended December 31,
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
Loans receivable, net, at beginning of year $ 75,652 $ 59,499
Loans originated 33,222 23,844
Principal repayments (12,237) (7,281)
Recoveries 10 10
Increase in unearned loan fees (84) (58)
Net loan activity 96,563 76,014
Increase in allowance for loan loss reserves (489) (362)
- --------------------------------------------------------------------------------
Loans receivable, net, at end of year $ 96,074 $ 75,652
- --------------------------------------------------------------------------------
Nonaccrual Loans
- ----------------
Generally, interest on loans is accrued and credited to income based
upon the principal balance outstanding. 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. Consumer installment loans are charged
off after 90 days of delinquency unless they are adequately collateralized and
in the process of collection. Loans are not returned to accrual status until
principal and interest payments are brought current and future payments appear
reasonably certain. Interest accrued and unpaid at the time a loan is placed on
nonaccrual status is reversed and charged against interest income. Subsequent
payments received on loans in nonaccrual status are applied to the outstanding
principal. During 1998 and 1997, the Company did not have any loans on a
nonaccrual status.
Allowance for Loan Loss Reserves
- --------------------------------
The allowance for loan loss reserves is established through a provision
for loan loss reserves charged to operations. Loans are charged against the
allowance for loan loss reserves 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 region. Although management
believes it uses the best information available to make determinations with
respect to the allowance for loan loss reserves, future adjustments may be
necessary if economic conditions, or other factors, differ from those assumed in
the determination of the level of the allowance.
In addition, SFAS No. 114, as amended by SFAS No. 118, 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 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 required to be 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 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.
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 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.
22
Management evaluates all commercial real estate, residential mortgage
loans and commercial loans for impairment on a loan-by-loan basis. For smaller
balance homogeneous loans, such as consumer loans, evaluations for impairment is
done on an aggregate basis. The Company utilizes its own historical charge-off
experience as well as the charge off experience of its peer group and industry
statistics to evaluate the adequacy of the allowance for loan loss reserves for
consumer loans. 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.
At December 31, 1998, the Company's allowance for loan loss reserves
amounted to $1,662,000, compared to $1,173,000 at year-end 1997. The increase
reflected the growth in the loan portfolio and management's intent to maintain
the reserves at a level it believes to be adequate. During 1998 and 1997, the
Company did not have any loans on a nonaccrual status or classified as impaired.
At December 31, 1998 and 1997, the allowance for loan loss reserves was
predominately allocated to commercial real estate and multifamily loans.
The following table sets forth certain information with respect to the Company's
allowance for loan loss reserves:
For the Year Ended December 31,
-------------------------------
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
Allowance at beginning of year $ 1,173 $ 811
Provision charged to operations 479 352
Recoveries 10 10
- --------------------------------------------------------------------------------
Allowance at end of year $ 1,662 $ 1,173
- --------------------------------------------------------------------------------
Ratio of allowance to total loans 1.70% 1.53%
Total loans, net of deferred fees $97,736 $76,825
Average loans during the year $90,470 $68,711
- --------------------------------------------------------------------------------
Foreclosed Real Estate
- ----------------------
Real estate acquired by the Company as a result of foreclosure or deed
in lieu of foreclosure is classified as foreclosed real estate. Foreclosed real
estate is recorded at the lower of cost or fair value less estimated selling
costs. This estimated loss, if any, is charged to the allowance for loan loss
reserves at the time the loan is transferred. An additional valuation allowance
is recorded at the time management believes that further deterioration in value
has occurred subsequent to the transfer of the loan. At Year end 1998 and 1997,
the Company did not have any foreclosed real estate.
All Other Assets
- ----------------
All other assets increased to $8,638,000 at December 31, 1998, from
$7,106,000 at December 31, 1997. The increase was almost all due to unamortized
costs related to the sale of the Debentures ($522,000), start-up costs
associated with organizing the new nationally-chartered bank ($309,000), and
increases in accrued interest receivable ($473,000) and deferred tax benefits
($94,000).
In April 1998, the AICPA issued Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities," which is effective for the
Company's 1999 financial statements. The SOP requires that all start-up costs
(except for those that are capitalizable under other generally accepted
accounting principles) be expensed as incurred. Previously, start-up costs were
generally capitalized and amortized over a period of time. Upon adoption of this
statement, approximately $160,000 of start-up costs already incurred in
organizing the new bank will be expensed in the first quarter of 1999.
Additional expenses also will be incurred in the first quarter in connection
with organizing Intervest National Bank.
Deposits
- --------
Deposit liabilities increased to $170,467,000 at December 31, 1998, from
$131,167,000 at December 31, 1997. The increase was due to net deposit inflows
and growth in deposit accounts. At December 31, 1998, time deposit accounts
totaled $99,033,000 and demand deposits and savings and checking accounts
aggregated $71,434,000. This compared to deposits of $93,378,000 and
$37,789,000, respectively, at December 31, 1997. Time deposits represented 58%
of total deposits at December 31, 1998, compared to 71% at year-end 1997.
Intervest Bank does not have a concentration of deposits from any one source.
Management believes that substantially all of Intervest Bank's depositors are
residents in its primary market area. Intervest Bank does not accept brokered
deposits.
23
The following table shows the distribution of deposit accounts by type:
At December 31, 1998 At December 31, 1997
-------------------- --------------------
% of % of
($ in thousands) Amount Total Amount Total
- --------------------------------------------------------------------------------
Demand deposits $ 3,027 1.8% $ 3,490 2.7%
NOW deposits 7,955 4.7 4,290 3.3
Money market deposits 33,629 19.7 17,180 13.1
Savings deposits 26,823 15.7 12,829 9.7
- --------------------------------------------------------------------------------
71,434 41.9 37,789 28.8
- --------------------------------------------------------------------------------
Certificates of deposit (1):
4.00% to 4.99% 13,968 8.2 30 --
5.00% to 5.99% 62,472 36.6 69,855 53.3
6.00% to 6.99% 16,824 9.9 16,882 12.9
7.00% to 7.99% 5,769 3.4 6,611 5.0
- --------------------------------------------------------------------------------
99,033 58.1 93,378 71.2
- --------------------------------------------------------------------------------
Total deposit accounts $170,467 100.0%$131,167 100.0%
- --------------------------------------------------------------------------------
(1) Includes individual retirement accounts totaling $7,986,000 and
$7,065,000 at December 31, 1998 and 1997, respectively, all of which
are in the form of certificates of deposit.
The following table presents by various interest rate categories the amounts of
certificates of deposit at December 31, 1998 and 1997, which mature during the
periods indicated:
Year Ending December 31,
- --------------------------------------------------------------------------------
2003 &
($ in thousands) 1999 2000 2001 2002 thereafter Total
- --------------------------------------------------------------------------------
At December 31, 1998:
4.00% to 4.99% $11,525 $ 2,130 $ 109 $ 43 $ 161 $13,968
5.00% to 5.99% 40,912 10,358 2,597 3,427 5,178 62,472
6.00% to 6.99% 795 905 7,347 6,996 781 16,824
7.00% to 7.99% 1,898 3,659 100 110 2 5,769
- --------------------------------------------------------------------------------
$55,130 $17,052 $10,153 $10,576 $ 6,122 $99,033
- --------------------------------------------------------------------------------
Year Ending December 31,
------------------------
2002 &
($ in thousands) 1998 1999 2000 2001 thereafter Total
- --------------------------------------------------------------------------------
At December 31, 1997:
4.00% to 4.99% $ 30 $ -- $ -- $ -- $ -- $ 30
5.00% to 5.99% 46,513 13,955 4,149 1,873 3,365 69,855
6.00% to 6.99% 349 791 656 7,389 7,697 16,882
7.00% to 7.99% 62 1,808 4,641 100 -- 6,611
- --------------------------------------------------------------------------------
$46,954 $16,554 $ 9,446 $ 9,362 $11,062 $93,378
- --------------------------------------------------------------------------------
The following table shows the maturities of certificates of deposit in
denominations of $100,000 or more:
At December 31,
---------------
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
Due within three months or less $ 1,800 $ 1,554
Due over three months to six months 1,757 1,149
Due over six months to one year 3,796 1,787
Due over one year 3,609 5,016
- --------------------------------------------------------------------------------
$10,962 $ 9,506
- --------------------------------------------------------------------------------
The following table shows the net deposit flows for Intervest Bank:
For the Year Ended December 31,
-------------------------------
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
Net increase before interest credited $31,323 $32,164
Net interest credited 7,977 5,556
- --------------------------------------------------------------------------------
Net deposit increase $39,300 $37,720
- --------------------------------------------------------------------------------
24
Convertible Debentures
- ----------------------
In June 1998, the Holding Company sold $7,000,000 of Convertible
Subordinated Debentures (the "Debentures") in a public offering. The proceeds
from the sale, net of underwriting discounts, commissions and other fees,
amounted to approximately $6,500,000. The proceeds are part of the Holding
Company's working capital.
The 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 at various conversion
prices. The Holding Company also has the option at any time to call all or any
part of the Debentures for payment and redeem the same at any time prior to
maturity thereof. Interest on the Debentures accrues and compounds each calendar
quarter at 8%. All accrued interest is payable at maturity 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 and to thereafter receive payments of interest quarterly. See note 7 to
the consolidated financial statements for a discussion of conversion prices and
redemption premiums.
Other Borrowed Funds
- --------------------
Intervest Bank, from time to time, obtains funds through Federal funds
purchases when such funds are available at attractive rates. There was an
insignificant amount of borrowings during 1998 and 1997 from this source. At
December 31, 1998 and 1997, there were no outstanding borrowings.
Stockholders' Equity
- --------------------
Stockholders' equity increased to $19,544,000 at December 31, 1998, from
$17,620,000 at year-end 1997. The increase was almost all due to net earnings of
$1,435,000 and $446,000 of proceeds from the issuance of 60,100 shares of Class
A common stock upon the exercise of stock warrants.
Asset/Liability Management
The Company's primary objective in managing interest-rate risk is to
minimize 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 maximize the net yield on that structure. The Company relies
primarily on its asset-liability strategy to control interest rate risk. This
strategy is overseen in part through the direction of the Asset and Liability
Committee ("ALCO") of the Board of Directors, which establishes policies and
monitors results to control interest rate sensitivity.
As a part of the Company's interest rate risk management policy, ALCO
examines the extent to which the Company's assets and liabilities are "interest
rate-sensitive" and monitors the Company's interest rate sensitivity "gap." 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 such 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 due to 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," which limit changes
in interest rates on a short-term basis and over the life of the asset. In the
event of a change in interest rates, asset prepayment and early deposit
withdrawal levels also could deviate significantly from those assumed in
calculating the interest-rate gap. The ability of many borrowers to service
their debts also may decrease in the event of an interest-rate increase, and the
behavior of depositors may be different than those assumed in the gap analysis.
25
For purposes of creating the gap analysis, 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 36.7% at
December 31, 1998 and 28.2% at December 31, 1997. However, if those deposits
were treated differently in the gap analysis, then the interest-rate sensitivity
gap would be lower. The behavior of core depositors may not necessarily result
in the immediate withdrawal of funds in the event deposit rates offered by the
Company 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 (within the one year buckets), the Company's negative
one-year gap would have been 11.1% at year-end 1998 and year-end 1997. The
Company also maintains a "floor," or minimum rate, on many of its floating-rate
loans. The contractual "floor" amount for each specific loan is determined in
relation to the prevailing market rates on the date of origination and
management retains a great deal of flexibility in connection with the
establishment of floors for particular loans. Notwithstanding the
aforementioned, 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,
1998, that are scheduled to mature or reprice within the periods shown.
0-3 4-12 Over 1-5 Over 5
--- ---- -------- ------
($ in thousands) Months Months Years Years Total
- ------------------------------------------------------------------------------------------
Loans (1) $ 21,846 $ 15,011 $ 60,035 $ 1,329 $ 98,221
Securities (2) 500 1,515 68,099 12,224 82,338
Federal funds sold 6,473 -- -- -- 6,473
Short-term investments 4,123 -- -- -- 4,123
Federal reserve bank stock 233 -- -- -- 233
Interest-bearing deposits 199 -- -- -- 199
- ------------------------------------------------------------------------------------------
Total rate-sensitive assets $ 33,374 $ 16,526 $128,134 $ 13,553 $191,587
- ------------------------------------------------------------------------------------------
Deposit accounts (3):
Money market deposits $ 33,629 $ -- $ -- $ -- $ 33,629
NOW deposits 7,955 -- -- -- 7,955
Savings deposits 26,823 -- -- -- 26,823
Time deposits 16,555 38,575 42,903 1,000 99,033
Total deposits 84,962 38,575 42,903 1,000 167,440
Convertible subordinated debentures -- -- -- 7,000 7,000
Accrued interest on debentures -- -- -- 299 299
- ------------------------------------------------------------------------------------------
Total rate-sensitive liabilities $ 84,962 $ 38,575 $ 42,903 $ 8,299 $174,739
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
GAP (repricing differences) $(51,588) $(22,049) $ 85,231 $ 5,254 $ 16,848
- ------------------------------------------------------------------------------------------
Cumulative GAP $(51,588) $(73,637) $ 11,594 $ 16,848 $ 16,848
- ------------------------------------------------------------------------------------------
Cumulative GAP to total assets -25.7% -36.7% 5.8% 8.4% 8.4%
- ------------------------------------------------------------------------------------------
Assumptions used in preparing the table above:
(1) Adjustable-rate loans are included in the period in which their
interest rates are next scheduled to adjust rather than in the period
in which the loans mature. Fixed-rate loans are scheduled, including
repayments, according to their contractual maturities; (2) securities
are scheduled according to their contractual maturity dates, which does
not take into consideration the effects of possible prepayments that
may result from the issuer's right to call a security before its
contractual maturity date; (3) money market, NOW and savings deposits
are regarded as ready accessible withdrawable accounts; and all other
time deposits are scheduled through their maturity dates.
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
Intervest Bank's branch offices; amortization, satisfactions and repayments of
loans; the maturities and calls of securities; and cash provided by operating
activities. For additional information about the cash flows from the Company's
operating, investing and financing activities, see the consolidated statements
of cash flows included in the financial statements.
26
At December 31, 1998, the Company's total commitment to lend aggregated
$3,175,000. The Company also had approximately $600,000 in signed contracts for
the purchase of furniture, equipment and other leasehold improvements in
connection with the formation of the new national bank. Based on its cash flow
projections, the Company believes that it can fund all of its outstanding
commitments and future capital expenditures 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 significant
borrowings during 1998 and 1997 from these sources. In June 1998, the Holding
Company sold convertible subordinated debentures for net proceeds of
approximately $6,500,000. These funds are part of the Holding Company's working
capital
The Banks are subject to various regulatory capital requirements
administered by the Federal banking agencies. The FDIC Improvement Act of 1991,
among other matters, established five capital categories ranging from well
capitalized to critically undercapitalized. Such classifications are used by the
FDIC and other bank regulatory agencies to determine various matters, including
prompt corrective action and each institution's semi-annual FDIC deposit
insurance premium assessments. The capital categories involve quantitative
measures of a Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. Intervest Bank's capital
amounts and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by the regulators that, if undertaken, could
have a direct material effect on the Company's consolidated financial
statements.
The Banks are required to maintain, for regulatory compliance and
reporting purposes, regulatory defined minimum leverage and Tier 1 and total
risk-based capital ratio levels of at least 4%, 4% and 8%, respectively. At
December 31, 1998, management believes that Intervest Bank met its capital
adequacy requirements. Intervest Bank is a well-capitalized institution as
defined in the regulations, which requires minimum Tier 1 leverage and Tier 1
and total risk-based ratios of 5%, 6% and 10%, respectively. Management believes
that there are no current conditions or events outstanding which would change
Intervest Bank's designation as a well-capitalized institution.
Information regarding Intervest Bank's regulatory capital and related
ratios, is summarized below:
At December 31
--------------
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
Tier 1 Capital:
Common stockholders' equity $ 11,104 $ 9,420
Less disallowed portion of deferred tax asset (412) (295)
- --------------------------------------------------------------------------------
Total Tier 1 capital 10,692 9,125
- --------------------------------------------------------------------------------
Tier 2 Capital:
Allowable portion of allowance for loan loss reserves 1,354 1,118
- --------------------------------------------------------------------------------
Total risk-based capital $ 12,046 $ 10,243
- --------------------------------------------------------------------------------
Risk-weighted assets $ 108,050 $ 89,414
Average assets for regulatory purposes $ 177,148 $ 139,777
Tier 1 capital to average regulatory assets 6.04% 6.53%
Tier 1 capital to risk-weighted assets 9.90% 10.21%
Total capital to risk-weighted assets 11.15% 11.46%
- --------------------------------------------------------------------------------
Recent Accounting Pronouncements
Refer to note 1 to the notes to the consolidated financial Statements
for a discussion of this topic and for a discussion of the new accounting
principle related to start-up costs.
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. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant impact on the performance of a financial institution 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.
27
Market Risk
Market risk is the risk of loss from adverse changes in market prices
and rates. The Company's market risk arises primarily from interest rate risk
inherent in its lending and deposit taking activities. To that end, management
actively monitors and manages its interest rate risk exposure. 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, 1998 and 1997, which reflect changes in
market prices and rates, can be found in Note 19 of the notes to consolidated
financial statements.
The Company's primary objective in managing interest-rate risk is to
minimize 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 maximize the net yield on that structure. The Company relies
primarily on its asset-liability strategy to control interest rate risk. This
strategy is overseen in part through the direction of the Asset and Liability
Committee of the Board of Directors, which establishes policies and monitors
results to control interest rate sensitivity. For a further discussion, see page
26.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs, which were
written using two digits rather than four digits to define the applicable year.
As a result, such programs may recognize a date using "00" as the year 1900
instead of the year 2000, which could result in system failures or
miscalculations.
The Company is aware of the many areas affected by the Year 2000
computer issue, as addressed by the Federal Financial Institutions Examination
Council in its interagency statement, which provided an outline for institutions
to effectively manage the Year 2000 challenges. The Board of Directors has
approved a Year 2000 plan, which addresses Year 2000 issues therein, including
awareness, assessment, renovation, validation, implementation, testing and
contingency planning. The Company has formed a Year 2000 committee that is
responsible for the oversight of completing the Year 2000 plan on a timely
basis.
The Company has completed its testing phase of mission critical systems
and has determined that the costs of making modifications to correct any Year
2000 issues will not materially affect reported operating results. The Company's
contingency plan relative to Year 2000 issues has been finalized and will be
tested prior to June 30, 1999. During this testing phase, management will
determine if it is necessary to develop a "worst case scenario" contingency plan
resulting from the lack of electrical supply and or telephone service. Based on
testing results, the Company's mission critical systems have been deemed to be
Year 2000 compliant and, therefore, a contingency plan has not been developed
with respect to those systems. With regards to non-mission critical internal
systems, the Company's contingency plans are to replace those systems that test
as being noncompliant. Alternatively, some systems could be handled manually on
an interim basis. Should outside service providers not be able to provide
compliant systems, the Company will terminate those relationships and transfer
to Year 2000 compliant vendors
The Company also recognizes the importance of determining that its
borrowers are facing the Year 2000 problem in a timely manner to avoid
deterioration of the loan portfolio solely due to this issue. All material
relationships have been identified and questionnaires have been completed to
assess the inherent risks. Deposit customers have received statement stuffers
and informational material in this regard. The Company plans to work on a
one-on-one basis with any borrower who has been identified as having high Year
2000 risk exposure.
Although management believes that the Company will not incur material
costs associated with the Year 2000 issue, there can be no assurances that all
hardware and software that the Company will use will be Year 2000 compliant.
Management cannot predict the amount of financial difficulties it may incur due
to the Company's customers and vendors inability to perform according to their
agreements with the Company or the effects that other third parties may cause as
a result of this issue. Therefore, there can be no assurance that the failure or
delay of others to address the Year 2000 issue or that the costs involved in
such process will not have a material adverse effect on the Company's business,
financial condition, and results of operations.
It is anticipated that the Company's deposit customers will have
increased demands for cash in the latter part of 1999 and correspondingly, the
Company will maintain its liquidity levels to meet any increased demand.
28
BUSINESS
Intervest Bancshares Corporation
- --------------------------------
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 March
31, 1999, the Holding Company owned 99.88% of the outstanding common and 100% of
the outstanding preferred stock of Intervest Bank and all of the issued and
outstanding shares of Intervest National Bank. Hereafter, the Holding Company
and the Banks are referred to collectively as the "Company," on a consolidated
basis. The Company's results of operations are primarily dependent upon the
Banks' results of operations.
At March 31, 1999, the Company had total assets of $197,071,000,
deposits of $166,283,000, convertible debentures of $6,990,000 and stockholders'
equity of $19,859,000.
The Holding Company's primary business is the operation of the Banks. It
does not engage in any other substantial business activities other than a
limited amount of real estate mortgage lending. In 1998, the Holding Company
also sold convertible debentures that raised funds for working capital purposes.
Intervest Bank
- --------------
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, 1999, Intervest Bank had total assets of $181,020,00, deposits of
$166,283,000 and stockholders' equity of $11,447,000.
Intervest Bank is subject to examination and regulation by the Federal
Reserve Board (the "FRB") and its deposits are insured by 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. Intervest Bank
conducts a personalized commercial and consumer banking business, which consists
of attracting deposits from the areas served by its banking offices. Those
deposits, together with funds derived from other sources, are used to originate
a variety of commercial, consumer and real estate loans and to purchase
investment securities. Commercial loans include both collateralized and
uncollateralized loans for: working capital (including inventory, receivables
and business expansion); real estate acquisitions and improvements; and
purchases of equipment and machinery. Consumer loans include collateralized and
uncollateralized loans for financing automobiles, boats, home improvements and
personal investments.
As is the case with banking institutions generally, Intervest Bank's
operations are significantly influenced by general economic conditions and by
related monetary and fiscal policies of banking regulatory agencies, including
the FRB, the FDIC 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.
Intervest Bank faces strong competition in the attraction of deposits (its
primary source of funds) and in the origination of loans.
The revenues of Intervest Bank 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
Intervest Bank's lending activities are deposits, repayment of loans, maturities
and calls of securities and cash flow generated from operating activities.
Intervest Bank's principal expenses are interest paid on deposits and operating
and general administrative expenses.
Intervest National Bank
- -----------------------
Intervest National Bank is a national bank that received its charter
from the OCC and opened for business on April 1, 1999. Intervest National Bank
is a full-service commercial bank and is subject to the supervision and
examination of the OCC. Its deposits are insured by the FDIC to the extent
permitted by law. The principal executive office of Intervest National Bank is
located at One Rockefeller Plaza, Suite 300, New York, New York 10020. Because
Intervest National Bank commenced operations on April 1, 1999, and because
substantially all of the information contained in this prospectus relates to the
periods through March 31, 1999, the following information relates, for the most
part, to the operations of the Holding Company and its other subsidiary,
Intervest Bank.
29
Market Area
Intervest Bank's facilities are located in Pinellas County, which is
Intervest Bank's 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). The current population of the Tampa Bay area is
estimated at over 2,000,000, which reflects significant population increases
since 1970. Pinellas is the most densely populated county in Florida, with
nearly 3,000 people per square mile. The average age of the population for the
region is estimated at 45 years (as compared to 38 years for the State of
Florida), which reflects the history of Pinellas County as a retirement area.
Recent years have shown a slight drop in average age due to an increase in
office and manufacturing employment opportunities. Clearwater is the county seat
of Pinellas County and its second largest city, encompassing approximately 32
square miles with a population of about 100,000. 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.
In the case of Intervest National Bank, its primary market area is the
metropolitan New York area, and Manhattan in particular. The Holding Company's
direct lending activities have, to date, been concentrated in the New York City
metropolitan region. It also considers Connecticut, Florida, New Jersey,
Pennsylvania and Washington D.C. as its primary lending market.
Competition
The deregulation of the banking industry and the widespread enactment of
state laws that permit multi-bank holding companies, as well as an increasing
level of interstate banking, have created a highly competitive environment for
commercial banking. In one or more aspects of their business, the Banks compete
with other commercial banks, savings and loan associations, credit unions,
finance companies, mutual funds, insurance companies, brokerage and investment
banking companies, and other financial intermediaries. Most of these
competitors, some of which are affiliated with large bank holding companies,
have substantially greater resources and lending limits, and may offer certain
services that the Banks does not currently provide. In addition, many of the
Banks' non-bank competitors are not subject to the same extensive Federal
regulations that govern bank holding companies and Federally insured banks.
Competition among financial institutions is based upon interest rates
offered on deposit accounts, interest rates charged on loans and other credit
and service charges, the quality and scope of the services rendered, the
convenience of banking facilities and, in the case of loans to commercial
borrowers, relative lending limits. Management believes that a community bank is
better positioned to establish personalized 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 the
Banks' 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 enable the Banks to attract and retain core
deposits.
Asset Quality
Management seeks to maintain a high level of asset quality. The Company
seeks to maintain diversification when considering investments in securities and
the originations of loans. In originating loans, emphasis is placed on the
borrower's ability to generate cash flow to support its debt obligations and
other cash related expenses. Lending activities are conducted pursuant to
written policies. Each loan officer has defined lending authority. 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, the Company
typically limits its loans to a maximum of 80% of the value of the underlying
real estate as determined by an appraisal. In addition, knowledgeable members of
management make physical inspections of properties being considered for mortgage
loans. Further, the Loan Committee concentrates its efforts and resources and
that of its senior management and lending officers, 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.
Management also has in place a review process with the objective of quickly
identifying, evaluating and initiating necessary corrective actions for any
problem loans. The goal of this loan review process is to address any classified
loans as early as possible. Management maintains a cautious outlook in
anticipating the potential effects of uncertain economic conditions (both
locally and nationally) and the possibility of more stringent regulatory
standards. Management believes that its policies and procedures reduce the
Company's exposure to the risks associated with a downturn in real estate
values. However, 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, 1999 and December 31, 1998 and 1997,
the Company did not have any nonperforming assets.
30
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, 1999, the loan portfolio
amounted to $91,345,000.
Real Estate Mortgage Lending
- ----------------------------
The Company offers real estate loans secured by commercial and
residential real estate. A substantial portion of the Company's loan portfolio
is comprised of loans secured by commercial and multifamily real estate,
including apartment buildings, office buildings and retail shopping centers. The
properties are located mostly in the Company's primary market area.
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.
The Company's underwriting procedures require mortgage title insurance,
hazard insurance and an appraisal of the property securing the loan to determine
the property's adequacy as security. 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 Company typically do not exceed 80%.
New mortgage loans on commercial real estate and multifamily properties
are normally originated for terms of no more than 20 years with interest rates
that are predominantly variable rate, based on a fixed margin mainly over the
prime rate and the five-year constant maturity treasury index.
Commercial Lending
- ------------------
The Banks offers 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
purpose of a particular loan generally determines its structure. The Banks'
commercial loans primarily are underwritten in each Bank's primary market area
on the basis of the borrower's ability to service such debt from income. As a
general practice, the Banks take as collateral a lien on any available real
estate, equipment, or other assets. Working capital loans are primarily
collateralized by short-term assets, whereas term loans are primarily
collateralized by longer-term assets.
Unlike 1-4 family residential mortgage loans, (which generally are made
on the basis of the borrower's ability to make repayment from their employment
and other income and which are collateralized by real property whose value tends
to be more readily ascertainable) commercial loans typically are underwritten on
the basis of the borrower's ability to make repayment from the cash flow of
their business and generally are collateralized by business assets, such as
accounts receivable, equipment and inventory. 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.
31
Consumer Lending
- ----------------
Consumer loans made by the Banks include those for: the purchase of
automobiles, recreation vehicles and boats; second mortgages; home improvements;
home equity lines of credit; and personal loans (both collateralized and
uncollateralized). Consumer loans typically have a short term and carry higher
interest rates than that charged on 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
since the collateral may be of reduced value at the time of collection.
Loan Solicitation and Processing
- --------------------------------
Loan originations are derived from: direct solicitation by the Banks'
loan officers; existing customers and borrowers; advertising; walk-in customers;
and referrals from brokers. 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
Banks.
Security Investment Activities
The Banks' investment policies and strategies are reviewed and approved
by their respective Board of Directors and Investment Committees. The Banks have
historically only purchased securities that are issued directly by the U.S.
Government or one of its agencies. Accordingly, the Banks' investments in
securities carry a significantly lower credit risk than their loan portfolios.
To manage interest rate risk, the Banks normally purchase securities that have
adjustable rates or securities with fixed rates that have short- to
intermediate-maturity terms. The Holding Company normally invests its excess
cash in short-term investments of three months or less. Securities held to
maturity totaled $85,327,000 at March 31, 1999.
Deposit Activities
Deposits are the major source of the Banks' funds for lending and other
investment purposes. At March 31, 1999, deposit liabilities totaled
$166,263,000. The majority of deposit accounts are solicited from small
business, professional firms and households located throughout the Banks'
primary market areas through the offering of a broad variety of deposit
services. These services include: certificates of deposit (including "jumbo"
certificates in 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. Transaction accounts and time deposits are tailored to
the principal market area of the Bank at rates competitive to those in the area.
In addition, the determination of rates and terms also considers the Banks'
liquidity requirements, growth goals and Federal regulations. Maturity terms,
service fees and withdrawal penalties 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. The Banks
periodically review the scope of the banking products and services they offer so
as to determine whether to add to or modify them, consistent with market
opportunities and available resources.
Other Sources of Funds
The Banks, from time to time, obtain funds through the Federal funds
market when such funds are available at attractive rates. Such funds were not
emphasized in 1988 or 1997. In June 1998, the Holding Company sold $7,000,000 of
convertible subordinated debentures for net proceeds of approximately
$6,500,000. The proceeds are part of the Holding Company's working capital.
Employees
At March 31, 1999, the Company employed 34 full-time employees and 3
part-time employees. None of the employees are covered by a collective
bargaining agreement and the Company believes that its employee relations are
good.
32
Federal and State Taxation
The Holding Company and the Banks file a consolidated Federal income tax
return 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
subsidiary on the basis of their respective taxable income or loss included in
the consolidated income tax return.
Although the Banks' income tax liability is determined under provisions
of the Internal Revenue Code of 1986, as amended (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.
The Holding Company files state income tax returns in New York and New
Jersey and a franchise tax return in Delaware. Intervest Bank files a state
income tax return in Florida. Florida taxes banks under primarily the same
provisions as other corporations. The Holding Company's activities, other than
the bank operations, are taxable in the State of New York. Generally, New York
State taxable income is calculated under applicable Code sections with some
modifications required by state law.
Investment in Subsidiaries
The following schedule sets forth information with respect to
investments in, income from dividends, and equity in earnings of the Holding
Company's consolidated subsidiaries:
At March 31, 1999
--------------------------------- Holding Company's Share
($ in thousands) % of Equity in of Earnings for the Years
Voting Total Underlying Ended December 31,
Subsidiary Stock Investment Net Assets 1999 1998
- ---------- ----- ---------- ---------- ---- ----
Intervest Bank 99.84% $11,430 $11,430 $341 $244
At April 1, 1999, the Holding Company's equity in the underlying net assets of
Intervest National Bank was $9,000,000, and it owned 100% of that Bank's issued
and outstanding stock. There were no dividends paid in the first quarter of
1999.
At December 31, 1998
-------------------- Holding Company's Share
($ in thousands) % of Equity in of Earnings for the Years
Voting Total Underlying Ended December 31,
Subsidiary Stock Investment Net Assets 1998 1997
- ---------- ----- ---------- ---------- ---- ----
Intervest Bank 99.78% $11,081 $11,081 $1,149 $753
There were no dividends paid to the Holding Company by Intervest Bank in 1998 or
1997.
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,
not stockholders. 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 subsidiary.
Bank Holding Company Regulation
- -------------------------------
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
subsidiary. Under the BHCA, the Holding Company's activities and those of its
subsidiary are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiary 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.
33
As a bank holding company, the Holding Company is required to obtain the
prior approval of the FRB before acquiring direct or indirect ownership or
control of more than 5% of the voting shares of a bank or bank holding company.
The FRB will not approve any acquisition, merger or consolidation that would
have a substantial anti-competitive result, unless the anti-competitive effects
of the proposed transaction are outweighed by a greater public interest in
meeting the needs and convenience of the public. The FRB also considers
managerial, capital and other financial factors in acting on acquisition or
merger applications. A bank holding company may not engage in, or acquire direct
or indirect control of more than 5% of the voting shares of any company engaged
in any non-banking activity, unless such activity has been determined by the FRB
to be closely related to banking or managing banks. The FRB has identified by
regulation various non-banking activities in which a bank holding company may
engage with notice to, or prior approval by, the FRB.
It is the policy of the FRB that bank holding companies should pay cash
dividends on common stock only out of income available over the past year and
only if prospective earnings retention is consistent with the organization's
expected future needs and financial condition. The policy provides that bank
holding companies should not maintain a level of cash dividends that undermines
the bank holding Company's ability to serve as a source of strength to its
banking subsidiaries. In addition, the Federal regulatory agencies are
authorized to prohibit a banking institution or bank holding company from
engaging in an unsafe or unsound banking practice. Depending upon the
circumstances, the agencies could take the position that paying a dividend would
constitute an unsafe or unsound banking practice. Under FRB policy, a bank
holding company is expected to act as a source of financial strength to its
banking subsidiaries and to commit resources to their support. Such support may
be required at times when, absent this FRB policy, a holding company may not be
inclined to provide it. As discussed below, a bank holding company in certain
circumstances could be required to guarantee the capital plan of an
undercapitalized banking subsidiary.
The FRB monitors the capital adequacy of bank holding companies and has
adopted 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 (generally, common stockholders' equity, perpetual noncumulative,
preferred stock and minority interests in consolidated subsidiaries, less
goodwill, other disallowed intangibles and disallowed deferred tax assets, among
other items) 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, 1999, the Company's
consolidated ratio of total capital to risk-weighted assets was 18.09% and its
risk-based Tier 1 capital ratio was 16.83%.
The FRB also uses a leverage ratio to evaluate the capital adequacy of
bank holding companies. The leverage ratio applicable to the Holding Company
requires a ratio of Tier 1 capital to adjusted total average assets of not less
than 3%, although most organizations are expected to maintain leverage ratios
that are 100-200 basis points above this minimum ratio. The Holding Company's
leverage ratio at March 31, 999, was 73.72%.
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 and regular examination by the FRB, the Florida Department of
Banking and Finance and the FDIC. The operations of Intervest Bank 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 Intervest Bank's operations. Various consumer
laws and regulations also affect the operations of Intervest Bank, including
34
state usury laws, laws relating to fiduciaries, consumer credit and equal
credit, and fair credit reporting. Under the provisions of the Federal Reserve
Act, Intervest Bank is subject to certain restrictions on any extensions of
credit to the Holding Company or, with certain exceptions, other affiliates, on
investments in the stock or other securities of national banks, and on the
taking of such stock or securities as collateral. These regulations and
restrictions may limit the Holding Company's ability to obtain funds from
Intervest Bank for its cash needs, including funds for acquisitions, and the
payment of dividends, interest and operating expenses. Further, Intervest Bank
is 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, Intervest Bank may not generally require a customer to obtain other
services from Intervest Bank 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. Intervest Bank is 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. Intervest Bank is 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
Intervest Bank or any officer, director, employee, agent or other person
participating in the conduct of the affairs of Intervest Bank or the imposition
of a cease and desist order.
Applicable law provides the Federal banking agencies with broad powers
to take prompt corrective action to resolve problems of insured depository
institutions. The extent of those powers depends upon whether the institution in
question is "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," or "critically undercapitalized." The Federal
banking agencies have issued uniform regulations defining such capital levels.
Under the 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
CAMEL 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 CAMEL rating of 1); (b) "significantly
undercapitalized" if Intervest 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
Intervest Bank has a ratio of tangible equity to total assets equal to or less
than 2%. At March 31, 1999 Intervest Bank met the definition of a
well-capitalized institution.
Intervest National Bank, as a national banking association, is subject
to primary supervision, examination and regulation by the OCC. If, as result of
an examination of Intervest National Bank, the OCC should determine that the
financial condition, capital resources, asset quality, earnings prospects,
management, liquidity, or other aspects of Intervest National Bank's operations
are unsatisfactory or that Intervest National Bank or its management is
violating or has violated any law or regulation, various remedies are available
to the OCC. Such remedies include the power to enjoin "unsafe or unsound
practices"," to require affirmative action to correct any conditions resulting
from any violation or practice, to issue an administrative order that can be
judicially enforced, to direct an increase in capital, to restrict the growth of
a bank, to assess civil monetary penalties and to remove officers and directors.
The FDIC has similar enforcement authority, in addition to its authority to
terminate a Bank's deposit insurance, in the absence of action by the OCC and
upon finding that a bank is in an unsafe or unsound condition, is engaging in
unsafe or unsound practices, or that its conduct poses a risk to the deposit
insurance fund or may prejudice the interest of its depositors. The prior
approval of the OCC is required if the total of all dividends declared by
Intervest National Bank in any calendar year exceeds Intervest National Bank's
net profits for that year combined with retained profits for the preceding two
years, less any transfers to surplus.
The deposits of the Banks are insured by the FDIC through the Bank
Insurance Fund (the "BIF") to the extent provided by law. Under the FDIC's
risk-based insurance system, BIF-insured institutions are currently assessed
premiums of between zero and $0.27 per $100 of eligible deposits, depending upon
the institutions capital position and other supervisory factors. Congress has
enacted legislation that, among other things, provides for assessments against
BIF insured institutions that will be used to pay certain financing corporation
("FICO") obligations. In addition to any BIF insurance assessments, BIF-insured
banks are expected to make payments for the FICO obligations equal to an
estimated $0.0129 per $100 of eligible deposits each year during 1997 through
1999 and an estimated $0.024 per $100 of eligible deposits thereafter.
35
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.
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, as defined in the statute, 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.
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.
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 laws and regulations affecting banks and bank holding companies are
continually being reviewed and revised. The rules of the regulatory agencies in
this area have changed significantly over recent years and there is reason to
expect that similar changes will continue in the future. It is difficult to
predict the outcome of these changes.
The FRB and the 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
conservative 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.
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 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.
36
Description of Properties
The office of the Holding Company is located at 10 Rockefeller Plaza,
New York, N.Y, 10020. 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 are owned by Intervest
Bank. The office at 625 Court Street consists of a two-story building containing
approximately 22,000 sq. ft. Intervest Bank occupies the ground floor
(approximately 8,500 sq. ft.) and leases the 2nd floor to a single commercial
tenant. The branch office at 1875 Belcher Road is a two-story building in which
Intervest Bank leases approximately 5,100 sq. ft. on the ground floor. The
branch office at 2175 Nursery Road is a one-story building containing
approximately 2,700 sq. ft., which is entirely occupied by Intervest Bank. The
branch office at 2575 Ulmerton Road is a three-story building containing
approximately 17,000 sq. ft. Intervest Bank occupies the ground floor
(approximately 2,500 sq. ft.) and leases the upper floors to commercial tenants.
The branch office at 6750 Gulfport Blvd. is a one-story building containing
approximately 2,800 sq. ft., which is entirely occupied by Intervest Bank. In
addition, each of Intervest Bank's offices include drive-through teller
facilities.
Intervest National Bank's main office is located on the third floor of
One Rockefeller Plaza in New York City, N.Y. The office consists of
approximately 7,000 sq. ft. and has been leased through May 2008. See page 29
under the heading "Intervest Bancshares Corporation" for a further discussion of
Intervest National Bank.
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 real property 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.
MANAGEMENT
Directors and Executive Officers of the Company
- -----------------------------------------------
The directors and executive officers of the Company, their ages, and positions
with the Company are set forth below.
Lawrence G. Bergman, age 54, serves as a Director, Vice President and
Secretary of the Company and has served in such capacities since the Company was
organized. 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
is also Co-Chairman of the Board of Directors and a member of the Loan Committee
of Intervest Bank. He is also a Director and member of the Loan Committee of
Intervest National Bank, and a Director, Vice-President and Secretary of
Intervest Corporation of New York. During the past five years Mr. Bergman has
been actively involved in the ownership and operation of real estate and
mortgage investments.
Michael A. Callen, age 58, 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 has
been Senior Advisor, The National Commercial Bank, Jeddah, Kingdom of Saudi
Arabia since May, 1993. From the fall of 1992 through February of 1993, he was
an Adjunct Professor of International Banking at Columbia University Business
School. From 1987 until February of 1992 he was a Director and Sector Executive
at Citicorp/Citibank, responsible for corporate banking activities in North
America, Europe and Japan. He is also a Director of Intervest Corporation of New
York, Intervest National Bank and AMBAC, Inc.
Jerome Dansker, age 80, serves as Chairman of the Board of Directors
and Executive Vice President of the Company. 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. He is also a Director and Chairman of
the Loan Committee of Intervest Bank and is Chairman of the Board of Directors
and Executive Vice President of Intervest Corporation of New York. During the
past five years, Mr. Dansker has been actively involved in the ownership and
operation of real estate and mortgage investments.
37
Lowell S. Dansker, age 48, serves as a Director, President and
Treasurer of the Company, and has served in such capacities since the Company
was organized. 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 is also Co-Chairman of the
Board of Directors and a member of the Loan Committee of Intervest Bank. He is
also a Chief Executive Officer, a Director and a member of the Loan Committee of
Intervest National Bank, and a Director, President and Treasurer of Intervest
Corporation of New York. During the past five years, Mr. Dansker has been
actively involved in the ownership and operation of real estate and mortgage
investments.
Milton F. Gidge, age 69, serves as a Director of the Company, and has
served in such capacity since March 1994. Mr. Gidge received a Bachelor of
Business Administration degree in Accounting from Adelphi University and a
Masters Degree in Banking and Finance from New York University. Mr. Gidge
retired in 1994 and, prior to his retirement, was a Director and Chairman-Credit
Policy of Lincoln Savings Bank, F.S.B. (headquartered in New York City). He is
also a Director of Intervest Corporation of New York, Intervest National Bank,
Interboro Mutual Indemnity Insurance Company and Vicon Industries, Inc. Mr.
Gidge was a director and senior officer of Lincoln Savings Bank, F.S.B. for more
than five years.
Wayne F. Holly, age 42, serves as a Director of the Company and has
served in such capacity since June 1999. Mr. Holly received a Bachelor of
Science degree in Economics from Alfred University. Mr. Holly is President of
Sage, Rutty & Co., Inc., a member of the Boston Stock Exchange, with offices in
Rochester, New York and Canandaigua, New York, and is also a Director of
Intervest Corporation of New York and Intervest National Bank (subject to
regulatory approval). Mr. Holly has been an officer and Director of Sage, Rutty
& Co., Inc. for more than five years.
Edward J. Merz, age 67, 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 The 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 Corporation of New
York, Intervest National Bank and the Independent Bankers Association of New
York.
Thomas E. Willett, age 51, 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 Corporation of New York and Intervest National Bank.
David J. Willmott, age 61, 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 Corporation of New York and Intervest National
Bank.
Wesley T. Wood, age 56, 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 Corporation of New York and Intervest National Bank, 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.
All of the directors of the Company have been elected to serve as
directors until the next annual meeting of the Company's shareholders. Each of
the officers of the Company has been elected to serve as an officer until the
next annual meeting of the Company's directors.
Mr. Bergman's wife is the sister of Lowell S. Dansker, and Jerome
Dansker is the father of Lowell S. Dansker and Mrs. Bergman.
38
Executive Officers of the Banks
- -------------------------------
The current executive officers of Intervest Bank are as follows:
Lawrence G. Bergman serves as Co-Chairman of the Board of Directors and
as a member of the Loan Committee of Intervest Bank and has served as a director
since May 1993. See "Directors and Executive Officers of the Company."
Jerome Dansker serves as a Director and as Chairman of the Loan
Committee of Intervest Bank and has served as a director since November 1993.
See "Directors and Executive Officers of the Company."
Lowell S. Dansker serves as Co-Chairman of the Board of Directors and
as a member of the Loan Committee of Intervest Bank, and has served as a
director since May 1993. See "Directors and Executive Officers of the Company."
Keith A. Olsen, age 45, 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 a banker for more than 15 years and has served as a senior
bank officer for more than 10 years.
Petra H. Coover, age 52, serves as Vice President of Intervest Bank and
has served in such capacity since 1994. Ms. Coover received a B.A. degree in
business administration from Eckerd College. She has also attended The National
School of Real Estate Finance of Ohio State University, the Commercial Lending
School of the University of South Florida and the International Business
Institute in the Netherlands. Ms. Coover has been a bank officer for more than
14 years.
Charlotte H. Grant, age 60, serves as Vice President and Cashier of
Intervest Bank and has served in that capacity since July 1998. Ms. Grant
received a Bachelors degree from the University of South Florida and a Masters
Degree from the University of Tampa. Ms. Grant is a Certified Public Accountant.
Prior to joining Intervest Bank, Ms. Grant served as Chief Financial Officer of
First Community Bank of America from October 1987 to July 1998 and as an
Accountant in Practice with the firm of Hacker, Johnson, Cohen and Grieb, PA
(the Company's auditors) from 1993 to 1997. Prior to that, Ms. Grant was a
Manager of Financial Reporting for First Florida Bank.
The current executive officers of Intervest National Bank are as follows:
Jerome Dansker serves as Chairman of the Board of Directors and as
Chairman of the Loan Committee of Intervest National Bank, and has served in
such capacities since inception of the bank. See "Directors and Executive
Officers of the Company."
Lowell S. Dansker serves as Chief Executive Officer and Director and as
a member of the Loan Committee of Intervest National Bank, and has served in
such capacities since inception of the Bank. See "Directors and Executive
Officers of the Company."
Raymond C. Sullivan, age 52, was an employee of Intervest Bancshares
Corporation from March 1998 to March 1999. In April of 1999, he became President
and Director of Intervest National Bank. 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 Intervest Bancshares Corporation, Mr.
Sullivan was the Operations Manager of the New York Agency Office of Banco
Mercantile, C.A. from 1994 to 1997, a Senior Associate at LoBue Associates, Inc.
from 1992 to 1993, and an Executive Vice President, Chief Operations Officer and
Director of Central Federal Savings Bank from 1985 to 1992.
John J. Arvonio, age 36, was an employee of Intervest Bancshares
Corporation from April 1998 to March 1999. In April of 1999, he became Vice
President, Controller and Secretary of Intervest National Bank and has served in
that capacity since inception of the bank. Mr. Arvonio received a B.B.A. degree
from Iona College and is a Certified Public Accountant. Mr. Arvonio has 10 years
of banking experience. Prior to joining Intervest Bancshares Corporation, 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 Manager of Financial Reporting for the Leasing and
Investment Banking Divisions of Citicorp.
39
Executive Compensation
The following table sets forth information concerning total
compensation paid during the last three years to Intervest Bank's chief
executive officer. No other officer of the Company or its subsidiaries 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(1) Pay-Outs
-------- ---- ------ ------- ------------ --------- --------
Keith A. Olsen, 1998 $125,000 $ 10,000 -- 5,000 --
President
1997 $115,000 $ 10,000 -- -- --
1996 $ 95,000 $ 10,000 -- 15,000 --
- -----------------------
(1) These represent warrants to purchase the number of shares of Class A
Common Stock set forth in the table.
Employment Agreement with Keith A. Olsen
Intervest Bank has an employment agreement with Mr. Keith A. Olsen that
expires December 31, 2000. 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 upon termination of employment.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Intervest Bank has had, and expects to have in the future, various loan
and other banking transactions in the ordinary course of business with directors
and executive officers of Intervest Bank (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 $3.7 million as of March
31, 1999, which represented approximately 19% of total stockholders' equity.
The Company, as well as corporations affiliated with certain directors
of the Company, have in the past and may in the future participate in mortgage
loans originated by Intervest Bank. 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 Intervest Bank.
Intervest Bank leases office space from a corporation in which Robert
J. Carroll, a director of Intervest Bank, is an officer and in which he has an
ownership interest. Mr. Wayne F. Holly, a director of the Company, is President
of Sage, Rutty & Co., Inc., which was the underwriter in the Company's public
offering of convertible debentures during 1998 and, in that capacity, Sage Rutty
& Co. received aggregate compensation of approximately $500,000. Mr. Thomas E.
Willett, a director of the Corporation, is a partner in the law firm of Harris
Beach & Wilcox, LLP, which firm provides legal services to the Company and its
subsidiaries.
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 Intervest Bank, other than such as arises by virtue of such
position or ownership interest in the Company or Intervest Bank.
40
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, 1999 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 Percent of Number Percent of
- ----------------- ------ ---------- ------ ----------
of Shares Class(1) of Shares Class(1)
--------- -------- --------- --------
Helene D. Bergman 225,000 10.29 75,000 15.00%
201 East 62nd Street
New York, New York 10021
Directors and Executive Officers
Lawrence G. Bergman, Director, 320,000(2) 14.03 75,000 15.00%
Vice President and Secretary
Michael A. Callen, Director 50,000(3) 2.25 0 0%
Lowell S. Dansker, Director, 545,000(2) 23.89 150,000 30.00%
President and Treasurer
Jerome Dansker, Chairman, 585,965(4) 21.14 200,000(4) 40.00%
Executive Vice President, Director
Milton F. Gidge, Director 37,000(5) 1.67 0 0%
William F. Holly, Director 34,500(6) 1.56 0 0%
Edward J. Merz, Director 5,200(7) 0.24 0 0%
Thomas E. Willett, Director 6,000(8) 0.27 0 0%
David J. Willmott, Director 87,500(9) 3.90 0 0%
Wesley T. Wood, Director 102,500(10) 4.55 0 0%
All directors and executive
officers as a group (10 persons) 1,773,665 55.69 425,000 85.00%
- -----------------------------
(1) Percentages have been computed based upon the total outstanding shares
of the Company plus, for each person and the group, shares that person
or the group has the right to acquire pursuant to warrants.
(2) Includes 95,000 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) The 585,965 shares of Class A common stock are issuable upon the
exercise of warrants. The shares of Class B common stock include
195,000 shares issuable upon exercise of warrants.
(5) Includes 32,000 shares of Class A common stock issuable upon the
exercise of warrants.
(6) Includes 21,500 shares of Class A common stock issuable upon the
exercise of warrants.
(7) Includes 5,000 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.
41
DESCRIPTION OF CAPITAL STOCK
General
The Company's Articles of Incorporation provide for two classes of
common capital stock consisting of 7,500,000 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 Articles provide for 300,000 shares
of preferred stock, par value $1.00 per share ("Preferred Stock"). The Company's
Articles of Incorporation authorize 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
2,192,196 shares of Class A Common Stock, 900,000 of which are held by the
initial stockholders of the Company and a related party and 305,000 shares of
Class B Common Stock held by the same 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."
No dividends may be declared or paid with respect to shares of Class B
Common Stock until January 1, 2000, after which time the holders of Class A
Common Stock and Class B Common Stock will 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, 2,554,468 warrants were outstanding
to purchase the Company's Class A Common Stock as follows:
warrants totaling 1,471,065 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, 2007;
warrants totaling 961,403 entitle the registered holders thereof to
purchase one share of Class A Common Stock at a price of $10.00 per share
through December 31, 1999; $11.50 per share from January 1, 2000 through
December 31, 2000; $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, 2000;
and warrants totaling 122,000 entitle the registered holders thereof to
purchase one share of Class A common stock at a price of $14.00 per share
through year-end 1999; $15.00 per share in 2000; $16.00 per share in 2001 and
$17.00 per share in 2002. These warrants also expire on December 31, 2002.
42
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 discussion applies to all of the warrants for
Class A Common Stock.
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 Warrant
There are 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 45,000 that allow
the purchase at any time prior to January 31, 2008, at a purchase price of
$10.00 per share. The warrants contain 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.
43
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.
Preferred Stock
The Company's Articles of Incorporation authorize 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 DEBENTURES
General
The Debentures are unsecured subordinated obligations of the Company,
limited to an aggregate principal amount of $7,000,000 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.
44
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 $7,000,000 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
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 fund 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 $10.00 per share
through December 31, 1999, which conversion price increases annually on January
1 of each year thereafter. 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.
45
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
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 Debentures will be (i) face amount plus a 2%
premium if the date of redemption is prior to July 1, 1999, (ii) face amount
plus a 1% premium if the date of redemption is on or after July 1, 1999 and
prior to July 1, 2000, and (iii) face amount if the date of redemption is on or
after July 1, 2000. 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).
46
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
(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).
47
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.
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.
48
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 & Wilcox LLP, Rochester, New York.
EXPERTS
The consolidated balance sheets of Intervest Bancshares Corporation and
Subsidiary as of December 31, 1998 and 1997 and the related consolidated
statements of earnings, stockholders' equity and cash flows for the years then
ended included in this Prospectus, have been included herein in reliance on the
report of Hacker, Johnson, Cohen & Grieb PA, Tampa, Florida, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
49
Index to Financial Statements
Intervest Bancshares Corporation and Subsidiary
Supplementary Data F-2
Condensed Consolidated Balance Sheets as of
March 31, 1999 (Unaudited) and December 31, 1998 F-3
Condensed Consolidated Statements of Earnings (Unaudited) for the Quarters Ended
March 31, 1999 and 1998 F-4
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the
Quarters Ended March 31, 1999 and 1998 F-5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Quarters Ended
March 31, 1999 and 1998 F-6
Notes (Unaudited) to Condensed Consolidated Financial Statements F-7
Independent Auditors' Report F-10
Consolidated Balance Sheets at December 31, 1998 and 1997 F-11
Consolidated Statements of Earnings for the Years Ended December 31, 1998 and 1997 F-12
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1998 and 1997 F-13
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and 1997 F-14
Notes to the Consolidated Financial Statements F-15
F-1
Supplementary Data
The following table sets forth, by maturity distribution, information pertaining
to securities held to maturity:
After One Year to After Five Years to
One Year or less Five Years Ten Years Total
Carrying Avg. Carrying Avg. Carrying Avg. Carrying Avg.
($ in thousands) Value Yield Value Yield Value Yield Value Yield
- ----------------------------------------------------------------------------------------------------------
At December 31, 1998:
U.S. Treasury securities $ 2,015 6.03% $ -- - % $ -- --% $ 2,015 6.03%
U.S. Government
agencies securities -- -- 61,060 5.80 19,263 6.18 80,323 5.89
- ----------------------------------------------------------------------------------------------------------
Total $ 2,015 6.03% $61,060 5.80% $19,263 6.18% $82,338 5.89%
- ----------------------------------------------------------------------------------------------------------
At December 31, 1997:
U.S. Treasury securities $ 1,996 6.10% $ 2,031 6.03% $ - -% $ 4,027 6.06%
U.S. Government
agencies securities 11,173 6.08 30,859 6.23 12,762 6.46 54,794 6.28
- ----------------------------------------------------------------------------------------------------------
Total $13,169 6.08% $32,890 6.21% $12,762 6.46% $58,821 6.24%
- ----------------------------------------------------------------------------------------------------------
At December 31, 1996:
U.S. Treasury securities $ 500 6.04% $ 999 6.17% $ -- -- % $ 1,499 6.12%
U.S. Government
agencies securities 8,142 5.97 22,856 6.16 2,010 6.33 33,008 6.12
- ----------------------------------------------------------------------------------------------------------
Total $ 8,642 5.97% $23,855 6.16% $ 2,010 6.33% $34,507 6.12%
- ----------------------------------------------------------------------------------------------------------
The following table sets forth information with respect to the composition of
loans receivable at December 31:
1998 1997 1996 1995 1994
($ in thousands) Carrying Carrying Carrying Carrying Carrying
Value Value Value Value Value
- ----------------------------------------------------------------------------------------------------------
Commercial real estate and multifamily loans $ 92,535 $ 71,173 $ 54,151 $ 29,384 $ 14,599
Residential 1-4 family loans 2,627 3,162 2,784 3,046 2,966
Construction loans -- 158 47 335 --
Commercial loans 2,875 2,641 3,514 4,391 5,053
Consumer loans 184 92 157 115 196
- ----------------------------------------------------------------------------------------------------------
Total gross loans receivable 98,221 77,226 60,653 37,271 22,814
- ----------------------------------------------------------------------------------------------------------
Deferred loan fees and unamortized discounts (485) (401) (343) (213) (60)
Allowance for loan loss reserves (1,662) (1,173) (811) (593) (369)
- ----------------------------------------------------------------------------------------------------------
Loans receivable, net $ 96,074 $ 75,652 $ 59,499 $ 36,465 $ 22,385
- ----------------------------------------------------------------------------------------------------------
Loans included above that were
on a nonaccrual status at year end $ -- $ -- $ -- $ -- $ 101
- ----------------------------------------------------------------------------------------------------------
The following table sets forth information with respect to the allowance for
loan loss reserves at December 31:
($ in thousands) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
Allowance at beginning of year
$ 1,173 $ 811 $ 593 $ 369 $ 251
Provision charged to operations 479 352 250 233 124
Chargeoffs -- -- (65) (30) (16)
Recoveries 10 10 33 21 10
- -------------------------------------------------------------------------------------------------------------
Allowance at end of year $ 1,662 $ 1,173 $ 811 $ 593 $ 369
- -------------------------------------------------------------------------------------------------------------
Total loans, net of deferred fees and discounts $ 97,736 $ 76,825 $ 60,310 $ 37,058 $ 22,754
Average loans outstanding for the year $ 90,470 $ 68,711 $ 49,266 $ 28,052 $ 19,324
Net chargeoffs (recoveries) to average loans
outstanding during the year -% -% 0.06% 0.03% 0.03%
Ratio of allowance to net loans receivable 1.70% 1.53% 1.34% 1.60% 1.62%
- -------------------------------------------------------------------------------------------------------------
F-2
Intervest Bancshares Corporation and Subsidiary
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
($ in thousands, except par value) 1999 1998 Change
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 3,171 $ 2,876 $ 295
Federal funds sold 554 6,473 (5,919)
Short-term investments 9,511 4,123 5,388
Total cash and cash equivalents 13,236 13,472 (236)
Interest-bearing deposits with banks 100 199 (99)
Securities held to maturity, net (estimated fair value of
$84,550 and $82,173, respectively) 85,327 82,338 2,989
Restricted security, Federal reserve bank stock, at cost 233 233
Loans receivable (net of allowance for loan loss reserves of
$1,775 and $1,662, respectively) 89,570 96,074 (6,504)
Accrued interest receivable 1,808 1,800 8
Premises and equipment, net 5,071 4,917 154
Deferred income tax asset 669 579 90
Other assets 1,057 910 147
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 197,071 $ 200,522 $ (3,451)
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits:
Demand deposits $ 4,442 $ 3,027 $ 1,415
NOW deposits 7,584 7,955 (371)
Savings deposits 27,289 26,823 466
Money-market deposits 35,828 33,629 2,199
Time deposits 91,140 99,033 (7,893)
Total deposits 166,283 170,467 (4,184)
Convertible debentures 6,990 7,000 (10)
Accrued interest on convertible debentures 444 299 145
Mortgage escrow funds 1,101 870 231
Official checks outstanding 1,532 1,572 (40)
Other liabilities 845 747 98
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 177,195 180,955 (3,760)
- -------------------------------------------------------------------------------------------------------------------------
Minority interest 17 23 (6)
STOCKHOLDERS' EQUITY
Preferred stock (300,000 shares authorized, none issued) -- -- --
Class A common stock ($1.00 par value, 7,500,000 shares authorized, 2,186,088
and 2,184,515 shares issued and outstanding, respectively) 2,186 2,184 2
Class B common stock ($1.00 par value, 700,000 shares authorized, 305,000 and
300,000 issued and outstanding, respectively) 305 300 5
Additional paid-in-capital, common 13,831 13,789 42
Retained earnings 3,537 3,271 266
- -------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 19,859 19,544 315
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities, minority interest and stockholders' equity $ 197,071 $ 200,522 $ (3,451)
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
F-3
Intervest Bancshares Corporation and Subsidiary
Condensed Consolidated Statements of Earnings
(Unaudited)
For the Quarter Ended
March 31,
---------------------
($ in thousands, except per share data) 1999 1998 Change
- --------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Loans receivable $ 2,141 $ 1,793 $ 348
Securities 1,263 1,029 234
Other interest-earning assets 72 70 2
- --------------------------------------------------------------------------------
Total interest and dividend income 3,476 2,892 584
- --------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 2,016 1,838 178
Convertible debentures 155 -- 155
- --------------------------------------------------------------------------------
Total interest expense 2,171 1,838 333
- --------------------------------------------------------------------------------
Net interest and dividend income 1,305 1,054 251
Provision for loan loss reserves 112 100 12
- --------------------------------------------------------------------------------
Net interest and dividend income
after provision for loan loss reserves 1,193 954 239
- --------------------------------------------------------------------------------
NONINTEREST INCOME
Customer service fees 32 26 6
Income from mortgage activities 90 37 53
All other 1 2 (1)
- --------------------------------------------------------------------------------
Total noninterest income 123 65 58
- --------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and employee benefits 350 246 104
Occupancy and equipment, net 107 97 10
Advertising and promotion 7 8 (1)
Professional fees and services 50 61 (11)
Stationery, printing and supplies 40 27 13
All other 93 70 23
- --------------------------------------------------------------------------------
Total noninterest expenses 647 509 138
- --------------------------------------------------------------------------------
Earnings before income taxes
and change in accounting principle 669 510 159
Provision for income taxes (275) (202) (73)
Cumulative effect of change in
accounting principle (note 6) (128) -- (128)
- --------------------------------------------------------------------------------
Net earnings $ 266 $ 308 $ (42)
- --------------------------------------------------------------------------------
Basic earnings per share:
Earnings before change in
accounting principle $ 0.16 $ 0.13 $ 0.03
Cumulative effect of change in
accounting principle (0.05) -- (0.05)
- --------------------------------------------------------------------------------
Net earnings per share $ 0.11 $ 0.13 $ (0.02)
- --------------------------------------------------------------------------------
Diluted earnings per share:
Earnings before change in
accounting principle $ 0.14 $ 0.09 $ 0.05
Cumulative effect of change in
accounting principle (0.04) -- (0.04)
- --------------------------------------------------------------------------------
Net earnings per share $ 0.10 $ 0.09 $ 0.01
- --------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
F-4
Intervest Bancshares Corporation and Subsidiary
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
For the Quarter Ended
March 31,
---------------------
($ in thousands) 1999 1998
- --------------------------------------------------------------------------------
CLASS A COMMON STOCK
Balance at beginning of period $ 2,184 $ 2,124
Issuance of 510 shares in exchange for
common stock of minority stockholders of Intervest Bank 1 --
Issuance of 1,063 shares upon the conversion of debentures 1 --
Issuance of 12,250 shares upon exercise of warrants in 1998 -- 12
- --------------------------------------------------------------------------------
Balance at end of period 2,186 2,136
- --------------------------------------------------------------------------------
CLASS B COMMON STOCK
Balance at beginning of period 300 300
Issuance of 5,000 shares upon the exercise of warrants 5 --
- --------------------------------------------------------------------------------
Balance at end of period 305 300
- --------------------------------------------------------------------------------
ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of period 13,789 13,360
Issuance of 510 shares in exchange for
common stock of minority stockholders of Intervest Bank 6 --
Issuance of 1,063 shares upon the
conversion of a debenture, net of issuance costs 2 --
Compensation related to issuance of stock warrants 6 --
Issuance of 5,000 shares upon exercise of
Class B stock warrants 28 --
Issuance of 12,250 shares upon exercise of Class A stock warrants - 73
- --------------------------------------------------------------------------------
Balance at end of period 13,831 13,433
- --------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period 3,271 1,836
Net earnings for the period 266 308
- --------------------------------------------------------------------------------
Balance at end of period 3,537 2,144
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total stockholders' equity at end of period $19,859 $18,013
- --------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
F-5
Intervest Bancshares Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Quarter Ended
March 31,
---------------------
($ in thousands) 1999 1998
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 266 $ 308
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 79 83
Provision for loan loss reserves 112 100
Deferred income tax (benefit) expense (90) 29
Accrued interest expense on debentures 155 --
Gain on sale of mortgage loans (56) --
Compensation expense related to stock warrants 6 --
Amortization of premiums, fees and discounts, net (99) 4
Increase in accrued interest
receivable and other assets (167) (225)
(Decrease) increase in official checks
outstanding (40) 169
Increase in other liabilities 88 24
- --------------------------------------------------------------------------------
Net cash provided by operating activities 254 492
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Decrease in interest-earning deposits 99 --
Maturities and calls of securities held to maturity 16,525 10,426
Purchases of securities held to maturity (19,500) (17,568)
Sales of mortgage loans 5,660 --
Repayments (originations) of loans receivable, net 886 (7,691)
Purchases of premises and equipment, net (233) (270)
- --------------------------------------------------------------------------------
Net cash provided (used) by investing activities 3,437 (15,103)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand, savings,
NOW and money-market deposits 3,709 4,741
Net (decrease) increase in time deposits (7,893) 7,501
Net increase in mortgage escrow funds 231 675
Proceeds from purchases of Federal funds -- 1,160
Proceeds from issuance of common stock,
net of issuance costs 26 85
- --------------------------------------------------------------------------------
Net cash (used) provided by financing activities (3,927) 14,162
- --------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (236) (449)
Cash and cash equivalents at beginning of period 13,472 9,176
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 13,236 $ 8,727
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 2,063 $ 1,822
Income taxes 405 87
Noncash financing activities:
Issuance of common stock to minority
stockholders of Intervest Bank 7 --
Conversion of convertible debentures
into common stock 11 --
Compensation related to stock warrants 6 --
Interest on convertible debentures 155 --
- --------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
F-6
Intervest Bancshares Corporation and Subsidiary
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 - General
The condensed consolidated financial statements of Intervest Bancshares
Corporation and Subsidiary in this report have not been audited except for the
information derived from the audited Consolidated Balance Sheet as of December
31, 1998. The financial statements in this report should be read in conjunction
with the consolidated financial statements and related notes thereto included in
the Company's Annual Report to Stockholders on Form 10-KSB for the year ended
December 31, 1998. The consolidated financial statements include the accounts of
Intervest Bancshares Corporation, a bank holding company (the "Holding
Company"), and its subsidiary, Intervest Bank (the "Bank"). The Holding Company
and the Bank are hereafter referred to as the "Company" on a consolidated basis.
The Holding Company's primary business activity is the ownership of the Bank.
On April 1, 1999, the Office of the Comptroller of the Currency granted
final approval of the Holding Company's application to form "Intervest National
Bank," a newly chartered commercial bank, which is a wholly owned subsidiary of
the Holding Company. Intervest National Bank received its national charter and
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. Intervest National Bank is a member of the Federal Reserve Banking
system and the Federal Deposit Insurance Corporation insures its deposits.
All intercompany accounts and transactions have been eliminated in
consolidation. In the opinion of management, all material adjustments necessary
for a fair presentation of financial condition and results of operations for the
interim periods presented 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 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 period's presentation.
Note 2 - Loan Impairment and Credit Losses
The Company monitors its loan portfolio to determine the appropriate
level of the allowance for loan loss reserves based on various factors that are
discussed on pages 22 and 23 of the Company's 1998 Annual Report on Form 10-KSB.
No loans were classified as nonaccrual or impaired during the 1999 and 1998
reporting periods in this report. The table below summarizes the activity in the
allowance for loan loss reserves:
- --------------------------------------------------------------------------------
For the Quarter Ended
March 31,
---------------------
($ in thousands) 1999 1998
- --------------------------------------------------------------------------------
Balance at beginning of period $1,662 $1,173
Provision for loan losses charged to operations 112 100
Recoveries 1 1
- --------------------------------------------------------------------------------
Balance at end of period $1,775 $1,274
- --------------------------------------------------------------------------------
F-7
Intervest Bancshares Corporation and Subsidiary
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Note 3 - Convertible Debentures
In March 1999, a convertible debenture in the principal amount of
$10,000 plus accrued interest was converted into 1,063 shares of Class A common
stock at the election of the debenture holder. The conversion price was $10 per
share.
Note 4 - Earnings Per Share (EPS)
Basic EPS is calculated by dividing net earnings by the weighted-average number
of shares of common stock outstanding. Diluted EPS is calculated by dividing
adjusted net earnings by the weighted-average number of shares of common stock
outstanding and dilutive potential common stock shares that may be outstanding
in the future. Potential common stock shares may arise from outstanding dilutive
common stock warrants (as computed by the "treasury stock method") and
convertible debentures (as computed by the "if converted method"). Diluted EPS
considers the potential dilution that could occur if the Company's outstanding
stock warrants and convertible debentures were converted into common stock that
then shared in the Company's adjusted earnings (as adjusted for interest
expense, net of taxes, that would no longer occur if the debentures were
converted).
Net earnings applicable to common stock and the weighted-average number
of common shares used for basic and diluted earnings per share computations are
summarized as follows:
- ----------------------------------------------------------------------------------------------------
For the Quarter Ended
March 31,
1999 1998
- ----------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE
Net earnings applicable to common stockholders:
Earnings before change in accounting principle $ 394,000 $ 308,000
Cumulative effect of change in accounting principle (128,000) --
- ----------------------------------------------------------------------------------------------------
Net earnings applicable to common stockholders $ 266,000 $ 308,000
- ----------------------------------------------------------------------------------------------------
Average number of common shares outstanding 2,489,831 2,426,457
- ----------------------------------------------------------------------------------------------------
Per share amount:
Earnings before change in accounting principle $ 0.16 $ 0.13
Cumulative effect of change in accounting principle (0.05) --
- ----------------------------------------------------------------------------------------------------
Basic net earnings per share $ 0.11 $ 0.13
- ----------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
Adjusted net earnings applicable to common stockholders:
Net earnings applicable to common stockholders $ 266,000 $ 308,000
Adjustment to net earnings from assumed conversion of debentures 84,000 --
- ----------------------------------------------------------------------------------------------------
Adjusted net earnings for diluted earnings per share computation $ 350,000 $ 308,000
- ----------------------------------------------------------------------------------------------------
Average number of common shares outstanding:
Common shares outstanding 2,489,831 2,426,457
Potential dilutive shares from conversion of warrants 310,774 846,282
Potential dilutive shares resulting from conversion of debentures 743,433 --
- ----------------------------------------------------------------------------------------------------
Total average number of common shares outstanding used for dilution 3,544,038 3,272,739
- ----------------------------------------------------------------------------------------------------
Per share amount:
Earnings before change in accounting principle $ 0.14 $ 0.09
Cumulative effect of change in accounting principle (0.04) --
- ----------------------------------------------------------------------------------------------------
Diluted net earnings per share $ 0.10 $ 0.09
- ----------------------------------------------------------------------------------------------------
F-8
Intervest Bancshares Corporation and Subsidiary
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 5 - Regulatory Capital
The Bank is required to maintain certain minimum regulatory capital
requirements. The following is a summary at March 31, 1999 of the regulatory
capital requirements and the Bank's actual capital on a percentage basis:
Ratios of Minimum To Be Considered
the Bank Requirement Well Capitalized
-------- ----------- ----------------
Total capital to risk-weighted assets 11.62% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 10.36% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 6.06% 4.00% 5.00%
Note 6 - Cumulative Effect of Change in Accounting Principle
On January 1, 1999, the Company adopted as required the AICPA's
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." The SOP requires that all start-up costs (except for those that are
capitalizable under other generally accepted accounting principles) be expensed
as incurred. 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 $128,000 in
the first quarter of 1999. The charge represents the expensing, net of a tax
benefit, of cumulative start-up costs associated with organizing Intervest
National Bank that had been capitalized through December 31, 1998, as discussed
in note 1.
F-9
Independent Auditors' Report
The Board of Directors and Stockholders
Intervest Bancshares Corporation
New York, New York:
We have audited the accompanying consolidated balance sheets of Intervest
Bancshares Corporation and Subsidiary (the "Company") at December 31, 1998 and
1997, and the related consolidated statements of earnings, changes in
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above fairly
present, in all material respects, the financial position of the Company at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
January 15, 1999
F-10
Intervest Bancshares Corporation and Subsidiary
Consolidated Balance Sheets
December 31, December 31,
($ in thousands, except par value) 1998 1997
- --------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 2,876 $ 1,738
Federal funds sold 6,473 162
Short-term investments 4,123 7,276
----- -----
Total cash and cash equivalents 13,472 9,176
Interest-bearing deposits with banks 199 99
Securities held to maturity, net (estimated fair value of
$82,173 and $58,836, respectively) 82,338 58,821
Restricted security, Federal reserve bank stock, at cost 233 233
Loans receivable (net of allowance for loan loss reserves of
$1,662 and $1,173, respectively) 96,074 75,652
Accrued interest receivable 1,800 1,327
Premises and equipment, net 4,917 4,877
Deferred income tax asset 579 485
Other assets 910 85
- --------------------------------------------------------------------------------
Total assets $200,522 $150,755
- --------------------------------------------------------------------------------
LIABILITIES
Deposits:
Demand deposits $ 3,027 $ 3,490
Savings and NOW deposits 34,778 17,119
Money-market deposits 33,629 17,180
Time deposits 99,033 93,378
------ ------
Total deposits 170,467 131,167
Convertible debentures 7,000 --
Accrued interest on convertible debentures 299 --
Mortgage escrow funds 870 590
Official checks outstanding 1,572 719
Other liabilities 747 638
- --------------------------------------------------------------------------------
Total liabilities 180,955 133,114
- --------------------------------------------------------------------------------
Minority interest 23 21
Commitments and contingencies (notes 5, 16, 18 and 22)
STOCKHOLDERS' EQUITY
Preferred stock (300,000 shares authorized, none issued) -- --
Class A common stock ($1.00 par value,
7,500,000 shares authorized, 2,184,515 and 2,124,415
shares issued and outstanding, respectively) 2,184 2,124
Class B common stock ($1.00 par value, 700,000
shares authorized, 300,000 issued and outstanding) 300 300
Additional paid-in-capital, common 13,789 13,360
Retained earnings 3,271 1,836
- --------------------------------------------------------------------------------
Total stockholders' equity 19,544 17,620
- --------------------------------------------------------------------------------
Total liabilities, minority interest
and stockholders' equity $200,522 $150,755
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-11
Intervest Bancshares Corporation and Subsidiary
Consolidated Statements of Earnings
For the Year Ended
December 31,
------------------
($ in thousands, except per share data) 1998 1997
- --------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Loans receivable $8,278 $6,415
Securities 4,224 2,632
Other interest-earning assets 432 300
- --------------------------------------------------------------------------------
Total interest and dividend income 12,934 9,347
- --------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 7,977 5,893
Convertible debentures and other borrowed funds 320 1
- --------------------------------------------------------------------------------
Total interest expense 8,297 5,894
- --------------------------------------------------------------------------------
Net interest and dividend income 4,637 3,453
Provision for loan loss reserves 479 352
- --------------------------------------------------------------------------------
Net interest and dividend income after
provision for loan loss reserves 4,158 3,101
- --------------------------------------------------------------------------------
NONINTEREST INCOME
Customer service fees 139 92
Income from mortgage activities 195 32
All other 15 12
- --------------------------------------------------------------------------------
Total noninterest income 349 136
- --------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and employee benefits 1,056 907
Occupancy and equipment, net 467 457
Advertising and promotion 31 41
Professional fees and services 225 149
Stationery, printing and supplies 98 83
All other 254 267
Minority interest in subsidiary 2 2
- --------------------------------------------------------------------------------
Total noninterest expenses 2,133 1,906
- --------------------------------------------------------------------------------
Earnings before income taxes 2,374 1,331
Income taxes 939 487
- --------------------------------------------------------------------------------
Net earnings $1,435 $ 844
- --------------------------------------------------------------------------------
Basic earnings per share $ 0.58 $ 0.49
Diluted earnings per share $ 0.46 $ 0.41
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-12
Intervest Bancshares Corporation and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
For the Year Ended
December 31,
------------------
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
CLASS A COMMON STOCK
Balance at beginning of year $ 2,124 $ 900
Effect of 1.5 for 1 stock split -- 450
Issuance of 747,500 shares in public offering -- 748
Issuance of 26,915 shares in exchange for
common stock of minority stockholders of Intervest Bank -- 26
Issuance of 60,100 shares upon exercise of stock warrants 60 --
- --------------------------------------------------------------------------------
Balance at end of year 2,184 2,124
- --------------------------------------------------------------------------------
CLASS B COMMON STOCK
Balance at beginning of year 300 200
Effect of 1.5 for 1 stock split -- 100
- --------------------------------------------------------------------------------
Balance at end of year 300 300
- --------------------------------------------------------------------------------
ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of year 13,360 7,655
Effect of 1.5 for 1 stock split -- (550)
Issuance of 747,500 shares in
public offering, net of issuance costs -- 5,972
Issuance of 26,915 shares in exchange for
common stock of minority stockholders of Intervest Bank -- 283
Compensation related to issuance of Class B stock warrants 43 --
Issuance of 60,100 shares upon exercise of stock warrants,
including tax benefits 386 --
- --------------------------------------------------------------------------------
Balance at end of year 13,789 13,360
- --------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of year 1,836 992
Net earnings for the year 1,435 844
- --------------------------------------------------------------------------------
Balance at end of year 3,271 1,836
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total stockholders' equity at end of year $ 19,544 $ 17,620
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-13
Intervest Bancshares Corporation and Subsidiary
Consolidated Statements of Cash Flows
For the Year Ended
December 31,
------------------
($ in thousands) 1998 1997
OPERATING ACTIVITIES
- ------------------------------------------------------------------------------------------------------
Net earnings $ 1,435 $ 844
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 337 260
Provision for loan loss reserves 479 352
Deferred income tax (benefit) expense (94) 41
Accrued interest expense on debentures 299 --
Compensation expense related to stock warrants 43 --
Amortization of premiums, fees and discounts, net (218) 19
Increase in accrued interest receivable and other assets (698) (495)
Increase in other liabilities 996 115
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,579 1,136
- ------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase to interest-earning deposits (100) --
Maturities and calls of securities held to maturity 50,050 20,175
Purchases of securities held to maturity (73,650) (44,450)
Net increase in loans receivable (20,657) (16,563)
Purchases of Federal reserve bank stock -- (30)
Purchases of premises and equipment, net (377) (2,197)
Sales of foreclosed real estate -- 185
- ------------------------------------------------------------------------------------------------------
Net cash used by investing activities (44,734) (42,880)
- ------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand, savings, NOW and money-market deposits 33,645 18,603
Net increase in time deposits 5,655 19,117
Net increase in mortgage escrow funds 280 160
Net proceeds from sale of convertible debentures 6,457 --
Proceeds from issuance of common stock, net of issuance costs 414 6,720
- ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 46,451 44,600
- ------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 4,296 2,856
Cash and cash equivalents at beginning of year 9,176 6,320
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 13,472 $ 9,176
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 7,929 $ 5,832
Income taxes 849 700
Noncash activities:
Compensation related to warrants 43 --
Interest on convertible debentures 299 --
Issuance of common stock in exchange for common stock of minority
stockholders of subsidiary -- 309
- ------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-14
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Intervest Bancshares Corporation (the "Holding Company") was
incorporated on February 5, 1993 and is headquartered in New York City.
At December 31, 1998, the Holding Company owned 99.78% of the
outstanding common stock and 100% of the outstanding preferred stock of
Intervest Bank (the "Bank"). Hereafter, the Holding Company and the
Bank are referred to collectively as the "Company," on a consolidated
basis. The Holding Company's primary business is the operation of the
Bank. The 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 five banking offices located in
Pinellas County, Florida. The principal executive offices of the Bank
are located at 625 Court Street, Clearwater, Florida.
In December 1998, an application filed by the Holding Company for the
formation of a new nationally- chartered commercial bank, "Intervest
National Bank." was granted preliminary approval by the Office of the
Comptroller of the Currency. The new bank will be a wholly owned
subsidiary and is expected to open in the spring of 1999. The new bank
will be located at One Rockefeller Plaza in Manhattan, New York, and
will provide full banking services.
Principles of Consolidation, Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements include the accounts
of the Holding Company and the Bank. All significant intercompany
accounts and transactions are 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
significantly from those estimates.
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.
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 are reported as a separate component of
stockholders' equity, net of related income taxes. Realized gains and
losses from sales are determined using the specific identification
method.
F-15
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
1. Description of Business and Summary of Significant Accounting Policies,
Continued
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 origination 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 income as appropriate.
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 affec the borrowers' ability to repay; and management's perception
of the current and anticipated economic conditions in the Company's
lending region. 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 required to be 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 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.
F-16
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
1. Description of Business and Summary of Significant Accounting Policies,
Continued
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan
foreclosure are to be sold. Upon foreclosure of the property, the
related loan is transferred from the loan portfolio to foreclosed real
estate at the lower of the loan's carrying value at the date of
transfer, or estimated fair value of the property less estimated
selling costs. Such amount becomes the new cost basis of the property.
Adjustments made to the carrying value at the time of transfer are
charged to the allowance for loan loss reserves. After foreclosure,
management periodically performs market valuations and the real estate
is carried at the lower of cost or estimated fair value less estimated
selling costs. Revenue and expenses from operations and changes in the
valuation allowance of the property are included in the consolidated
statement of earnings.
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.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," establishes a "fair value" based method of
accounting for stock-based compensation plans and encourages all
entities to adopt that method of accounting for all their stock-based
compensation plans. However it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic
value-based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company has elected to follow APB No. 25 and related interpretations in
accounting for its stock-based compensation, which is in the form of
stock warrants. Statement 123 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-17
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
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 expense that would no longer occur if the debentures
were converted). Prior to the public stock offering in November 1997,
there was no public market for the Company's common stock. For purposes
of calculating Diluted EPS for 1997, the $10 public stock offering
price is assumed to be the market price.
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
Reporting Comprehensive Income. On January 1, 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which established standards for reporting
comprehensive income. Comprehensive income is defined by the standard
as the change in equity of an enterprise except for those changes
resulting from stockholder transactions. All components of
comprehensive income are required to be reported in a new financial
statement that is displayed with equal prominence as existing financial
statements. The Company had no items of comprehensive income in 1998 or
1997, therefore such a statement is not presented.
Employers' Disclosures about Pensions and Other Postretirement
Benefits. On December 31, 1998, the Company adopted SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits - an amendment of SFAS No. 87, 88 and 106." The statement
revised, deleted or added certain disclosures with regard to such
plans. It did not change the measurement or recognition of those plans.
The adoption of this standard had no impact on the Company's financial
statement disclosures.
Accounting for Start-Up Costs. In April 1998, the American Institute of
Certified Public Accountants (AICPA) issued Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities," which is
effective for fiscal years beginning after December 15, 1998. The SOP
requires that all start-up costs (except for those that are
capitalizable under other generally accepted accounting principles) be
expensed as incurred.
F-18
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
1. Description of Business and Summary of Significant Accounting Policies,
Continued
Accounting for Start-Up Costs, Continued. Previously, start-up costs
were generally capitalized and amortized over a period of time. Upon
adoption of this statement, approximately $160,000 of start-up costs
associated with organizing the new bank will be expensed in the first
quarter of 1999. Additional expenses also will be incurred in the first
quarter in connection with organizing the new bank.
Accounting for Derivative Instruments and Hedging Activities. In June
1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
and for hedging activities. It requires, among other things, that an
entity recognizes all derivatives as either assets or liabilities in
the balance sheet and measures those instruments at fair value. The
statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Since the Company does not currently use
derivative financial instruments, the standard will not have any impact
on the Company's financial statements when adopted.
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. In March 1998, the AICPA issued SOP 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use,"
which is effective for fiscal years beginning after December 15, 1998.
The SOP, among other things, provides guidance as to when and what
types of costs should be capitalized as it relates to internal-use
software. Upon adoption, the Company expects that this SOP will not
have any impact on its financial statements.
2. Securities Held To Maturity
The carrying and estimated fair values of securities held to maturity
are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
($ in thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
At December 31, 1998:
U.S. Treasury securities $ 2,015 $ 15 $ -- $ 2,030
U.S. Government and agency securities 80,323 186 366 80,143
- ---------------------------------------------------------------------------------------------------
$82,338 $ 201 $ 366 $82,173
- ---------------------------------------------------------------------------------------------------
At December 31, 1997:
U.S. Treasury securities $ 4,027 $ 15 $ -- $ 4,042
U.S. Government and agency securities 54,794 64 64 54,794
- ---------------------------------------------------------------------------------------------------
$58,821 $ 79 $ 64 $58,836
- ---------------------------------------------------------------------------------------------------
At December 31, 1998 and 1997, the securities portfolio was comprised
of securities with fixed rates of interest. The weighted-average yield
of the portfolio was approximately 5.89% at December 31, 1998 and 6.24%
at December 31, 1997.
At December 31, 1998, U.S Government and agency securities consist of
debt obligations of the Federal Home Loan Bank, Federal Farm Credit
Bank and Federal National Mortgage Association. There were no sales of
securities during the years ended December 31, 1998 and 1997. Intervest
Bancshares Corporation and Subsidiary Notes to Consolidated Financial
Statements For the Years Ended December 31, 1998 and 1997
F-19
2. Securities Held To Maturity, Continued
The carrying and estimated fair values of securities held to maturity
at December 31, 1998, by remaining term to contractual maturity are
summarized as follows:
($ in thousands)
Amortized Estimated Fair
Cost Value
- --------------------------------------------------------------------------------
Due in one year or less $ 2,015 $ 2,030
Due after one year through five years 61,060 60,870
Due after five years through ten years 19,263 19,273
- --------------------------------------------------------------------------------
$82,338 $82,173
- --------------------------------------------------------------------------------
3. Loans Receivable
Loans receivable are summarized as follows:
At December 31, 1998 At December 31, 1997
-------------------- --------------------
($ in thousands) # of loans Amount # of loans Amount
- --------------------------------------------------------------------------------
Commercial real estate loans 95 $ 68,828 106 $ 64,270
Residential multifamily loans 51 23,707 34 6,903
Residential 1-4 family loans 47 2,627 49 3,162
Construction loans -- -- 1 158
Commercial loans 49 2,875 49 2,641
Consumer loans 17 184 13 92
- --------------------------------------------------------------------------------
Loans receivable 259 98,221 252 77,226
- --------------------------------------------------------------------------------
Deferred loan fees (485) (401)
Allowance for loan loss reserves (1,662) (1,173)
- --------------------------------------------------------------------------------
Loans receivable, net $ 96,074 $ 75,652
- --------------------------------------------------------------------------------
At December 31, 1998 and 1997, there were no loans held for sale.
The geographic distribution of the loan portfolio is summarized as
follows:
At December 31, 1998 At December 31, 1997
-------------------- --------------------
($ in thousands)
- ----------------
Amount % of Total Amount % of Total
- --------------------------------------------------------------------------------
Florida $82,167 83.7% $72,649 94.1%
New York City 16,054 16.3 4,577 5.9
- --------------------------------------------------------------------------------
$98,221 100.0% $77,226 100.0%
- --------------------------------------------------------------------------------
Credit risk, which represents the possibility of the Company not recovering
amounts due from its borrowers, is significantly related to local economic
conditions as well as the Company's underwriting standards. Economic conditions
affect the income levels of borrowers and the market value of the underlying
collateral. In addition, although commercial real estate and multifamily loans
typically bear higher interest rates than 1-4 family residential loans, they
entail certain risks not normally found in 1-4 family residential mortgage
lending. Commercial real estate and multifamily loans usually involve larger
loans to single borrowers. In addition, satisfactory payment experience on loans
secured by income-producing properties (such as office buildings, shopping
centers and rental and cooperative apartment buildings) is largely dependent on
high levels of occupancy. Thus, these loans are more subject to adverse
conditions in the real estate market and economy or specific conditions at or in
the vicinity of the property's location.
F-20
Intervest Bancshares Corporation and
Subsidiary Notes to Consolidated Financial Statements For the Years Ended
December 31, 1998 and 1997
4. Allowance for Loan Loss Reserves
Activity in the allowance for loan loss reserves is summarized as
follows:
For the Year Ended December 31,
-------------------------------
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
Balance at beginning of year $1,173 $ 811
Provision charged to operations 479 352
Recoveries 10 10
- --------------------------------------------------------------------------------
Balance at end of year $1,662 $1,173
- --------------------------------------------------------------------------------
There were no loans on nonaccrual status or classified as impaired
during the years ended December 31, 1998 or 1997.
5. Premises and Equipment, Lease Commitments and Rental Expense
Premises and equipment is summarized as follows:
At December 31,
---------------
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
Land $ 1,264 $ 1,064
Buildings 3,419 3,398
Leasehold improvements 136 162
Furniture, fixtures and equipment 1,289 1,226
- --------------------------------------------------------------------------------
Total cost 6,108 5,850
- --------------------------------------------------------------------------------
Less accumulated deprecation and amortization (1,191) (973)
- --------------------------------------------------------------------------------
Net book value $ 4,917 $ 4,877
- --------------------------------------------------------------------------------
The Bank leases its Belcher Road office, which is accounted for as an
operating lease expiring in June 2007. The lease contains escalation
clauses based upon the consumer price index and several adjustments up
to a maximum of 3% of the previous year's rental.
The Holding Company has leased office space for the new proposed
national bank in Manhattan, New York, which is accounted for as an
operating lease expiring in May 2008. The rental payments are fixed at
$257,261 per annum beginning on July 1, 1999, increasing to $285,073
per annum on December 1, 2003 until expiration.
The Company's rental expense aggregated $94,000 and $125,000, for 1998
and 1997, respectively.
Future minimum annual lease rental payments under noncancellable
operating leases at December 31, 1998, aggregated as follows: $225,000
in 1999; $356,000 in 2000; $359,000 in 2001; $363,000 in 2002; $369,000
in 2003; and $1,665,000 thereafter.
The Bank subleases certain of its space to other companies under leases
that expire at various times through August 2007. Sublease rental
income aggregated $338,000 and $195,000 for 1998 and 1997,
respectively. Future sublease rental income at December 31, 1998 is
summarized as follows: $281,000 in 1999, $271,000 in 2000, $211,000 in
2001, $190,000 in 2002, $161,000 in 2003 and $631,000 thereafter.
F-21
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
6. Deposits
Scheduled maturities of certificates of deposit accounts are summarized
as follows:
At December 31, 1998 At December 31, 1997
-------------------- --------------------
Wtd-Avg Wtd-Avg
($ in thousands) Amount Stated Rate Amount Stated Rate
- --------------------------------------------------------------------------------
Within one year $55,130 5.36% $46,954 5.46%
Over one to two years 17,052 5.90 16,554 5.97
Over two to three years 10,153 6.00 9,446 6.40
Over three to four years 10,576 6.06 9,362 6.05
Over four years 6,122 5.85 11,062 6.07
- --------------------------------------------------------------------------------
$99,033 5.62% $93,378 5.78%
- --------------------------------------------------------------------------------
Certificates of deposit accounts of $100,000 or more totaled
$10,962,000 and $9,506,000 at December 31, 1998 and 1997, respectively.
At December 31, 1998, certificates of deposit accounts of $100,000 or
more by remaining maturity were as follows: due within one year
$7,353,000; over one to two years $1,619,000; over two to three years
$1,028,000; over three to four years $862,000; and over four years
$100,000.
Interest expense on deposits is summarized as follows:
For the Year Ended December 31,
-------------------------------
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
Money-market and NOW accounts $1,324 $ 816
Savings accounts 832 446
Certificates of deposit accounts 5,821 4,631
- --------------------------------------------------------------------------------
$7,977 $5,893
- --------------------------------------------------------------------------------
7. Convertible Debentures
In June 1998, the Holding Company sold $7,000,000 of principal amount
of Convertible Subordinated Debentures (the "Debentures") in a public
offering. The proceeds from the sale, net of underwriting discounts and
other fees, amounted to approximately $6,500,000. The 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 current conversion prices per share: $10.00
through December 31, 1999, $12.50 in 2000; $14.00 in 2001; $15.00 in
2002; $16.00 in 2003; $18.00 in 2004; $21.00 in 2005; $24.00 in 2006;
$27.00 in 2007 and $30.00 from January 1, 2008 through April 1, 2008.
The Holding Company has the right to establish conversion prices that
are less than those set forth above for such periods as it may
determine. On January 13, 1999, the conversion prices were adjusted
downward from those set at the original offering date to the prices
shown above. The Holding Company also has the option at any time to
call all or any part of the Debentures for payment and redeem the same
at any time prior to maturity thereof. The redemption price for the
Debentures is (i) the face amount plus a 2% premium if the date of
redemption is prior to July 1, 1999, (ii) the face amount plus a 1%
premium if redemption occurs on or after July 1, 1999 and prior to July
1, 2000, or (iii) the face amount if the date of redemption is on or
after July 1, 2000.
F-22
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
7. Convertible Debentures, Continued
Interest on the Debentures will accrue and compound each calendar
quarter at 8%. All accrued interest 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 and to thereafter
receive payments of interest quarterly.
8. Other Borrowed Funds
The Bank has agreements with correspondent banks whereby the Bank may
borrow up to $6,000,000 on an unsecured basis. There were no
outstanding borrowings under these agreements at December 31, 1998 or
1997.
9. 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, 1998 and 1997, 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 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 after
January 1, 2000. On September 18, 1997 the Board of Directors of the
Holding Company declared a 1.5 for 1 Class A and Class B common stock
split payable in September 1997. All per share amounts reflect the
effect of these stock splits.
10. Asset and Dividend Restrictions
The Bank is required under Federal Reserve Board regulations to
maintain reserves, generally consisting of cash or noninterest-earning
accounts, against its transaction accounts. At December 31, 1998 and
1997, balances maintained as reserves were not material.
As a member of the Federal Reserve Bank, the Bank must maintain an
investment in the capital stock of the Federal Reserve Bank. At
December 31, 1998 and 1997, such investment aggregated to $233,000.
The payment of dividends by the Holding Company and the Bank 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. Additionally, no dividends may be declared or paid
with respect to shares of Class B common stock until January 1, 2000,
after which time the holders of Class A common stock and Class B common
stock will share ratably in any dividend. The Holding Company has never
paid a common dividend to its shareholders and currently has no
intentions of paying a common dividend.
F-23
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
11. Profit Sharing Plan
The Bank sponsors a tax-qualified, profit sharing plan in accordance
with the provisions of Section 401(k) of the Internal Revenue Code. The
plan is available to all employees electing to participate after
meeting certain length-of-service requirements. The Bank's
contributions to the profit sharing plan are discretionary and are
determined annually. Total expense related to the contributions to the
plan included in the accompanying consolidated financial statements
aggregated $22,220 and $21,377 for 1998 and 1997, respectively.
12. Related Party Transactions
The Bank has made loans to certain of its directors and their related
entities. The activity is as follows:
For the Year Ended December 31,
-------------------------------
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
Balance at beginning of year $ 3,242 $ 2,941
Additions 868 510
Repayments (177) (209)
- --------------------------------------------------------------------------------
Balance at end of year $ 3,933 $ 3,242
- --------------------------------------------------------------------------------
There are no loans to directors or officers of the Holding Company. The
Bank participates with Intervest Corporation of New York (ICNY) in one
mortgage with a balance of $237,000 at December 31, 1998, and three
mortgages at December 31, 1997 aggregating $1,310,000. The shareholders
of ICNY are shareholders, directors and officers of the Company.
13. Common Stock Warrants
The Holding Company has common stock warrants outstanding, which
entitle the registered holders thereof to purchase one share of common
stock for each warrant. All warrants are exercisable when issued,
except for 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 the 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 $ 10.00 $14.00 (2) Warrants Exercise Price
- ------------------------------------------------------------------------------------------------------------
Outstanding at December 31,1996 1,528,665 -- -- 1,528,665 $ 6.67
Granted in 1997 (1) -- 949,183 -- 949,183 $ 10.00
Granted in 1997 -- 16,500 -- 16,500 $ 10.00
---------------------------------------------------
Outstanding at December 31,1997 1,528,665 965,683 -- 2,494,348 $ 7.96
Granted in 1998 -- 20 122,000 122,020 $ 14.00
Exercised in 1998 (56,100) (4,000) -- (60,100) $ 6.89
- ------------------------------------------------------------------------------------------
Outstanding at December 31,1998 1,472,565 961,703 122,000 2,556,268 $ 8.27
- ------------------------------------------------------------------------------------------
Remaining contractual life in years
at December 31, 1998 4.4 4.0 4.0 4.2
- ------------------------------------------------------------------------------------------
(1) These warrants entitle the holder to purchase one share of Class A
common stock at a price of $10.00 per share through year-end 1999;
$11.50 per share in 2000; $12.50 per share in 2001 and $13.50 per share
in 2002.
(2) These warrants entitle the holder to purchase one share of Class A
common stock at a price of $14.00 per share through year-end 1999;
$15.00 per share in 2000; $16.00 per share in 2001 and $17.00 per share
in 2002.
F-24
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
13. Common Stock Warrants, Continued
Exercise Price
--------------
Per Warrant Total Wtd-Avg
----------- ----- -------
Class B Common Stock Warrants: $ 6.67 $ 10.00 Warrants Exercise Price
- --------------------------------------------------------------------------------
Outstanding at December 31,1996 -- -- -- $ --
Granted in 1997 150,000 -- 150,000 $ 6.67
---------------------------
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
- -----------------------------------------------------------------
Remaining contractual life in years
at December 31, 1998 8.1 9.1 8.3
- --------------------------------------------------------------------------------
(1) At December 31, 1998, 7,100 of these warrants were immediately
exercisable. An additional 7,100 warrants vest and become exercisable
on each April 27th of 1999, 2000, 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.
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 $43,000
was included in salaries and employee benefits expense for 1998 in
connection with the issuance of these warrants. No compensation expense
was recorded related to the remaining stock warrants granted in 1998
because their exercise prices were the same as the market price of the
common shares at the date of grant.
Had compensation expense been determined based on the estimated fair
value of the warrants at the grant date in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation," the Company's net
earnings and earnings per share would have been reduced to the pro
forma amounts as follows:
For the Year Ended December 31,
-------------------------------
($ in thousands, except per share amounts) 1998 1997
- --------------------------------------------------------------------------------
Reported net earnings $1,435 $ 844
Pro forma net earnings (1) $1,146 $ 384
Reported basic earnings per share $ 0.58 $0.49
Pro forma basic earnings per share $ 0.47 $0.22
Reported diluted earnings per share $ 0.46 $0.41
Pro forma diluted earnings per share $ 0.38 $0.19
- --------------------------------------------------------------------------------
(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. The per share weighted-average
estimated fair value of 166,500 stock warrants granted to employees and
directors in 1997 was $2.76 on the date of grant based on the following
weighted-average assumptions: no expected dividends; expected life of
8.4 years, no expected stock volatility and a 6.0% risk-free interest
rate. The assumptions are subjective in nature, involve uncertainties
and cannot be determined with precision.
F-25
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
14. Income Taxes
The Holding Company and its subsidiary file a consolidated Federal
income tax return on a calendar year basis. The Holding Company files
state income tax returns in New York and New Jersey and franchise tax
returns in Delaware. The Bank files a state income tax return in
Florida. At December 31, 1998, the Company had net operating loss
carryforwards (NOLs) of $163,000 relating to the operations of the Bank
available to reduce future Federal taxable income. The NOLs expire in
2007 and 2008.
At December 31, 1998 and 1997, the Company had a net deferred tax asset
of $579,000 and $485,000, respectively. The asset relates to the
unrealized benefit for: net temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases that will result in future tax deductions; and
unused operating loss carryforwards. In assessing the realizability of
deferred tax assets, management considers whether it is more likely
than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of such assets is dependent upon
the generation of sufficient taxable income during the periods in which
those temporary differences become deductible. Management believes that
it is more likely than not that the Company's deferred tax asset will
be realized and accordingly, a valuation allowance for deferred tax
assets was not maintained at any time during 1998 and 1997.
The provision for income tax expense consisted of the following:
($ in thousands) Current Deferred Total
- --------------------------------------------------------------------------------
Year Ended December 31, 1998:
Federal $ 815 $ (80) $ 735
State and Local 218 (14) 204
- --------------------------------------------------------------------------------
$ 1,033 $ (94) $ 939
- --------------------------------------------------------------------------------
Year Ended December 31, 1997:
Federal $ 377 $ 35 $ 412
State and Local 69 6 75
- --------------------------------------------------------------------------------
$ 446 $ 41 $ 487
- --------------------------------------------------------------------------------
The components of deferred tax (benefit) expense are summarized as
follows:
For the Year Ended December 31,
-------------------------------
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
Allowance for loan loss reserves $(185) $(113)
Depreciation (38) (1)
Deferred loan fees 7 6
Net operating loss carryforwards 125 125
All other (3) 24
- --------------------------------------------------------------------------------
$ (94) $ 41
- --------------------------------------------------------------------------------
F-26
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
14. Income Taxes, Continued
The tax effects of the temporary differences that give rise to the net
deferred tax asset are summarized as follows:
At December 31,
---------------
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
Deferred Tax Asset:
Allowance for loan loss reserves $ 483 $ 298
Deferred loan fees 6 13
Net operating loss carryforwards 61 186
Depreciation 19 --
All other 10 7
Total gross deferred tax asset 579 504
Deferred Tax Liability:
Depreciation -- (19)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 579 $ 485
- --------------------------------------------------------------------------------
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) 1998 1997
- --------------------------------------------------------------------------------
Tax provision at statutory rate 34.0% 34.0%
Increase (decrease) in taxes resulting from:
State and local income taxes, net of Federal benefit 5.6 3.8
Other -- (1.2)
- --------------------------------------------------------------------------------
39.6% 36.6%
- --------------------------------------------------------------------------------
15. 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) 1998 1997
- -----------------------------------------------------------------------------------------------------------
Basic earnings per share:
Net earnings applicable to common stockholders $ 1,435 $ 844
Average number of common shares outstanding 2,457,113 1,712,292
- -----------------------------------------------------------------------------------------------------------
Basic earnings per share amount $ 0.58 $ 0.49
- -----------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Net earnings applicable to common stockholders $ 1,435 $ 844
Adjustment to net earnings from assumed conversion of debentures 172 --
Adjusted net earnings for diluted earnings per share computation $ 1,607 $ 844
Average number of common shares outstanding:
Common shares outstanding 2,457,113 1,712,292
Potential dilutive shares resulting from exercise of warrants 630,457 360,167
Potential dilutive shares resulting from conversion of debentures 385,946 --
Total average number of common shares outstanding used for dilution 3,473,516 2,072,459
- -----------------------------------------------------------------------------------------------------------
Diluted earnings per share amount $ 0.46 $ 0.41
- -----------------------------------------------------------------------------------------------------------
F-27
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
15. Earnings Per Share, Continued
A total of 122,000 common stock warrants with an exercise price of
$14.00 were not included in the computation of diluted EPS for 1998
because their exercise price was greater than the average market price
of the common shares during 1998. Warrants to purchase 989,083 shares
of Class A common stock at $10.00 per share were not included in the
computation for diluted EPS for 1997 because the warrants' exercise
price approximated the market price of the stock.
16. Contingencies
As a result of transactions conducted in the ordinary course of
business, the Company is a defendant in various legal actions.
Management, after consultation with legal counsel, believes that the
ultimate liability, if any, arising from such legal actions will not
materially affect the Company's financial condition, liquidity or its
results of operations.
17. Regulatory Matters
The Holding Company and the Bank are subject to regulation, examination
and supervision by the Federal Reserve Bank. In addition, the Bank is
also subject to regulation, examination and supervision by the Florida
Department of Banking and Finance and the Federal Deposit Insurance
Corporation. The Bank is also governed by numerous Federal and state
laws and regulations, including the FDIC Improvement Act of 1991
(FDICIA). Among other matters, FDICIA established five capital
categories ranging from well capitalized to critically
undercapitalized. Such classifications are used by the FDIC and other
bank regulatory agencies to determine various matters, including prompt
corrective action and each institution's semi-annual FDIC deposit
insurance premium assessments.
As of December 31, 1998, the most recent notification from the
regulators categorized the Bank as a well-capitalized institution under
the criteria of FDICIA, which requires minimum Tier 1 leverage and Tier
1 and total risk-based capital ratios of 5%, 6% and 10%, respectively.
Management believes that there are no current conditions or events
outstanding that would change the designation from well capitalized.
The tables below present information regarding the Bank's capital
adequacy.
For Capital For Well-Capitalized
----------- --- ----------------
Actual Adequacy Purposes Purposes
------ ----------------- --------
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------
As of December 31, 1998:
Total capital to risk-weighted assets $12,046 11.15% $ 8,644 8.00% $10,805 10.00%
Tier 1 capital to risk-weighted assets $10,692 9.90% $ 4,322 4.00% $ 6,483 6.00%
Tier 1 capital to average assets $10,692 6.04% $ 7,086 4.00% $ 8,857 5.00%
As of December 31, 1997:
Total capital to risk-weighted assets $10,243 11.46% $ 7,153 8.00% $ 8,941 10.00%
Tier 1 capital to risk-weighted assets $ 9,125 10.21% $ 3,577 4.00% $ 5,365 6.00%
Tier 1 capital to average assets $ 9,125 6.53% $ 5,591 4.00% $ 6,988 5.00%
- ----------------------------------------------------------------------------------------------------------
F-28
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
18. 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 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.
The following is a summary of the notional amounts of the Company's
off-balance sheet financial instruments.
At December 31,
---------------
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
Unfunded loan commitments $3,175 $2,950
Available lines of credit 628 527
Standby letters of credit 1,100 100
- --------------------------------------------------------------------------------
$4,903 $3,577
- --------------------------------------------------------------------------------
19. 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 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.
F-29
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
19. Estimated Fair Value of Financial Instruments, Continued
The carrying and estimated fair values of the Company's financial
instruments are summarized as follows:
At December 31, 1998 At December 31, 1997
-------------------- --------------------
Carrying Fair Carrying Fair
($ in thousands) Value Value Value Value
- --------------------------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents $ 13,472 $ 13,472 $ 9,176 $ 9,176
Securities held to maturity, net 82,338 82,173 58,821 58,836
Loans receivable, net 96,074 96,139 75,652 75,658
Federal reserve bank stock 233 233 233 233
Interest-bearing deposits 199 199 99 99
Accrued interest receivable 1,800 1,800 1,327 1,327
Financial Liabilities:
Deposit liabilities 170,467 172,194 131,167 131,491
Convertible debentures plus accrued interest 7,299 7,299 -- --
- --------------------------------------------------------------------------------------------
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 held to maturity are
based on quoted market prices. The carrying value of the Federal
Reserve Bank stock approximated fair value since these securities do
not present credit concerns and are redeemable at cost. Loans
Receivable. The estimated fair value of variable rate loans that
reprice frequently and have no significant change in credit risk
approximates their carrying values. For fixed-rate loans (one-to-four
family residential, commercial real estate and commercial 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 Bank for certificates of deposit with similar remaining
maturities.
Convertible Debentures. The estimated fair value of the convertible
debentures and related accrued interest is based on a discounted cash
flow analysis. The discount rate used in the present value computation
was estimated by comparison to the Holding Company's incremental
borrowing rates for a similar arrangement. Such rate was estimated to
approximate the stated interest rate of the debentures.
All Other Financial Assets and Liabilities. The carrying value of cash
and due from banks, Federal funds sold, short-term investments and
accrued interest receivable approximated fair value since these
instruments are payable on demand or have short-term maturities.
Off-Balance Sheet Instruments. The carrying amounts of commitments to
lend at December 31, 1998 and 1997 were not significant and
approximated estimated fair value.
F-30
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
20. Holding Company Financial Information
Condensed Balance Sheets
At December 31,
---------------
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 44 $ 223
Short-term investments 4,123 7,276
----- -----
Total cash and cash equivalents 4,167 7,499
Interest-bearing deposits 100 --
Loans receivable (net of allowance for loan
loss reserves of $55 at December 31, 1998) 10,729 752
Investment in subsidiary 11,081 9,399
Deferred debenture offering costs 522 --
All other assets 544 25
- --------------------------------------------------------------------------------
Total assets $27,143 $17,675
- --------------------------------------------------------------------------------
LIABILITIES
Convertible debentures $ 7,000 $ --
Accrued interest on convertible debentures 299 --
All other liabilities 300 55
- --------------------------------------------------------------------------------
Total liabilities 7,599 55
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock and paid-in capital 16,273 15,784
Retained earnings 3,271 1,836
- --------------------------------------------------------------------------------
Total stockholders' equity 19,544 17,620
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $27,143 $17,675
- --------------------------------------------------------------------------------
Condensed Statements of Earnings
For the Year Ended
------------------
December 31,
------------
($ in thousands) 1998 1997
- --------------------------------------------------------------------------------
Interest income $ 993 $ 234
Interest expense 319 --
Net interest income 674 234
Provision for loan loss reserves 55 --
Noninterest income 109 30
Noninterest expense 197 98
--- --
Earnings before income taxes 531 166
Income taxes 245 74
--- --
Net earnings before earnings of subsidiary 286 92
Earnings of subsidiary 1,149 752
- --------------------------------------------------------------------------------
Net earnings $1,435 $ 844
- --------------------------------------------------------------------------------
F-31
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
20. Holding Company Financial Information, Continued
Condensed Statements of Cash Flows
For the Year Ended
------------------
December 31,
------------
($ in thousands) 1998 1997
- ----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 1,435 $ 844
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Equity in undistributed earnings of subsidiary (1,149) (752)
Provision for loan loss reserves 55 --
Deferred income tax benefit (45) --
Compensation expense related to Class B warrants issued 43 --
(Increase) decrease in accrued interest receivable and other assets (410) 24
Accrued interest expense on debentures 299 --
All other 59 (75)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 287 41
- ----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase in interest-earning deposits (100) --
Investment in preferred stock of subsidiary (500) --
Investment in common stock of subsidiary -- (1,000)
Net (increase) decrease in loans receivable (10,032) 478
- ----------------------------------------------------------------------------------------------------------
Net cash used by investing activities (10,632) (522)
- ----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in mortgage escrow funds 142 12
Proceeds from sale of convertible debentures 6,457 --
Proceeds from exercise of common stock warrants 414 --
Proceeds from issuance of common stock, net of issuance costs -- 6,720
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 7,013 6,732
- ----------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,332) 6,251
Cash and cash equivalents at beginning of year 7,499 1,248
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 4,167 $ 7,499
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Income taxes $ 200 $ 150
Noncash transactions:
Compensation related to warrants 43 --
Interest on convertible debentures 299 --
Issuance of common stock in exchange for common
stock of minority stockholders of subsidiary -- 309
- ----------------------------------------------------------------------------------------------------------
F-32
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
21. Quarterly Financial Data (Unaudited)
The following is a summary of the consolidated statements of earnings
by quarter:
For the Year Ended December 31, 1998
------------------------------------
First Second Third Fourth
($ in thousands, except per share amounts) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
Interest and dividend income $2,892 $3,075 $3,420 $3,547
Interest expense 1,838 1,975 2,192 2,292
-----------------------------------
Net interest and dividend income 1,054 1,100 1,228 1,255
Provision for loan loss reserves 100 130 127 122
-----------------------------------
Net interest and dividend income after
provision for loan loss reserves 954 970 1,101 1,133
Noninterest income 65 85 71 128
Noninterest expense 509 527 518 579
-----------------------------------
Earnings before income taxes 510 528 654 682
Income taxes 202 203 261 273
- --------------------------------------------------------------------------------
Net earnings $ 308 $ 325 $ 393 $ 409
- --------------------------------------------------------------------------------
Basic earnings per share $ .13 $ .13 $ .16 $ .16
Diluted earnings per share $ .09 $ .10 $ .13 $ .14
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1997
------------------------------------
First Second Third Fourth
($ in thousands, except per share amounts) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
Interest and dividend income $2,085 $2,219 $2,337 $2,706
Interest expense 1,309 1,379 1,480 1,726
-----------------------------------
Net interest and dividend income 776 840 857 980
Provision for loan loss reserves 92 92 82 86
-----------------------------------
Net interest and dividend income after
provision for loan loss reserves 684 748 775 894
Noninterest income 31 37 28 40
Noninterest expense 461 479 467 499
-----------------------------------
Earnings before income taxes 254 306 336 435
Income taxes 94 119 121 153
- --------------------------------------------------------------------------------
Net earnings $ 160 $ 187 $ 215 $ 282
- --------------------------------------------------------------------------------
Basic earnings per share $ .10 $ .11 $ .13 $ .15
Diluted earnings per share $ .09 $ .09 $ .11 $ .12
- --------------------------------------------------------------------------------
F-33
Intervest Bancshares Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
22. Year 2000 Issue
The Company is aware of the many areas affected by the Year 2000
computer issue, as addressed by the Federal Financial Institutions
Examination Council in its interagency statement, which provided an
outline for institutions to effectively manage the Year 2000
challenges. The Board of Directors has approved a Year 2000 plan, which
includes multiple phases, tasks to be completed and target dates for
completion. Issues addressed therein include awareness, assessment,
renovation, validation, implementation, testing and contingency
planning.
The Company has formed a Year 2000 committee that is charged with the
oversight of completing the Year 2000 project on a timely basis. The
Company has completed its awareness, assessment and renovation phases
and is actively involved in validating and implementing its plan. At
the present time, the Company is into its testing phase and anticipates
that this phase will be substantially completed by March 31, 1999. The
Company has determined that the costs of making modifications to
correct any Year 2000 issues will not materially affect reported
operating results.
The Company recognizes the importance of determining that its borrowers
are facing the Year 2000 problem in a timely manner to avoid
deterioration of the loan portfolio solely due to this issue. All
material relationships have been identified and questionnaires have
been completed to assess the inherent risks. Deposit customers have
received statement stuffers and informational material in this regard.
The Company plans to work on a one-on-one basis with any borrower who
has been identified as having high Year 2000 risk exposure.
Although management believes that the Company will not incur material
costs associated with the Year 2000 issue, there can be no assurances
that all hardware and software that the Company will use will be Year
2000 compliant. Management cannot predict the amount of financial
difficulties it may incur due to customers and vendors inability to
perform according to their agreements with the Company or the effects
that other third parties may cause as a result of this issue.
Therefore, there can be no assurance that the failure or delay of
others to address the Year 2000 issue or that the costs involved in
such process will not have a material adverse effect on the Company's
business, financial condition, and results of operations.
The Company's contingency plans relative to Year 2000 issues have not
been finalized. These plans are evolving as the testing of systems
proceeds. During the testing phase, management will determine if it is
necessary to develop a "worst case scenario" contingency plan. Based on
testing results to date, the Company's mission critical systems have
been deemed to be Year 2000 compliant and, therefore, a contingency
plan has not been developed with respect to those systems. With regards
to non-mission critical internal systems, the Company's contingency
plans are to replace those systems that test as being noncompliant.
Alternatively, some systems could be handled manually on an interim
basis. Should outside service providers not be able to provide
compliant systems, the Company will terminate those relationships and
transfer to Year 2000 compliant vendors. It is anticipated that the
Company's deposit customers will have increased demands for cash in the
latter part of 1999 and correspondingly, the Company will maintain its
liquidity levels to meet any increased demand.
F-34
INTERVEST BANCSHARES CORPORATION
2,554,468 shares of Class A Common Stock
and
195,000 shares of Class B Common Stock
issuable upon exercise of warrants
and
749,034 shares of Class A Common Stock
issuable upon conversion of debentures
--------------
PROSPECTUS
--------------
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
Available Information....................... 2
Prospectus Summary.......................... 3
Investment Considerations and Risk
Factors................................... 6
Use of Proceeds............................. 8
Market for Securities....................... 8
Dividends................................... 9
Capitalization.............................. 10
Selected Financial Data..................... 11
Management's Discussion and
Analysis of Financial Condition
and Results of Operations................. 12
Business.................................... 29
Supervision and Regulation.................. 33
Management.................................. 37
Security Ownership of Certain
Beneficial Owners and Management......... 41
Description of Securities................... 42
Plan of Distribution........................ 48
Legal Matters............................... 49
Experts..................................... 49
Index to Financial Statements............... F-1
PART II
Information Not Required In Prospectus
Item 24. 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 25. 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 2,000
Accounting fees and expenses 5,000
Legal fees and expenses 15,000
Blue Sky fees and expenses 7,000
Transfer Agents and Registrar fees --
Miscellaneous 11,000
------
Total $40,000
- -----------------------------------
II-1
Item 26. Recent Sales of Unregistered Securities.
- -------- ----------------------------------------
Unregistered Warrants related to a total of 188,700 shares of Class A
Common Stock were issued to officers, directors and employees of the Company and
the Bank in 1996. In addition, in 1996 the Company authorized the issuance of a
warrant to purchase 150,000 shares of Class B Common Stock to an executive
officer of the Company. These warrants were issued without registration under
the Securities Act of 1933, as amended, in reliance upon the exemption afforded
by Section 4(2) thereof. All of the foregoing warrants and the shares of Class A
Common Stock issuable upon their exercise are included in this Registration
Statement.
Item 27. 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 & Wilcox, LLP
24.1 Consent of Harris Beach & Wilcox, LLP is included in the Opinion of Harris Beach & Wilcox, LLP, filed as Exhibit 5.1
24.2 Consent of Hacker, Johnson, Cohen & Grieb
- ----------------------
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.
II-2
Item 28. Undertakings.
- -------- -------------
(a) The undersigned registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement;
(ii) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(iii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement for 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;
(iv) 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;
(v) 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.
(vi). 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 small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer 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 small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
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 small business issuer 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.
The undersigned small business issuer will:
1. For determining any liability under the Securities Act, treat any
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 determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration Statement,
and the offering of the securities at that time as the initial bona fide
offering of those securities.
II-3
Signatures
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on this form and has caused this Registration
Statement or Amendment to be signed on behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 30th day of June,
1999.
INTERVEST BANCSHARES CORPORATION
(Registrant)
By: /s/ Lowell S. Dansker Date: June 30, 1999
---------------------- -------------
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.
Chairman of the Board, Executive Vice President and Director:
By: /s/ Jerome Dansker Date: June 30, 1999
---------------------------- --------------------------
Jerome Dansker
President, Treasurer and Director
(Principal Executive, Financial and Accounting Officer):
By: /s/ Lowell S. Dansker Date: June 30, 1999
---------------------------- --------------------------
Lowell S. Dansker
Vice President, Secretary and Director:
By: /s/ Lawrence G. Bergman Date: June 30, 1999
---------------------------- --------------------------
Lawrence G. Bergman
Directors:
By: Date:
---------------------------- --------------------------
Michael A. Callen
By: /s/ Milton F. Gidge Date: June 30, 1999
---------------------------- --------------------------
Milton F. Gidge
By: /s/ Wayne F. Holly Date: June 30, 1999
---------------------------- --------------------------
Wayne F. Holly
By: /s/ Edward J. Merz Date: June 30, 1999
---------------------------- --------------------------
Edward J. Merz
By: /s/ Thomas E. Willett Date: June 30, 1999
---------------------------- --------------------------
Thomas E. Willett
By: /s/ David J. Willmott Date: June 30, 1999
---------------------------- --------------------------
David J. Willmott
By: /s/ Wesley T. Wood Date: June 30, 1999
---------------------------- --------------------------
Wesley T. Wood
II-4
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
5.1 Opinion of Harris Beach & Wilcox, LLP
24.1 Consent of Harris Beach & Wilcox, LLP is
included in the Opinion of Harris Beach
& Wilcox, LLP, filed as Exhibit 5.1
24.2 Consent of Hacker, Johnson, Cohen & Grieb