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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
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Commission File No. 000-23377
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INTERVEST BANCSHARES CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3699013
- ---------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation)
1 ROCKEFELLER PLAZA, SUITE 400
NEW YORK, NEW YORK 10020-2002
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(Address of principal executive offices)
(212) 218-2800
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
YES XX NO .
-- --
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act):
YES NO XX.
-- --
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Title of Each Class: Shares Outstanding:
- -------------------- -------------------
Class A Common Stock, $1.00 par value per share 5,663,075 Outstanding at July 30, 2004
- ----------------------------------------------- --------------------------------------
Class B Common Stock, $1.00 par value per share 385,000 Outstanding at July 30, 2004
- ----------------------------------------------- --------------------------------------
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INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 2004
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
as of June 30, 2004 (Unaudited) and December 31, 2003 . . . . . . .2
Condensed Consolidated Statements of Earnings
(Unaudited) for the Quarters and Six-Months Ended
June 30, 2004 and 2003 . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Changes in
Stockholders' Equity (Unaudited)for the Six-Months
Ended June 30, 2004 and 2003 . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Six-Months Ended June 30, 2004 and 2003 . . . . . . . . . .5
Notes to Condensed Consolidated Financial Statements
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Review by Independent Registered Public Accounting Firm . . . . . . 13
Report of Independent Registered Public Accounting Firm . . . . . . 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK . . . . . . . . . . . . . . . . . . . . . . . .27
ITEM 4. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . .28
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . .29
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER
PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . 29
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . .29
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . .29
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . .29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . 29
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
The Company is making this statement in order to satisfy the "Safe Harbor"
provision contained in the Private Securities Litigation Reform Act of 1995. The
statements contained in this report on Form 10-Q that are not statements of
historical fact may include forward-looking statements that involve a number of
risks and uncertainties. Such forward-looking statements are made based on
management's expectations and beliefs concerning future events impacting the
Company and are subject to uncertainties and factors relating to the Company's
operations and economic environment, all of which are difficult to predict and
many of which are beyond the control of the Company, that could cause actual
results of the Company to differ materially from those matters expressed in or
implied by forward-looking statements. The following factors are among those
that could cause actual results to differ materially from the forward-looking
statements: changes in general economic, market and regulatory conditions, the
development of an interest rate environment that may adversely affect the
Company's interest rate spread, other income or cash flow anticipated from the
Company's operations, investment and lending activities; and changes in laws and
regulations affecting banks and bank holding companies.
1
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
($in thousands, except par value) 2004 2003
- ---------------------------------------------------------------------------------------------- ------------ -------------
ASSETS (Unaudited)
Cash and due from banks $ 3,656 $ 8,833
Federal funds sold 13,570 36,816
Commercial paper and other short-term investments 2,653 18,479
------------ -------------
Total cash and cash equivalents 19,879 64,128
Securities held to maturity, net (estimated fair value of $194,871 and $152,995, respectively) 196,132 152,823
Federal Reserve Bank and Federal Home Loan Bank stock, at cost 4,642 3,075
Loans receivable (net of allowance for loan losses of $8,941 and $6,580, respectively) 868,355 664,545
Accrued interest receivable 5,598 4,995
Loan fees receivable 6,946 5,622
Premises and equipment, net 7,084 5,752
Deferred income tax asset 4,083 2,960
Deferred debenture offering costs, net 4,579 4,023
Other assets 1,968 3,600
- ---------------------------------------------------------------------------------------------- ------------ -------------
TOTAL ASSETS $ 1,119,266 $ 911,523
- ---------------------------------------------------------------------------------------------- ------------ -------------
LIABILITIES
Deposits:
Noninterest-bearing demand deposit accounts $ 7,062 $ 6,210
Interest-bearing deposit accounts:
Checking (NOW) accounts 10,909 9,146
Savings accounts 31,915 30,784
Money market accounts 205,924 162,214
Certificate of deposit accounts 597,042 467,159
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Total deposit accounts 852,852 675,513
Borrowed Funds:
Federal funds purchased 3,384 -
Subordinated debentures 93,560 94,690
Subordinated debentures - capital securities 46,392 30,928
Accrued interest payable on all debentures 12,055 14,510
Mortgage note payable 249 255
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Total borrowed funds 155,640 140,383
Accrued interest payable on deposits 1,237 1,080
Mortgage escrow funds payable 15,354 10,540
Official checks outstanding 10,226 6,122
Other liabilities 2,698 2,500
- ---------------------------------------------------------------------------------------------- ------------ -------------
TOTAL LIABILITIES 1,038,007 836,138
- ---------------------------------------------------------------------------------------------- ------------ -------------
STOCKHOLDERS' EQUITY
Preferred stock (300,000 shares authorized, none issued) - -
Class A common stock ($1.00 par value, 9,500,000 shares authorized,
5,663,075 and 5,603,377 shares issued and outstanding, respectively) 5,663 5,603
Class B common stock ($1.00 par value, 700,000 shares authorized,
385,000 shares issued and outstanding) 385 385
Additional paid-in-capital, common 36,562 35,988
Retained earnings 38,649 33,409
- ---------------------------------------------------------------------------------------------- ------------ -------------
TOTAL STOCKHOLDERS' EQUITY 81,259 75,385
============================================================================================== ============ =============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,119,266 $ 911,523
============================================================================================== ============ =============
See accompanying notes to condensed consolidated financial statements.
2
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
QUARTER ENDED SIX-MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------------
($in thousands, except per share data) 2004 2003 2004 2003
- ----------------------------------------------------------------- -------- -------- ---------- ----------
INTEREST AND DIVIDEND INCOME
Loans receivable $ 14,457 $11,613 $ 28,249 $ 22,283
Securities 859 770 1,564 1,657
Other interest-earning assets 75 87 171 155
- ----------------------------------------------------------------- -------- -------- ---------- ----------
TOTAL INTEREST AND DIVIDEND INCOME 15,391 12,470 29,984 24,095
- ----------------------------------------------------------------- -------- -------- ---------- ----------
INTEREST EXPENSE
Deposits 5,906 4,518 11,218 8,971
Subordinated debentures 2,098 2,067 4,331 4,024
Subordinated debentures - capital securities 856 374 1,522 748
Federal funds purchased and mortgage note payable 6 5 10 9
- ----------------------------------------------------------------- -------- -------- ---------- ----------
TOTAL INTEREST EXPENSE 8,866 6,964 17,081 13,752
- ----------------------------------------------------------------- -------- -------- ---------- ----------
NET INTEREST AND DIVIDEND INCOME 6,525 5,506 12,903 10,343
Provision for loan losses 1,284 430 2,361 774
- ----------------------------------------------------------------- -------- -------- ---------- ----------
NET INTEREST AND DIVIDEND INCOME AFTER PROVISION FOR LOAN LOSSES 5,241 5,076 10,542 9,569
- ----------------------------------------------------------------- -------- -------- ---------- ----------
NONINTEREST INCOME
Customer service fees 75 50 134 88
Income from mortgage lending activities 414 261 604 414
Income from the early repayment of mortgage loans 734 896 1,890 1,037
Commissions and fees - - 56 -
Gain (loss) from early call of investment securities 2 (37) (3) (40)
All other - 6 - 6
- ----------------------------------------------------------------- -------- -------- ---------- ----------
TOTAL NONINTEREST INCOME 1,225 1,176 2,681 1,505
- ----------------------------------------------------------------- -------- -------- ---------- ----------
NONINTEREST EXPENSES
Salaries and employee benefits 941 897 1,902 1,764
Occupancy and equipment, net 481 318 825 638
Data processing 127 190 256 338
Professional fees and services 95 80 198 187
Stationery, printing and supplies 46 37 90 79
Postage and delivery 29 25 54 50
FDIC and general insurance 63 54 127 111
Director and committee fees 84 42 172 67
Advertising and promotion 22 7 35 22
All other 157 229 304 407
- ----------------------------------------------------------------- -------- -------- ---------- ----------
TOTAL NONINTEREST EXPENSES 2,045 1,879 3,963 3,663
- ----------------------------------------------------------------- -------- -------- ---------- ----------
Earnings before income taxes 4,421 4,373 9,260 7,411
Provision for income taxes 1,916 1,807 4,020 3,044
- ----------------------------------------------------------------- -------- -------- ---------- ----------
NET EARNINGS $ 2,505 $ 2,566 $ 5,240 $ 4,367
- ----------------------------------------------------------------- -------- -------- ---------- ----------
BASIC EARNINGS PER SHARE $ 0.42 $ 0.55 $ 0.87 $ 0.93
DILUTED EARNINGS PER SHARE $ 0.37 $ 0.45 $ 0.78 $ 0.77
DIVIDENDS PER SHARE $ - $ - $ - $ -
- ----------------------------------------------------------------- -------- -------- ---------- ----------
See accompanying notes to condensed consolidated financial statements.
3
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
SIX-MONTHS ENDED
JUNE 30,
--------------------------------------
2004 2003
------------------ ------------------
($in thousands) SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------- --------- ------- --------- -------
CLASS A COMMON STOCK
Balance at beginning of period 5,603,377 $ 5,603 4,348,087 $ 4,348
Issuance of shares upon the exercise of warrants 42,510 43 5,200 5
Issuance of shares upon the conversion of debentures 17,188 17 5,948 6
- ----------------------------------------------------------------------- --------- ------- --------- -------
Balance at end of period 5,663,075 5,663 4,359,235 4,359
- ----------------------------------------------------------------------- --------- ------- --------- -------
CLASS B COMMON STOCK
Balance at beginning of period 385,000 385 355,000 355
Issuance of shares for acquisition of Intervest Securities Corporation - - 30,000 30
- ----------------------------------------------------------------------- --------- ------- --------- -------
Balance at end of period 385,000 385 385,000 385
- ----------------------------------------------------------------------- --------- ------- --------- -------
ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of period 35,988 24,134
Compensation related to vesting of certain Class B stock warrants 10 13
Compensation related to certain Class A stock warrants modified - 194
Issuance of shares upon the exercise of warrants 383 47
Issuance of shares upon the conversion of debentures 181 36
Issuance of shares for acquisition of Intervest Securities Corporation - 185
- ----------------------------------------------------------------------- --------- ------- --------- -------
Balance at end of period 36,562 24,609
- ----------------------------------------------------------------------- --------- ------- --------- -------
RETAINED EARNINGS
Balance at beginning of period 33,409 24,289
Net earnings for the period 5,240 4,367
- ----------------------------------------------------------------------- --------- ------- --------- -------
Balance at end of period 38,649 28,656
- ----------------------------------------------------------------------- --------- ------- --------- -------
- ----------------------------------------------------------------------- --------- ------- --------- -------
TOTAL STOCKHOLDERS' EQUITY AT END OF PERIOD 6,048,075 $81,259 4,744,235 $58,009
- ----------------------------------------------------------------------- --------- ------- --------- -------
See accompanying notes to condensed consolidated financial statements.
4
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX-MONTHS ENDED
JUNE 30,
----------------------
($in thousands) 2004 2003
- ------------------------------------------------------------------------------------ ----------- ---------
OPERATING ACTIVITIES
Net earnings $ 5,240 $ 4,367
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 307 261
Provision for loan losses 2,361 774
Deferred income tax benefit (1,123) (507)
Amortization of deferred debenture offering costs 617 508
Compensation expense related to common stock warrants 10 207
Net amortization of premiums and (accretion) of discounts and deferred loan fees (1,243) (590)
Net loss from sale of foreclosed real estate - 51
Net (decrease) increase in accrued interest payable on debentures (2,382) 902
Net increase in official checks outstanding 4,104 1,165
Net change in all other assets and liabilities 5,564 2,544
- ------------------------------------------------------------------------------------ ----------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,455 9,682
- ------------------------------------------------------------------------------------ ----------- ---------
INVESTING ACTIVITIES
Net decrease in interest-earning time deposits with banks - 2,000
Maturities and calls of securities held to maturity 44,665 61,890
Purchases of securities held to maturity (89,128) (39,185)
Net increase in loans receivable (208,814) (86,416)
Sale of foreclosed real estate - 150
Cash acquired through acquisition of Intervest Securities Corporation - 218
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock (1,567) (1,697)
Purchases of premises and equipment, net (1,639) (87)
Investment in unconsolidated subsidiaries (464) -
- ------------------------------------------------------------------------------------ ----------- ---------
NET CASH USED IN INVESTING ACTIVITIES (256,947) (63,127)
- ------------------------------------------------------------------------------------ ----------- ---------
FINANCING ACTIVITIES
Net increase in deposits 177,339 47,430
Net increase in mortgage escrow funds payable 4,814 3,032
Net increase in federal funds purchased 3,384 -
Principal repayments of debentures and mortgage note payable (11,006) (1,406)
Gross proceeds from issuance of debentures 25,464 7,500
Debenture issuance costs (1,178) (607)
Proceeds from issuance of common stock 426 52
- ------------------------------------------------------------------------------------ ----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 199,243 56,001
- ------------------------------------------------------------------------------------ ----------- ---------
Net (decrease) increase in cash and cash equivalents (44,249) 2,556
Cash and cash equivalents at beginning of period 64,128 30,849
==================================================================================== =========== =========
Cash and cash equivalents at end of period $ 19,879 $ 33,405
==================================================================================== =========== =========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 18,689 $ 12,331
Income taxes 6,227 3,618
Noncash activities:
Loan to finance sale of foreclosed real estate - 880
Conversion of debentures and accrued interest into Class A common stock 203 42
- ------------------------------------------------------------------------------------ ----------- ---------
See accompanying notes to condensed consolidated financial statements.
5
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - PRINCIPLES OF CONSOLIDATION, BASIS OF PRESENTATION AND USE OF ESTIMATES
The condensed consolidated financial statements of Intervest Bancshares
Corporation and Subsidiaries in this report have not been audited except for
information derived from the 2003 audited consolidated financial statements and
notes thereto. The condensed consolidated financial statements in this report
should be read in conjunction with the 2003 audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2003.
The financial statements include the accounts of Intervest Bancshares
Corporation (a financial holding company referred to by itself as the "Holding
Company") and its subsidiaries, Intervest National Bank (the "Bank"), Intervest
Mortgage Corporation and Intervest Securities Corporation. The entities are
referred to collectively as the "Company" on a consolidated basis. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain reclassifications have been made to prior period amounts
to conform to the current period's presentation. The accounting and reporting
policies of the Company conform to accounting principles generally accepted in
the United States of America and to general practices within the banking
industry.
Intervest Statutory Trust I, II and III are wholly owned subsidiaries of the
Holding Company that are unconsolidated entities as required by FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" as revised
in December 2003. FIN 46 requires bank holding companies that have used
controlled business trusts to raise financing by issuing trust preferred
securities (capital securities) to deconsolidate their investments in those
trusts. The Company adopted FIN 46 in the first quarter of 2004 and the
deconsolidation of Intervest Statutory Trust I and II, which were formed prior
to FIN 46, increased both the Company's total assets and borrowed funds
previously reported at December 31, 2003 by $968,000.
Management is required to make estimates and assumptions that affect the
reported amounts of assets, liabilities and disclosure of contingent liabilities
as of the date of the consolidated financial statements, and revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. Estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the need for a
valuation allowance for deferred tax assets. In the opinion of management, all
material adjustments necessary for a fair presentation of financial condition
and results of operations for the interim periods presented in this report have
been made. These adjustments are of a normal recurring nature. The results of
operations for the interim periods are not necessarily indicative of results
that may be expected for the entire year or any other interim period.
NOTE 2 - DESCRIPTION OF BUSINESS
The offices of the Holding Company, Intervest Mortgage Corporation, Intervest
Securities Corporation and the Bank's headquarters and full-service banking
office are located on the entire fourth floor of One Rockefeller Plaza in New
York City, New York, 10020-2002.
The Holding Company's primary business is the operation of its subsidiaries. It
does not engage in any other substantial business activities other than a
limited amount of real estate mortgage lending. From time to time, the Holding
Company also issues debt securities to raise funds for working capital purposes.
The Company's business segment is banking.
The Bank is a nationally chartered, full-service commercial bank that has its
headquarters and full-service banking office in Rockefeller Plaza in New York
City, and a total of five full-service banking offices in Pinellas County,
Florida - four in Clearwater and one in South Pasadena. The Bank conducts a
personalized commercial and consumer banking business and attracts deposits from
the areas served by its banking offices. It also provides internet banking
services through its web site: www.intervestnatbank.com, which can attract
deposit customers from outside its primary market areas. The deposits, together
with funds derived from other sources, are used to originate real estate,
commercial and consumer loans and to purchase investment securities. The Bank
emphasizes multifamily and commercial real estate lending.
Intervest Mortgage Corporation is a mortgage investment company engaged in the
real estate business, including the origination and purchase of real estate
mortgage loans, consisting of first mortgage and junior mortgage loans.
Intervest Mortgage Corporation issues debentures to provide funding for its
business.
6
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 2 - DESCRIPTION OF BUSINESS - CONTINUED
Intervest Securities Corporation is a broker/dealer and a NASD and SIPC member
firm that participates as a selected dealer from time to time in offerings of
debt securities of the Company, primarily those of Intervest Mortgage
Corporation. On June 2, 2003, the Holding Company acquired all of the
outstanding capital stock of Intervest Securities Corporation in exchange for
30,000 shares of its Class B common stock that was newly issued for this
transaction. Intervest Securities Corporation's total assets consisted of
approximately $218,000 of cash at the time of acquisition. Prior to the
acquisition, Intervest Securities Corporation was an affiliated entity in that
it was wholly owned by the spouse of the Chairman of the Holding Company. The
acquisition was accounted for at historical cost. No restatements of the
Company's prior period consolidated financial statements were made because the
financial results of Intervest Securities Corporation were diminimus.
Intervest Statutory Trust I, Intervest Statutory Trust II and Intervest
Statutory Trust III were formed in December 2001, September 2003 and March 2004,
respectively. Each was formed for the sole purpose of issuing and administering
capital securities as discussed in note 7 herein. The Trusts do not conduct any
trade or business.
NOTE 3 - LOANS RECEIVABLE
Loans receivable is summarized as follows:
At June 30, 2004 At December 31, 2003
---------------------- -------------------------
($in thousands) # of Loans Amount # of Loans Amount
- --------------------------------------- ---------- ---------- ---------- -------------
Commercial real estate loans 218 $ 497,773 184 $ 344,071
Residential multifamily loans 236 371,689 210 310,650
Land development and other land loans 7 16,783 6 20,526
Residential 1-4 family loans 3 130 26 1,628
Commercial business loans 24 1,123 28 1,662
Consumer loans 11 172 16 319
- --------------------------------------- ---------- ---------- ---------- -------------
Loans receivable 499 887,670 470 678,856
- --------------------------------------- ---------- ---------- ---------- -------------
Deferred loan fees (10,374) (7,731)
- --------------------------------------- ---------- ---------- ---------- -------------
Loans receivable, net of deferred fees 877,296 671,125
- --------------------------------------- ---------- ---------- ---------- -------------
Allowance for loan losses (8,941) (6,580)
- --------------------------------------- ---------- ---------- ---------- -------------
Loans receivable, net $ 868,355 $ 664,545
- --------------------------------------- ---------- ---------- ---------- -------------
At June 30, 2004, there were no loans on nonaccrual status, compared to two real
estate loans (aggregate principal balance of $8,474,000) on nonaccrual status at
December 31, 2003. The loans were considered impaired but no valuation allowance
was maintained at December 31, 2003 since the estimated fair value of the
underlying properties exceeded the Company's recorded investment. At June 30,
2004 and December 31, 2003, there were no other impaired loans or loans ninety
days past due and still accruing interest.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
Quarter Ended June 30, Six-Months Ended June 30,
-------------------------- -----------------------------
($in thousands) 2004 2003 2004 2003
- -------------------------------- ------------ ------------ ------------- --------------
Balance at beginning of period $ 7,657 $ 4,955 $ 6,580 $ 4,611
Provision charged to operations 1,284 430 2,361 774
- -------------------------------- ------------ ------------ ------------- --------------
Balance at end of period $ 8,941 $ 5,385 $ 8,941 $ 5,385
- -------------------------------- ------------ ------------ ------------- --------------
NOTE 5 - DEPOSITS
Scheduled maturities of certificates of deposit accounts are as follows:
At June 30, 2004 At December 31, 2003
---------------------- ------------------------
Wtd-Avg Wtd-Avg
($in thousands) Amount Stated Rate Amount Stated Rate
- ------------------------- -------- ------------ ---------- ------------
Within one year $254,086 2.68% $ 182,693 2.75%
Over one to two years 108,624 3.36 90,936 3.64
Over two to three years 58,524 4.93 30,094 4.43
Over three to four years 71,269 4.40 89,085 4.83
Over four years 104,539 4.24 74,351 4.20
- ------------------------- -------- ------------ ---------- ------------
$597,042 3.50% $ 467,159 3.66%
- ------------------------- -------- ------------ ---------- ------------
7
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 6 - SUBORDINATED DEBENTURES AND MORTGAGE NOTE PAYABLE
Subordinated debentures and mortgage note payable are summarized as follows:
At June 30, At December 31,
------------ ----------------
($in thousands) 2004 2003
- ------------------------------------------------------------------------- ------------ ----------------
INTERVEST MORTGAGE CORPORATION:
Series 05/12/95 - interest at 2% above prime (1) - due April 1, 2004 $ - $ 9,000
Series 10/19/95 - interest at 2% above prime (1) - due October 1, 2004 9,000 9,000
Series 05/10/96 - interest at 2% above prime (1) - due April 1, 2005 10,000 10,000
Series 10/15/96 - interest at 2% above prime (1) - due October 1, 2005 5,500 5,500
Series 04/30/97 - interest at 1% above prime (1) - due October 1, 2005 8,000 8,000
Series 11/10/98 - interest at 9% fixed - due January 1, 2005 2,600 2,600
Series 06/28/99 - interest at 8 1/2% fixed - due July 1, 2004 - 2,000
Series 06/28/99 - interest at 9% fixed - due July 1, 2006 2,000 2,000
Series 09/18/00 - interest at 8 1/2% fixed - due January 1, 2006 1,250 1,250
Series 09/18/00 - interest at 9% fixed - due January 1, 2008 1,250 1,250
Series 08/01/01 - interest at 7 1/2% fixed - due April 1, 2005 1,750 1,750
Series 08/01/01 - interest at 8% fixed - due April 1, 2007 2,750 2,750
Series 08/01/01 - interest at 8 1/2% fixed - due April 1, 2009 2,750 2,750
Series 01/17/02 - interest at 7 1/4% fixed - due October 1, 2005 1,250 1,250
Series 01/17/02 - interest at 7 1/2% fixed - due October 1, 2007 2,250 2,250
Series 01/17/02 - interest at 7 3/4% fixed - due October 1, 2009 2,250 2,250
Series 08/05/02 - interest at 7 1/4% fixed - due January 1, 2006 1,750 1,750
Series 08/05/02 - interest at 7 1/2% fixed - due January 1, 2008 3,000 3,000
Series 08/05/02 - interest at 7 3/4% fixed - due January 1, 2010 3,000 3,000
Series 01/21/03 - interest at 6 3/4% fixed - due July 1, 2006 1,500 1,500
Series 01/21/03 - interest at 7 % fixed - due July 1, 2008 3,000 3,000
Series 01/21/03 - interest at 7 1/4% fixed - due July 1, 2010 3,000 3,000
Series 07/25/03 - interest at 6 1/2% fixed - due October 1, 2006 2,500 2,500
Series 07/25/03 - interest at 6 3/4% fixed - due October 1, 2008 3,000 3,000
Series 07/25/03 - interest at 7 % fixed - due October 1, 2010 3,000 3,000
Series 11/28/03 - interest at 6 1/4% fixed - due April 1, 2007 2,000 -
Series 11/28/03 - interest at 6 1/2% fixed - due April 1, 2009 3,500 -
Series 11/28/03 - interest at 6 3/4% fixed - due April 1, 2011 4,500 -
------------ ----------------
86,350 87,350
INTERVEST BANCSHARES CORPORATION:
Series 05/14/98 - interest at 8% fixed - due July 1, 2008 4,710 4,840
Series 12/15/00 - interest at 8 1/2% fixed - due April 1, 2006 1,250 1,250
Series 12/15/00 - interest at 9% fixed - due April 1, 2008 1,250 1,250
------------ ----------------
7,210 7,340
INTERVEST NATIONAL BANK:
Mortgage note payable - interest at 7% fixed - due February 1, 2017 249 255
- ------------------------------------------------------------------------- ------------ ----------------
$ 93,809 $ 94,945
- ------------------------------------------------------------------------- ------------ ----------------
(1) Prime represents prime rate of JPMorganChase Bank, which was 4.25% on June
30, 2004 and 4.00% at December 31, 2003. The floating -rate debentures have a
maximum interest rate of 12%.
In January 2004, Intervest Mortgage Corporation issued $10,000,000 of its Series
11/28/03 debentures for net proceeds, after offering costs, of $9,252,000. In
July 2004, Intervest Mortgage Corporation issued Series 6/7/04 debentures
totaling $11,500,000 as follows: $2,500,000 at 6.25% maturing January 1, 2008;
$4,000,000 at 6.5% maturing January 1, 2010; and $5,000,000 at 6.75% maturing
January 1, 2012. Net proceeds after offering costs amounted to approximately
$10,730,000.
On March 1, 2004, Intervest Mortgage Corporation's Series 5/12/95 debentures due
April 1, 2004 were redeemed for $9,000,000 of principal and $2,749,000 of
accrued interest. On May 1, 2004, Intervest Mortgage Corporation's Series
6/28/99 debentures due July 1, 2004 were redeemed for $2,000,000 of principal
and $980,000 of accrued interest.
8
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 6 - SUBORDINATED DEBENTURES AND MORTGAGE NOTE PAYABLE, CONTINUED
Interest is paid quarterly on Intervest Mortgage Corporation's debentures except
for the following debentures: $1,950,000 of Series 10/19/95; $1,980,000 of
Series 5/10/96; all of Series 11/10/98, 6/28/99, 9/18/00; $770,000 of Series
8/01/01; $270,000 of Series 1/17/02; $1,520,000 of Series 8/05/02; $1,750,000 of
Series 11/28/03 and approximately $1,900,000 of Series 6/7/04, which accrue and
compound interest quarterly, with such interest due and payable at maturity. Any
holder of Series 10/19/95 and 5/10/96 debentures whose interest accrues and is
due at maturity may at any time elect to receive the accrued interest and
regular interest payments thereafter.
The holders of Intervest Mortgage Corporation's Series 11/10/98 through 9/18/00
and Series 1/17/02 through 6/7/04 debentures can require Intervest Mortgage
Corporation to repurchase the debentures for face amount plus accrued interest
each year (beginning October 1, 2005 for Series 1/17/02, January 1, 2006 for
Series 8/05/02, July 1, 2006 for Series 1/21/03, October 1, 2006 for Series
7/25/03, January 1, 2007 for Series 11/28/03 and January 1, 2008 for Series
6/7/04). However, in no calendar year can the required purchases be more than
$100,000 in principal amount of each maturity, in each series of debentures, on
a non-cumulative basis.
Intervest Mortgage Corporation's debentures may be redeemed at its option at any
time, in whole or in part, for face value, except for Series 11/28/03 and
6/7/04. Redemptions would be at a premium of 1% if they occurred prior to
January 1, 2005 for Series 11/28/03 and July 1, 2005 for Series 6/7/04. All the
debentures are unsecured and subordinate to all present and future senior
indebtedness, as defined in the indenture related to each debenture.
The Holding Company's Series 5/14/98 subordinated debentures are convertible at
the option of the holders at any time prior to April 1, 2008 into shares of its
Class A common stock at the following conversion prices per share: $12.00 in
2004; $14.00 in 2005; $16.00 in 2006; $18.00 in 2007 and $20.00 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. In the first quarter of 2004, $203,000 of debentures ($130,000
of principal and $73,000 of accrued interest) were converted into shares of
Class A common stock.
At June 30, 2004, interest accrues and compounds quarterly on $4,040,000 of the
convertible debentures at the rate of 8% per annum, while $670,000 of the
debentures pay interest quarterly at the rate of 8% per annum. All accrued
interest is due and payable at maturity whether by acceleration, redemption or
otherwise. Any convertible debenture holder may, on or before July 1 of each
year elect to be paid all accrued interest and to thereafter receive
payments of interest quarterly. All of the Holding Company's debentures may be
redeemed, in whole or in part, at any time at the option of the Holding Company
for face value.
The mortgage note payable cannot be prepaid except during the last year of its
term.
Scheduled contractual maturities as of June 30, 2004 are as follows:
($in thousands) Principal Accrued Interest
- ------------------------------------------- ---------- -----------------
For the six-months ended December 31, 2004 $ 9,007 $ 3,320
For the year ended December 31, 2005 29,116 3,616
For the year ended December 31, 2006 10,269 1,603
For the year ended December 31, 2007 7,022 96
For the year ended December 31, 2008 16,235 3,039
Thereafter 22,160 246
- ------------------------------------------- ---------- -----------------
$ 93,809 $ 11,920
- ------------------------------------------- ---------- -----------------
NOTE 7 - SUBORDINATED DEBENTURES - CAPITAL SECURITIES
Capital Securities (commonly referred to as Trust Preferred Securities) are
summarized as follows:
At June 30, 2004 At December 31, 2003
--------------------- ------------------------
Accrued Accrued
($in thousands) Principal Interest Principal Interest
- ---------------------------------------------------------- ---------- --------- ---------- ------------
Capital Securities I - debentures due December 18, 2031 $ 15,464 $ 59 $ 15,464 $ 58
Capital Securities II - debentures due September 17, 2033 15,464 41 15,464 39
Capital Securities III - debentures due March 17, 2034 15,464 35 - -
- ---------------------------------------------------------- ---------- --------- ---------- ------------
$ 46,392 $ 135 $ 30,928 $ 97
- ---------------------------------------------------------- ---------- --------- ---------- ------------
9
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 7 - SUBORDINATED DEBENTURES - CAPITAL SECURITIES, CONTINUED
The Capital Securities are obligations of the Holding Company's wholly owned
statutory business trusts, Intervest Statutory Trust I, II and III. Each Trust
was formed with a capital contribution of $464,000 from the Holding Company and
for the sole purpose of issuing and administering Capital Securities. The
proceeds from the issuance of the Capital Securities together with the capital
contribution for each Trust were used to acquire the Holding Company's Junior
Subordinated Debentures that are due concurrently with the Capital Securities.
The Capital Securities currently qualify as regulatory capital (see note 10).
The sole assets of the Trusts, the obligors on the Capital Securities, are the
Junior Subordinated Debentures. In addition, for each Trust, the Holding Company
has guaranteed the payment of distributions on, payments on any redemptions of,
and any liquidation distribution with respect to the Capital Securities.
Issuance costs of $469,000, $444,000 and $444,000 associated with Capital
Securities I, II and III, respectively, have been capitalized by the Holding
Company and are being amortized over the life of the securities using the
straight-line method.
Cash distributions are payable in arrears as follows: Capital Securities I -
semi-annually at the fixed rate of 9.875% per annum on December 18 and June 18
of each year; Capital Securities II - quarterly on March 17, June 17, September
17 and December 17 of each year based on a fixed rate of 6.75% per annum for the
first five years and thereafter at the rate of 2.95% over 3 month libor until
maturity; Capital Securities III - quarterly on March 17, June 17,
September 17 and December 17 of each year based on a fixed rate of 5.88% per
annum for the first five years and thereafter at the rate of 2.79% over 3 month
libor until maturity.
All of the Capital Securities are subject to mandatory redemption as follows:
(i) in whole, but not in part, upon repayment of the Junior Subordinated
Debentures at stated maturity or earlier, at the option of the Holding Company,
within 90 days following the occurrence and continuation of certain changes in
the tax or capital treatment of the Capital Securities, or a change in law such
that the Trust would be considered an investment company, contemporaneously with
the redemption by the Holding Company of the Junior Subordinated Debentures; and
(ii) in whole or in part at any time on or after December 18, 2006 for Capital
Securities I, September 17, 2008 for Capital Securities II and March 17, 2009
for Capital Securities III, contemporaneously with the optional redemption by
the Holding Company of the Junior Subordinated Debentures in whole or in part.
Any redemption would need prior regulatory approvals.
NOTE 8 - COMMON STOCK WARRANTS
At June 30, 2004, the Holding Company had 696,465 common stock warrants
outstanding that entitle its holder, the Chairman of the Holding Company, to
purchase one share of common stock for each warrant. All warrants are currently
exercisable.
Data concerning common stock warrants is as follows:
Exercise Price Per Warrant
------------------------------ Total Wtd-Avg
Class A Common Stock Warrants: $ 6.67 $ 10.01 Warrants Exercise Price
- ---------------------------------------------------- --------------- ------------- --------- ---------------
Outstanding at December 31, 2003 501,465 42,510 543,975 $ 6.93
Exercised during 2004 - (42,510) (42,510) $ 10.01
- ---------------------------------------------------- --------------- ------------- ---------
Outstanding at June 30, 2004 501,465 - 501,465 $ 6.67
- ---------------------------------------------------- --------------- ------------- ---------
Remaining contractual life in years at June 30, 2004 2.6 - 2.6
- ---------------------------------------------------- --------------- ------------- ---------
<FN>
(1) The holders of the 42,510 warrants outstanding at December 31, 2003
presented these warrants to the Company for exercise prior to the
expiration date of December 31, 2003. The resulting shares were issued in
January 2004.
Exercise Price Per Warrant
----------------------------- Total Wtd-Avg
Class B Common Stock Warrants: $ 6.67 $ 10.00 Warrants Exercise Price
- ---------------------------------------------------- --------------- ------------ -------- ---------------
Outstanding at December 31, 2003 and June 30, 2004 145,000 50,000 195,000 $ 7.52
- ---------------------------------------------------- --------------- ------------ --------
Remaining contractual life in years at June 30, 2004 3.6 3.6 3.6
- ---------------------------------------------------- --------------- ------------ -------- ---------------
10
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 8 - COMMON STOCK WARRANTS, CONTINUED
The Company elects to use 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 granted to employees is the excess, if any, of the market price of the
stock as of the grant or modification date over the exercise price of the
warrant.
Compensation expense recorded in connection with common stock warrants is
summarized as follows:
Quarter Ended Six-Months Ended
June 30, June 30,
---------------- --------------------
($in thousands) 2004 2003 2004 2003
- ------------------------------------------------------------ -------- ------ ---------- --------
Compensation expense recorded in connection with vesting
of Class B common stock warrants during the period $ 3 $ 6 $ 10 $ 13
Compensation expense recorded in connection with
Class A common stock warrants whose terms were modified - 127 - 194
- ------------------------------------------------------------ -------- ------ ---------- --------
$ 3 $ 133 $ 10 $ 207
- ------------------------------------------------------------ -------- ------ ---------- --------
NOTE 9 - EARNINGS PER SHARE (EPS)
Basic EPS is calculated by dividing net earnings by the weighted-average number
of shares of common stock outstanding. Diluted EPS is calculated by dividing
adjusted net earnings by the weighted-average number of shares of common stock
and dilutive potential common stock shares that may be outstanding in the
future. Potential common stock shares consist of outstanding dilutive common
stock warrants (which are computed using the "treasury stock method") and
convertible debentures (computed using the "if converted method"). Diluted EPS
considers the potential dilution that could occur if the Company's outstanding
stock warrants and convertible debentures were converted into common stock that
then shared in the Company's earnings (as adjusted for interest expense, 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
shares used for basic and diluted earnings per share computations are summarized
in the table that follows:
Quarter Ended Six-Months Ended
June 30, June 30,
---------------------- ----------------------
($in thousands, except share and per share amounts) 2004 2003 2004 2003
- ----------------------------------------------------------------------- ---------- ---------- ---------- ----------
Basic earnings per share:
Net earnings applicable to common stockholders $ 2,505 $ 2,566 $ 5,240 $ 4,367
Average number of common shares outstanding 6,048,075 4,714,344 6,045,461 4,708,747
- ----------------------------------------------------------------------- ---------- ---------- ---------- ----------
Basic net earnings per share amount $ 0.42 $ 0.55 $ 0.87 $ 0.93
- ----------------------------------------------------------------------- ---------- ---------- ---------- ----------
Diluted earnings per share:
Net earnings applicable to common stockholders $ 2,505 $ 2,566 $ 5,240 $ 4,367
Adjustment to net earnings from assumed conversion of debentures (1) 82 117 164 231
---------- ---------- ---------- ----------
Adjusted net earnings for diluted earnings per share computation $ 2,587 $ 2,683 $ 5,404 $ 4,598
---------- ---------- ---------- ----------
Average number of common shares outstanding:
Common shares outstanding 6,048,075 4,714,344 6,045,461 4,708,747
Potential dilutive shares resulting from exercise of warrants (2) 254,567 292,458 253,956 266,197
Potential dilutive shares resulting from conversion of debentures (3) 609,425 983,656 612,642 983,656
---------- ---------- ---------- ----------
Total average number of common shares outstanding used for dilution 6,912,067 5,990,458 6,912,059 5,958,600
- ----------------------------------------------------------------------- ---------- ---------- ---------- ----------
Diluted net earnings per share amount $ 0.37 $ 0.45 $ 0.78 $ 0.77
- ----------------------------------------------------------------------- ---------- ---------- ---------- ----------
<FN>
(1) Represents interest expense on dilutive convertible debentures, net of
taxes, that would not occur if they were assumed converted.
(2) All outstanding warrants were considered for the EPS computations.
(3) Convertible debentures (principal and accrued interest) outstanding at June
30, 2004 and 2003 totaling $7,557,000 and $9,846,000, respectively, were
convertible into common stock at a price of $12.00 per share in 2004 and
$10.01 per share in 2003 and resulted in additional common shares (based on
average balances outstanding) .
11
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 10 - REGULATORY CAPITAL
The Bank and the Holding Company are required to maintain regulatory defined
minimum Tier 1 leverage and Tier 1 and total risk-based capital ratios.
Management believes that the Bank and the Holding Company meet their capital
adequacy requirements.
Management believes that there are no current conditions or events outstanding
which would change the Bank's designation as a well-capitalized institution.
At June 30, 2004, the actual capital of the Bank on a percentage basis was as
follows:
Actual Minimum To Be Considered
Ratios Requirement Well Capitalized
------- ------------ -----------------
Total capital to risk-weighted assets 11.98% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 10.93% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 9.67% 4.00% 5.00%
At June 30, 2004, the actual capital of the Company (consolidated) on a
percentage basis was as follows:
Actual Minimum To Be Considered
Ratios Requirement Well Capitalized
------- ------------ ----------------
Total capital to risk-weighted assets 13.86% 8.00% NA
Tier 1 capital to risk-weighted assets 11.02% 4.00% NA
Tier 1 capital to total average assets - leverage ratio 9.94% 4.00% NA
On January 1, 2004, the Company adopted FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46") as revised in December
2003. FIN 46 requires bank holding companies that have used controlled business
trusts to raise financing by issuing trust preferred securities (capital
securities) to deconsolidate their investments in those trusts. At June 30,
2004, the Company has $45,000,000 of qualifying capital securities outstanding
(which represents total debentures of $46,392,000 issued to the Trusts by the
Holding Company less the Holding Company's investments in those Trusts
aggregating $1,392,000) that are included in regulatory capital computations.
The Federal Reserve continues to require bank holding companies to include
eligible trust preferred securities in Tier I capital (up to 25 percent of total
Tier I Capital and the remainder as Tier II Capital) for regulatory capital
purposes until further notice. The Federal Reserve intends to review the
regulatory implications of any accounting treatment changes brought about by FIN
46 and, if necessary, it will provide further regulatory guidance. However,
there can be no assurance that the Federal Reserve will continue to allow
institutions to include trust preferred securities in Tier I Capital for
regulatory capital purposes. As of June 30, 2004, assuming the Company was not
allowed to treat any of the trust preferred securities as Tier 1 Capital, it
would still exceed the regulatory threshold for capital adequacy as follows:
total capital to risk-weighted assets ratio - 13.86%; Tier 1 capital to
risk-weighted assets ratio - 8.16%; and Tier 1 capital to total average assets
(leverage ratio) - 7.36%.
Intervest Securities Corporation is subject to the SEC's Uniform Net Capital
Rule [15c3-1 (a) (2) (vi)], which requires the maintenance of minimum net
capital of $5,000. At June 30, 2004, Intervest Securities Corporation's net
capital was $468,000.
12
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
REVIEW BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Hacker, Johnson & Smith, P.A., P.C., the Company's independent registered
public accounting firm, has made a limited review of the financial data as of
June 30, 2004 and for the three- and six-month periods ended June 30, 2004 and
2003 presented in this document, in accordance with the standards established by
the Public Company Accounting Oversight Board. As part of Hacker, Johnson &
Smith, P.A., P.C.'s review, Eisner, LLP was relied upon for their limited review
of Intervest Mortgage Corporation, a wholly owned subsidiary of the Company.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Intervest Bancshares Corporation
New York, New York:
We have reviewed the accompanying condensed consolidated balance sheet of
Intervest Bancshares Corporation and Subsidiaries (the "Company") as of June 30,
2004 and the related condensed consolidated statements of earnings for the
three- and six-month periods ended June 30, 2004 and 2003, and the related
condensed consolidated statements of changes in stockholders' equity and cash
flows for the six-month periods ended June 30, 2004 and 2003. These interim
financial statements are the responsibility of the Company's management.
We were furnished the reports of the other auditor on their reviews of the
interim financial information of Intervest Mortgage Corporation, whose total
assets as of June 30, 2004 constituted 10.3% of the related consolidated total,
and whose net interest income, noninterest income and net earnings for the
three- and six-month periods then ended, constituted 7.2%, 11.8%, and 20.0%; and
6.1%, 16.5% and 19.4%, respectively, and whose net interest income, noninterest
income and net earnings for the three- and six-month periods ended June 30,
2003, constituted 11.3%, 15.5%, and 18.9%; and 10.2%, 16.1% and 17.6%,
respectively, of the related consolidated totals.
We conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews and the reports of the other auditor, we are not aware of
any material modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in conformity with U.S.
generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board, the consolidated balance sheet as of
December 31, 2003, and the related consolidated statements of earnings,
comprehensive income, changes in stockholders' equity and cash flows for the
year then ended (not presented herein); and in our report dated February 6,
2004, with respect to note 3 dated March 16, 2004, we, based on our audit and
the report of other auditors, expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 2003 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Hacker, Johnson & Smith, P.A., P.C.
- ----------------------------------------
HACKER, JOHNSON & SMITH, P.A.,P.C.
Tampa, Florida
August 2, 2004
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholder
Intervest Mortgage Corporation
New York, New York:
We have reviewed the condensed consolidated balance sheet of Intervest Mortgage
Corporation and Subsidiaries (the "Company") as of June 30, 2004 and the related
condensed consolidated statements of operations for each of the three-month and
six-month periods ended June 30, 2004 and 2003, and the related condensed
consolidated statements of changes in stockholders' equity and cash flows for
the six-months ended June 30, 2004 and 2003 (all of which not presented
separately herein). These interim financial statements are the responsibility of
the Company's management.
We conducted our reviews in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with U.S. generally accepted accounting principles.
We previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
the Company as of December 31, 2003 and the related consolidated statements of
operations, changes in stockholder's equity and cash flows for the year then
ended (not presented herein), and in our report dated February 3, 2004, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the condensed consolidated balance
sheet as of December 31, 2003 (not presented separately herein) is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.
/s/ Eisner, LLP
- ----------------
EISNER,LLP
New York, New York
July 28, 2004
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
-------
At June 30, 2004, Intervest Bancshares Corporation has three wholly owned
consolidated subsidiaries - Intervest National Bank, Intervest Mortgage
Corporation and Intervest Securities Corporation (hereafter referred to
collectively as the "Company" on a consolidated basis). Intervest Bancshares
Corporation and Intervest National Bank may be referred to individually as the
"Holding Company" and the "Bank," respectively. Intervest Bancshares Corporation
also has three wholly owned unconsolidated subsidiaries, Intervest Statutory
Trust I, Intervest Statutory Trust II and Intervest Statutory Trust III. For a
discussion of the Company's business, see note 2 to the condensed consolidated
financial statements in this report.
The Company's profitability depends primarily on its net interest income, which
is the difference between interest income generated from its interest-earning
assets and the interest expense incurred on its interest-bearing liabilities.
Net interest income is dependent upon the interest-rate spread, which is the
difference between the average yield earned on interest-earning assets and the
average rate paid on interest-bearing liabilities. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income. The interest rate spread is impacted
by interest rates, deposit flows and loan demand.
The Company's profitability is also affected by the level of its noninterest
income and expenses, provision for loan losses and provision for income tax
expense. Noninterest income consists mostly of loan and other banking fees as
well as income from loan prepayments. The amount and timing of, as well as
income from, loan prepayments, if any, cannot be predicted and can fluctuate
significantly. Normally, the number of instances of prepayment of mortgage loans
tends to increase during periods of declining interest rates and tends to
decrease during periods of increasing interest rates. Many of the Company's
mortgage loans include prepayment provisions, and others prohibit prepayment of
indebtedness entirely. Noninterest expense consists of compensation and benefits
expense, occupancy and equipment expenses, data processing expenses, advertising
expense, professional fees, insurance expense and other operating expenses.
The Company's profitability is significantly affected by general economic and
competitive conditions, changes in market interest rates, government policies
and actions of regulatory authorities. The Company's loan portfolio has
historically been concentrated in commercial real estate and multifamily
mortgage loans. The properties underlying the Company's mortgages are also
concentrated in New York State and the State of Florida. Many of the New York
properties are located in New York City and are subject to rent control and rent
stabilization laws, which limit the ability of the property owners to increase
rents. Credit risk, which represents the possibility of the Company not
recovering amounts due from its borrowers, is significantly related to local
economic conditions in the areas the properties are located, as well as the
Company's underwriting standards. Economic conditions affect the market value of
the underlying collateral as well as the levels of occupancy of income-producing
properties. Additionally, terrorist acts, such as those that occurred on
September 11, 2001, and armed conflicts, such as the recent Gulf War, may have
an adverse impact on economic conditions.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2004 AND DECEMBER 31, 2003
------------------------------------------------------------------------
OVERVIEW
- --------
Total assets at June 30, 2004 increased to $1,119,266,000, from $911,523,000 at
December 31, 2003. Total liabilities at June 30, 2004 increased to
$1,038,007,000, from $836,138,000 at December 31, 2003, and stockholders' equity
increased to $81,259,000 at June 30, 2004, from $75,385,000 at year-end 2003.
Book value per common share increased to $13.44 per share at June 30, 2004, from
$12.59 at December 31, 2003.
On January 1, 2004, the Company adopted FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46") as revised in December
2003. FIN 46 requires bank holding companies that have used controlled business
trusts to raise financing by issuing trust preferred securities to deconsolidate
their investments in those trusts. The adoption of FIN 46 resulted in the
deconsolidation of the Company's common stock investment in Intervest Statutory
I and Intervest Statutory II, which increased both the Company's total assets
and borrowed funds previously reported at December 31, 2003 by $968,000.
16
Selected balance sheet information as of June 30, 2004 follows:
Intervest Intervest Intervest Inter-
Holding National Mortgage Securities Company
($in thousands) Company Bank Corp. Corp. Amounts (1) Combined
- -------------------------------------------- --------- ----------- ----------- ----------- ------------ -----------
Cash and cash equivalents $ 3,343 $ 15,866 $ 7,237 $ 456 $ (7,023) $ 19,879
Security investments - 200,774 - - - 200,774
Loans receivable, net of deferred fees 15,853 753,953 107,490 - - 877,296
Allowance for loan losses (85) (8,530) (326) - - (8,941)
Investment in consolidated subsidiaries 114,059 - - - (114,059) -
All other assets 4,866 20,130 5,108 15 139 30,258
- -------------------------------------------- --------- ----------- ----------- ----------- ------------ -----------
Total assets $138,036 $ 982,193 $ 119,509 $ 471 $ (120,943) $1,119,266
- -------------------------------------------- --------- ----------- ----------- ----------- ------------ -----------
Deposits $ - $ 860,503 $ - $ - $ (7,651) $ 852,852
Borrowed funds and related interest payable 56,279 3,633 95,728 - - 155,640
All other liabilities 498 25,654 2,593 3 767 29,515
- -------------------------------------------- --------- ----------- ----------- ----------- ------------ -----------
Total liabilities 56,777 889,790 98,321 3 (6,884) 1,038,007
- -------------------------------------------- --------- ----------- ----------- ----------- ------------ -----------
Stockholders' equity 81,259 92,403 21,188 468 (114,059) 81,259
- -------------------------------------------- --------- ----------- ----------- ----------- ------------ -----------
Total liabilities and stockholders' equity $138,036 $ 982,193 $ 119,509 $ 471 $ (120,943) $1,119,266
- -------------------------------------------- --------- ----------- ----------- ----------- ------------ -----------
(1) All significant intercompany balances and transactions are eliminated in
consolidation. Such amounts arise largely from intercompany deposit
accounts and investments.
A comparison of selected balance sheet information as of June 30, 2004 and
December 31, 2003 follows:
At June 30, 2004 At December 31, 2003
------------------------- -------------------------
Carrying % of Carrying % of
($in thousands) Value Total Assets Value Total Assets
- --------------------------------------------------------------- ---------- ------------- ---------- -------------
Cash and cash equivalents $ 19,879 1.8% $ 64,128 7.0%
Security investments 200,774 17.9 155,898 17.1
Loans receivable, net of deferred fees and loan loss allowance 868,355 77.6 664,545 72.9
All other assets 30,258 2.7 26,952 3.0
- --------------------------------------------------------------- ---------- ------------- ---------- -------------
Total assets $1,119,266 100.0% $ 911,523 100.0%
- --------------------------------------------------------------- ---------- ------------- ---------- -------------
Deposits $ 852,852 76.2% $ 675,513 74.1%
Borrowed funds and related interest payable 155,640 13.9 140,383 15.4
All other liabilities 29,515 2.6 20,242 2.2
- --------------------------------------------------------------- ---------- ------------- ---------- -------------
Total liabilities 1,038,007 92.7 836,138 91.7
- --------------------------------------------------------------- ---------- ------------- ---------- -------------
Stockholders' equity 81,259 7.3 75,385 8.3
- --------------------------------------------------------------- ---------- ------------- ---------- -------------
Total liabilities and stockholders' equity $1,119,266 100.0% $ 911,523 100.0%
- --------------------------------------------------------------- ---------- ------------- ---------- -------------
CASH AND CASH EQUIVALENTS
- ----------------------------
Cash and cash equivalents decreased to $19,879,000 at June 30, 2004, from
$64,128,000 at December 31, 2003, due to the deployment of those funds into
loans and securities.
SECURITY INVESTMENTS
- ---------------------
Securities held to maturity increased to $196,132,000 at June 30, 2004, from
$152,823,000 at December 31, 2003. The increase was due to new purchases
exceeding maturities and early calls during the period. The Company continues to
invest in short-term (1-5 year) U.S government agency debt obligations to
emphasize liquidity. The portfolio at June 30, 2004 had a weighted-average
remaining maturity of two years and yield of 2.03%.
The Bank's total investment in the Federal Reserve Bank and the Federal Home
Loan Bank of New York stock increased to $4,642,000 at June 30, 2004, from
$3,075,000 at December 31, 2003, due to additional purchases of stock.
LOANS RECEIVABLE, NET OF DEFERRED FEES AND ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------
Loans receivable, net of deferred fees and the allowance for loan losses,
increased to $868,355,000 at June 30, 2004, from $664,545,000 at December 31,
2003. The growth reflected new originations of commercial real estate and
multifamily mortgage loans, partially offset by principal repayments.
17
New loan originations totaled $175,901,000 in the second quarter of 2004 and
$338,591,000 in the first half of 2004, compared to $93,906,000 and
$165,295,000, respectively, for the same periods of 2003.
At June 30, 2004, there were no loans on nonaccrual status, compared to two real
estate loans (aggregate principal balance of $8,474,000) on nonaccrual status at
December 31, 2003. The loans were considered impaired but no valuation allowance
was maintained since the estimated fair value of the underlying properties
exceeded the Company's recorded investment. In March 2004, the loans were
brought current and returned to an accrual status. At June 30, 2004 and December
31, 2003, there were no other impaired loans or loans ninety days past due and
still accruing interest.
At June 30, 2004, the allowance for loan losses amounted to $8,941,000, compared
to $6,580,000 at December 31, 2003. The allowance represented 1.02% of total
loans (net of deferred fees) outstanding at June 30, 2004 and 0.98% at December
31, 2003. The increase in the allowance was due to provisions aggregating
$2,361,000 during the period resulting from significant loan growth. For a
further discussion of all the criteria the Company uses to determine the
adequacy of the allowance, see pages 21 and 22 in the Company's Annual Report on
Form 10-K for the year ended December 31, 2003.
ALL OTHER ASSETS
- ------------------
The following table sets forth the composition of the caption "All other assets"
in the table on page 17:
At June 30, At December 31,
------------- ----------------
($in thousands) 2004 2003
- --------------------------------------- ------------- ----------------
Accrued interest receivable $ 5,598 $ 4,995
Loans fee receivable 6,946 5,622
Premises and equipment, net 7,084 5,752
Deferred income tax asset 4,083 2,960
Deferred debenture offering costs, net 4,579 4,023
All other 1,968 3,600
- --------------------------------------- ------------- ----------------
$ 30,258 $ 26,952
- --------------------------------------- ------------- ----------------
Accrued interest receivable fluctuates based on the amount of loans, investments
and other interest-earning assets outstanding and the timing of interest
payments received. The increase was due to the growth in these assets.
Loan fees receivable are fees due to the Company in accordance with the terms of
mortgage loans. Such amounts are generally due upon the full repayment of the
loan. This fee is recorded as deferred income at the time a loan is originated
and is then amortized to interest income over the life of the loan as a yield
adjustment. The increase was due to an increase in mortgage loan originations.
Premises and equipment increased due to net additions of $1,639,000 (almost all
of which was leasehold improvements associated with new office space), partially
offset by depreciation and amortization.
Deferred income tax asset relates primarily to the unrealized tax benefit on the
Company's allowance for loan losses. The allowance has been expensed for
financial statement purposes but it is currently not deductible for income tax
purposes. Management believes that it is more likely than not that the Company's
deferred tax asset will be realized and accordingly, a valuation allowance for
deferred tax assets is not maintained.
Deferred debenture offering costs consist primarily of underwriters' commissions
and are amortized over the terms of the debentures. The increase was due to a
total of $1,178,000 of new costs associated with Intervest Mortgage
Corporation's issuance of debentures and costs incurred by the Holding Company
in connection with the issuance of Capital Securities. The new cost was
partially offset by normal amortization.
DEPOSITS
- --------
Deposits increased to $852,852,000 at June 30, 2004, from $675,513,000 at
December 31, 2003, primarily reflecting increases in money market and
certificate of deposit accounts of $43,710,000 and $129,883,000, respectively.
At June 30, 2004, certificate of deposit accounts totaled $597,042,000 and
checking, savings and money market accounts aggregated $255,810,000. The same
categories of deposit accounts totaled $467,159,000 and $208,354,000,
respectively, at December 31, 2003. Certificate of deposit accounts represented
70% of total deposits at June 30, 2004 and 69% at December 31, 2003.
18
BORROWED FUNDS AND RELATED INTEREST PAYABLE
- ------------------------------------------------
At June 30, 2004, borrowed funds and related interest payable increased to
$155,640,000, from $140,383,000 at year-end 2003. The increase was primarily due
to the issuance of Series 11/28/03 debentures by Intervest Mortgage Corporation
totaling $10,000,000 and the issuance of $15,464,000 of debentures by the
Holding company to its wholly owned unconsolidated subsidiary, Intervest
Statutory Trust III. The new debentures were partially offset by the early
repayments of Intervest Mortgage Corporation's Series 5/12/95 debentures due
April 1, 2004 ($9,000,000 of principal and $2,749,000 of accrued interest) and
Series 6/28/99 debentures due July 1, 2004 ($2,000,000 of principal and $980,000
of accrued interest). For further information on borrowed funds and related
interest payable, see notes 6 and 7 to the condensed consolidated financial
statements included in this report.
ALL OTHER LIABILITIES
- -----------------------
The table below sets forth the composition of the caption "All other
liabilities" in the table on page 17 as follows:
At June 30, At December 31,
------------ ----------------
($in thousands) 2004 2003
- ------------------------------------- ------------ ----------------
Mortgage escrow funds payable $ 15,354 $ 10,540
Official checks outstanding 10,226 6,122
Accrued interest payable on deposits 1,237 1,080
All other 2,698 2,500
- ------------------------------------- ------------ ----------------
$ 29,515 $ 20,242
- ------------------------------------- ------------ ----------------
Mortgage escrow funds payable represent advance payments made by borrowers for
taxes and insurance that are remitted to third parties. The increase reflected
the growth in the loan portfolio. Official checks outstanding varies and
fluctuates based on banking activity. Accrued interest payable on deposits
fluctuates based on total deposits and timing of interest payments. All other is
comprised mainly of accrued expenses, income taxes payable (which fluctuates
based on the Company's earnings, effective tax rate and timing of tax payments)
and fees received on loan commitments that have not yet been funded.
STOCKHOLDERS' EQUITY
- ---------------------
Stockholders' equity increased to $81,259,000 at June 30, 2004, from $75,385,000
at year-end 2003 as follows:
($in thousands) Amount Shares
- ------------------------------------------------------------------ ------- ---------
Stockholders' equity at December 31, 2003 $75,385 5,988,377
Net earnings for the period 5,240 -
Class A common stock warrants exercised 426 42,510
Convertible debentures converted at election of debenture holders 198 17,188
Compensation expense on warrants held by the Chairman 10 -
- ------------------------------------------------------------------ ------- ---------
Stockholders' equity at June 30, 2004 $81,259 6,048,075
- ------------------------------------------------------------------ ------- ---------
ASSET AND LIABILITY MANAGEMENT
------------------------------
Interest rate risk arises from differences in the repricing of assets and
liabilities within a given time period. The primary objective of the Company's
asset/liability management strategy is to limit, within established guidelines,
the adverse impact of changes in interest rates on the Company's net interest
income and capital.
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. For a
further discussion of the assumptions used in preparing the gap analysis, see
pages 27 and 28 of the Company's Annual Report on Form 10-K for the year ended
December 31, 2003.
The Company's one-year positive interest rate sensitivity gap decreased to
$35,130,000, or 3.1% of total assets, at June 30, 2004, compared to
$118,124,000, or 13.0% at December 31, 2003. The decrease in the positive gap is
due to an increase in money market accounts and time deposits with a remaining
term of 1 year or less.
For purposes of computing the gap, all deposits with no stated maturities are
treated as readily accessible accounts. However, if such deposits were treated
differently, the one-year gap would then change. The behavior of core depositors
may not necessarily result in the immediate withdrawal of funds in the event
deposit rates offered by the Bank did not change as quickly and uniformly as
changes in general market rates. For example, if only 25% of deposits with no
stated maturity were assumed to be readily accessible, the one-year gap would
have been a positive 19.8% at June 30, 2004, compared to a positive 29.6% at
year-end 2003.
19
The table below summarizes interest-earning assets and interest-bearing
liabilities as of June 30, 2004, that are scheduled to mature or reprice within
the periods shown.
0-3 4-12 Over 1-4 Over 4
--------- --------- ---------- ---------
($in thousands) Months Months Years Years Total
- ---------------------------------------- --------- --------- ---------- --------- -----------
Loans (1) $225,375 $243,863 $ 286,256 $132,176 $ 887,670
Securities held to maturity (2) 21,032 76,124 98,976 - 196,132
Short-term investments 16,223 - - - 16,223
FRB and FHLB stock 2,628 - - 2,014 4,642
- ---------------------------------------- --------- --------- ---------- --------- -----------
Total rate-sensitive assets $265,258 $319,987 $ 385,232 $134,190 $1,104,667
- ---------------------------------------- --------- --------- ---------- --------- -----------
Deposit accounts (3):
Interest checking deposits $ 10,909 $ - $ - $ - $ 10,909
Savings deposits 31,915 - - - 31,915
Money market deposits 205,924 - - - 205,924
Certificates of deposit 67,770 186,316 238,417 104,539 597,042
--------- --------- ---------- --------- -----------
Total deposits 316,518 186,316 238,417 104,539 845,790
Federal funds purchased 3,384 - - - 3,384
Debentures and mortgage note payable (1) 32,500 4,350 24,000 79,351 140,201
Accrued interest on debentures (1) 5,281 1,766 2,272 2,736 12,055
- ---------------------------------------- --------- --------- ---------- --------- -----------
Total rate-sensitive liabilities $357,683 $192,432 $ 264,689 $186,626 $1,001,430
- ---------------------------------------- --------- --------- ---------- --------- -----------
GAP (repricing differences) $(92,425) $127,555 $ 120,543 $(52,436) $ 103,237
- ---------------------------------------- --------- --------- ---------- --------- -----------
Cumulative GAP $(92,425) $ 35,130 $ 155,673 $103,237 $ 103,237
- ---------------------------------------- --------- --------- ---------- --------- -----------
Cumulative GAP to total assets (8.3)% 3.1% 13.9% 9.2% 9.2%
- ---------------------------------------- --------- --------- ---------- --------- -----------
Significant assumptions used in preparing the preceding gap table follow:
(1) Floating-rate loans and debentures payable are included in the period in
which their interest rates are next scheduled to adjust rather than in the
period in which they mature. Fixed-rate loans and debentures payable are
scheduled, including repayments, according to their contractual maturities.
Deferred loan fees are excluded from this analysis; (2) securities are scheduled
according to the earlier of their contractual maturity or the date in which the
interest rate is scheduled to increase. The effects of possible prepayments that
may result from the issuer's right to call a security before its contractual
maturity date are not considered; (3) interest checking, savings and money
market deposits are regarded as ready accessible withdrawable accounts; and
certificates of deposit are scheduled through their maturity dates.
LIQUIDITY
---------
The Company manages its liquidity position on a daily basis to assure that funds
are available to meet operations, loan and investment commitments, deposit
withdrawals and the repayment of borrowed funds. The Company's primary sources
of funds consist of: retail deposits obtained through the Bank's branch offices
and through the mail; amortization, satisfactions and repayments of loans; the
maturities and calls of securities; issuance of debentures; borrowings from the
federal funds market, FHLB advances and cash provided by operating activities.
For additional information concerning the Company's cash flows, see the
condensed consolidated statements of cash flows included in this report. The
Company believes that it can fund its contractual obligations from the
aforementioned sources of funds.
As a member of the FHLB and the FRB, the Bank can borrow from these institutions
on a secured basis of up to $188,000,000 in aggregate at June 30, 2004 based on
available collateral. The Bank has federal funds line of credit agreements with
correspondent banks whereby it can borrow on an overnight, unsecured basis of up
to $16,000,000, of which $3,384,000 was outstanding at June 30, 2004.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
---------------------------------------
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These instruments are in the form of commitments to extend credit, unused lines
of credit and standby letters of credit, and may involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the financial statements. The Company's maximum exposure to credit risk is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments as it does for on-balance sheet
instruments. Commitments to extend credit are agreements to lend funds to a
customer as long as there is no violation of any condition established in the
20
contract. Such commitments generally have fixed expiration dates or other
termination clauses and may require payment of fees.
Since some of the commitments are expected to expire without being drawn upon,
the total commitment amount does not necessarily represent future cash
requirements. The Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Company upon extension of credit, is based on management's credit evaluation
of the counterparty.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
The contractual amounts of the Company's off-balance sheet financial instruments
is as follows:
At At
-------- -------------
June 30 December 31,
-------- -------------
($in thousands) 2004 2003
- -------------------------- -------- -------------
Unfunded loan commitments $171,525 $ 123,791
Available lines of credit 882 825
Standby letters of credit 750 100
- -------------------------- -------- -------------
$173,157 $ 124,716
- -------------------------- -------- -------------
Management is not aware of any trends, known demand, commitments or
uncertainties which are expected to have a material impact on future operating
results, liquidity or capital resources.
21
COMPARISON OF RESULTS OF OPERATIONS FOR THE QUARTERS ENDED
----------------------------------------------------------
JUNE 30, 2004 AND 2003
-----------------------
OVERVIEW
- --------
Consolidated net earnings for the second quarter of 2004 amounted to $2,505,000,
compared to $2,566,000 for the second quarter of 2003. Diluted earnings per
share for the 2004 quarter was $0.37, compared to $0.45 in the 2003 quarter. The
per share computation for 2004 included a higher number of common shares
outstanding resulting from the exercise of common stock warrants and conversion
of debentures that occurred in the later part of 2003.
Consolidated earnings were relatively unchanged as an increase of $1,019,000 in
net interest and dividend income was offset by an $854,000 increase in the
provision for loan losses and a $166,000 increase in noninterest expenses.
Selected information regarding results of operations for the second quarter of
2004 follows:
Intervest Intervest Intervest Inter-
Holding National Mortgage Securities Company
($in thousands) Company Bank Corp. Corp. Amounts (1) Consolidated
- ------------------------------------------ --------- ----------- ---------- ------------ ------------ -------------
Interest and dividend income $ 276 $ 12,804 $ 2,358 $ 1 $ (48) $ 15,391
Interest expense 1,069 5,960 1,885 - (48) 8.866
--------- ----------- ---------- ------------ ------------ -------------
Net interest and dividend income (793) 6,844 473 1 - 6,525
Provision for loan losses - 1,190 94 - - 1,284
Noninterest income 75 1,080 1,138 - (1,068) 1,225
Noninterest expenses 98 2,427 583 5 (1,068) 2,045
--------- ----------- ---------- ------------ ------------ -------------
Earnings before income taxes (816) 4,307 934 (4) - 4,421
Provision for income taxes (377) 1,863 432 (2) - 1,916
- ------------------------------------------ --------- ----------- ---------- ------------ ------------ -------------
Net earnings $ (439) $ 2,444 $ 502 $ (2) $ - $ 2,505
- ------------------------------------------ --------- ----------- ---------- ------------ ------------ -------------
Intercompany dividends (2) 855 (855) - - - -
- ------------------------------------------ --------- ----------- ---------- ------------ ------------ -------------
Net earnings after intercompany dividends $ 416 $ 1,589 $ 502 $ (2) $ - $ 2,505
- ------------------------------------------ --------- ----------- ---------- ------------ ------------ -------------
Net earnings after intercompany dividends
for the same period of 2003 $ 65 $ 2,018 $ 484 $ (1) $ - $ 2,566
- ------------------------------------------ --------- ----------- ---------- ------------ ------------ -------------
<FN>
(1) All significant intercompany balances and transactions are eliminated in
consolidation. Such amounts arise from intercompany deposit accounts and
management and service agreements.
(2) Dividends to the Holding Company from the Bank provide funds for the debt
service on $45,000,000 of Capital Securities. The debt service is included
in the Holding Company's interest expense. The proceeds from the Capital
Securities are invested in the capital of the Bank.
NET INTEREST AND DIVIDEND INCOME
- ------------------------------------
Net interest and dividend income is the Company's primary source of earnings and
is influenced primarily by the amount, distribution and repricing
characteristics of its interest-earning assets and interest-bearing liabilities
as well as by the relative levels and movements of interest rates.
Net interest and dividend income increased to $6,525,000 in the second quarter
of 2004, from $5,506,000 in the second quarter of 2003. The improvement was
attributable to a $316,785,000 increase in average interest-earning assets
resulting from continued growth in loans of $266,117,000 and a higher level of
security and short-term investments aggregating $50,668,000. The growth in
average assets was funded by $252,786,000 of new deposits, $32,968,000 of
additional borrowed funds and a $23,644,000 increase in stockholders' equity
(resulting from earnings and issuance of shares upon the exercise of common
stock warrants and conversion of convertible debentures).
The Company's net interest margin decreased to 2.53% in the second quarter of
2004, from 3.06% in the second quarter of 2003. The decrease was due to the
Company's yield on interest-earning assets decreasing at a faster pace than its
cost of funds.
In a low interest rate environment, the yield on interest-earning assets
decreased 97 basis points to 5.96% in the 2004 quarter due to lower rates on new
mortgage loans originated, prepayments of higher-yielding loans and lower yields
earned on security and other short-term investments. The cost of funds decreased
46 basis points to 3.79% in the 2004 quarter due to lower rates paid on deposit
accounts and the addition of new debentures with lower rates than existing ones.
22
The following table provides information on: average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for the periods indicated. The yields and rates
shown are based on a computation of income/expense (including any related fee
income or expense) for each period divided by average interest-earning
assets/interest-bearing liabilities during each period. Average balances are
derived from daily balances. Net interest margin is computed by dividing net
interest and dividend income by the average of total interest-earning assets
during each period.
-----------------------------------------------------------------
Quarter Ended
-----------------------------------------------------------------
June 30, 2004 June 30, 2003
--------------------------------- ------------------------------
Average Interest Yield/ Average Interest Yield/
($in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
ASSETS
Interest-earning assets:
Loans (1) $ 824,379 $ 14,457 7.05% $558,262 $ 11,613 8.34%
Securities 181,091 859 1.91 135,071 770 2.29
Other interest-earning assets 32,997 75 0.91 28,349 87 1.23
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Total interest-earning assets 1,038,467 $ 15,391 5.96% 721,682 $ 12,470 6.93%
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Noninterest-earning assets 15,453 14,082
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Total assets $1,053,920 $735,764
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest checking deposits $ 10,022 $ 38 1.52% $ 11,156 $ 44 1.58%
Savings deposits 31,834 141 1.78 31,745 151 1.91
Money market deposits 189,053 837 1.78 141,443 670 1.90
Certificates of deposit 557,952 4,890 3.52 353,556 3,653 4.14
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Total deposit accounts 788,861 5,906 3.01 537,900 4,518 3.37
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Federal funds purchased 386 1 1.56 - - -
Debentures and related interest payable 105,264 2,098 8.02 104,063 2,067 7.97
Debentures - capital securities 46,392 856 7.42 15,000 374 10.00
Mortgage note payable 251 5 7.00 262 5 7.00
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Total borrowed funds 152,293 2,960 7.82 119,325 2,446 8.22
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Total interest-bearing liabilities 941,154 $ 8,866 3.79% 657,225 $ 6,964 4.25%
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Noninterest-bearing deposits 6,838 5,013
Noninterest-bearing liabilities 26,302 17,544
Stockholders' equity 79,626 55,982
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Total liabilities and stockholders' equity $1,053,920 $735,764
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Net interest and dividend income/spread $ 6,525 2.17% $ 5,506 2.68%
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Net interest-earning assets/margin $ 97,313 2.53% $ 64,457 3.06%
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.10 1.10
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
OTHER RATIOS:
Return on average assets (2) 0.95% 1.40%
Return on average equity (2) 12.58% 18.33%
Noninterest expense to average assets (2) 0.78% 1.02%
Efficiency ratio (3) 26% 28%
Average stockholders' equity to average assets 7.56% 7.61%
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
<FN>
(1) Includes nonaccrual loans, if any.
(2) Annualized.
(3) Defined as noninterest expenses as a percentage of net interest income before the provision for loan losses
plus noninterest income.
PROVISION FOR LOAN LOSSES
- ----------------------------
The provision for loan losses increased to $1,284,000 in the second quarter of
2004, from $430,000 in the second quarter of 2003. The provision is based on
management's ongoing assessment of the adequacy of the allowance for loan losses
that takes into consideration a number of factors as discussed on pages 21 and
22 in the Company's Annual Report on Form 10-K for the year ended December 31,
2003. The higher provision was a function of significant loan growth, which
amounted to $115,925,000 in the 2004 quarter versus $44,184,000 in the 2003
quarter.
23
NONINTEREST INCOME
- -------------------
Noninterest income remained relatively unchanged at $1,225,000 in the second
quarter of 2004 compared to $1,176,000 in the second quarter of 2003, as a
decrease of $162,000 in income from the prepayment of mortgage loans was offset
by increased loan service charges of $167,000. The amount and timing of, as well
as income from, loan prepayments, if any, cannot be predicted and can fluctuate
significantly. Normally, the number of instances of prepayment of mortgage loans
tends to increase during periods of declining interest rates and tends to
decrease during periods of increasing interest rates. Many of the Company's
mortgage loans include prepayment provisions, and others prohibit prepayment of
indebtedness entirely.
NONINTEREST EXPENSES
- ---------------------
Noninterest expenses increased $166,000 to $2,045,000 in the second quarter of
2004, from $1,879,000 in the second quarter of 2003. The increase was due to
increases in salary and employee benefits expense of $44,000, occupancy expenses
of $163,000 and director expense of $42,000, partially offset by decreases in
data processing expenses of $63,000 and all other expenses of $72,000.
Salaries and employee benefits expense increased due to the following: $128,000
from normal salary increases, a higher cost of employee benefits and additional
staff, and $90,000 from bonus payments to certain executives of the Company in
connection with the sale of capital securities and leasing of new space in 2004.
These items were partially offset by a $127,000 decrease in compensation from
common stock warrants held by employees and directors, and a $47,000 increase in
SFAS No. 91 direct fee income (due to more loan originations).
Occupancy expense increased due to the leasing of larger office space. In May,
Intervest Bancshares Corporation and its wholly owned subsidiaries, Intervest
National Bank (New York office), Intervest Mortgage Corporation and Intervest
Securities Corporation, completed their move to newly constructed offices on the
entire fourth floor at One Rockefeller Plaza in New York City. Intervest
Mortgage Corporation's lease obligation of approximately $22,000 per month on
its former space at 10 Rockefeller Plaza will expire in September 2004.
Director expense increased due to higher fees paid to directors for each board
and committee meeting attended beginning in June 2003.
Data processing expenses decreased due to lower fees incurred by the Bank. The
Bank renegotiated its data processing contract during late 2003 by extending the
expiration date to 2010 and reducing the processing fee to a fixed amount until
its assets reach $1.1 billion and thereafter the fee becomes variable and is
calculated based on total assets. Previously, the data processing fee was
entirely variable and a function of the Bank's total assets.
All other expenses were lower due to a decrease of $49,000 in losses from
transactional accounts and a decrease in foreclosed real estate expenses of
$57,000.
PROVISION FOR INCOME TAXES
- -----------------------------
The provision for income taxes increased $109,000 to $1,916,000 in the second
quarter of 2004, from $1,807,000 in the second quarter of 2003, primarily due to
a higher effective income tax rate. The Company's effective tax rate (inclusive
of state and local taxes) amounted to 43.3% in the 2004 period, compared to
41.3% in the 2003 period. The higher rate is due to a larger portion of
consolidated taxable income being generated from the Company's New York
operations, which is taxed at higher income tax rate than its Florida
operations.
24
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX-MONTHS ENDED
------------------------------------------------------------
JUNE 30, 2004 AND 2003
----------------------
OVERVIEW
- --------
For the first half of 2004, consolidated net earnings amounted to $5,240,000, or
$0.78 per diluted share, an increase of $873,000 from $4,367,000, or $0.77 per
diluted share, reported in the first half of 2003. The per share computation for
2004 included a higher number of common shares outstanding resulting from the
exercise of common stock warrants and conversion of debentures that occurred in
the later part of 2003. The increase in net earnings was due to growth in net
interest and dividend income of $2,560,000 and an increase of $1,176,000 in
noninterest income, partially offset by a $1,587,000 increase in the provision
for loan losses, a $976,000 increase in income tax expense and a $300,000
increase in noninterest expenses.
Selected information regarding results of operations for the six-months ended
June 30, 2004 follows:
Intervest Intervest Intervest Inter-
Holding National Mortgage Securities Company
($in thousands) Company Bank Corp. Corp. Amounts (1) Consolidated
- ------------------------------------------ --------- ----------- ---------- ------------ ------------ -------------
Interest and dividend income $ 572 $ 24,822 $ 4,694 $ 2 $ (106) $ 29,984
Interest expense 1,948 11,334 3,905 - (106) 17,081
--------- ----------- ---------- ------------ ------------ -------------
Net interest and dividend income (1,376) 13,488 789 2 - 12,903
Provision for loan losses 7 2,220 134 - - 2,361
Noninterest income 150 2,183 2,277 56 (1,985) 2,681
Noninterest expenses 186 4,675 1,044 43 (1,985) 3,963
--------- ----------- ---------- ------------ ------------ -------------
Earnings before income taxes (1,419) 8,776 1,888 15 - 9,260
Provision for income taxes (655) 3,795 873 7 - 4,020
- ------------------------------------------ --------- ----------- ---------- ------------ ------------ -------------
Net earnings $ (764) $ 4,981 $ 1,015 $ 8 $ - $ 5,240
- ------------------------------------------ --------- ----------- ---------- ------------ ------------ -------------
Intercompany dividends (2) 1,485 (1,485) - - - -
- ------------------------------------------ --------- ----------- ---------- ------------ ------------ -------------
Net earnings after intercompany dividends $ 721 $ 3,496 $ 1,015 $ 8 $ - $ 5,240
- ------------------------------------------ --------- ----------- ---------- ------------ ------------ -------------
Net earnings after intercompany dividends
for the same period of 2003 $ 143 $ 3,456 $ 769 $ (1) $ - $ 4,367
- ------------------------------------------ --------- ----------- ---------- ------------ ------------ -------------
<FN>
(1) All significant intercompany balances and transactions are eliminated in
consolidation. Such amounts arise from intercompany deposit accounts and
management and service agreements.
(2) Dividends to the Holding Company from the Bank provide funds for the debt
service on $45,000,000 of Capital Securities. The debt service is included
in the Holding Company's interest expense. The proceeds from the Capital
Securities are invested in the capital of the Bank.
NET INTEREST AND DIVIDEND INCOME
- ------------------------------------
Net interest and dividend income is the Company's primary source of earnings and
is influenced primarily by the amount, distribution and repricing
characteristics of its interest-earning assets and interest-bearing liabilities
as well as by the relative levels and movements of interest rates.
Net interest and dividend income increased to $12,903,000 in the first half of
2004, from $10,343,000 in the same period of 2003. The improvement was
attributable to a $280,547,000 increase in average interest-earning assets
resulting from continued growth in loans of $241,237,000 and a higher level of
security and short-term investments aggregating $39,310,000. The growth in
average assets was funded by $218,028,000 of new deposits, $32,962,000 of
additional borrowed funds and a $23,164,000 increase in stockholders' equity
(resulting from earnings and issuance of shares upon the exercise of common
stock warrants and conversion of convertible debentures).
The Company's net interest margin decreased to 2.63% in the first half of 2004,
from 2.96% in the same period of 2003. The decrease was due to the Company's
yield on interest-earning assets decreasing at a faster pace than its cost of
funds.
In a low interest rate environment, the yield on interest-earning assets
decreased 78 basis points to 6.12% in the 2004 period due to lower rates on new
mortgage loans originated, prepayments of higher-yielding loans and lower yields
earned on security and other short-term investments. The cost of funds decreased
46 basis points to 3.85% in the 2004 period due to lower rates paid on deposit
accounts and the addition of new debentures with lower rates than existing ones.
25
The following table provides information on: average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for the periods indicated. The yields and rates
shown are based on a computation of income/expense (including any related fee
income or expense) for each period divided by average interest-earning
assets/interest-bearing liabilities during each period. Average balances are
derived from daily balances. Net interest margin is computed by dividing net
interest and dividend income by the average of total interest-earning assets
during each period.
----------------------------------------------------------------
Six-Months Ended
----------------------------------------------------------------
June 30, 2004 June 30, 2003
-------------------------------- ------------------------------
Average Interest Yield/ Average Interest Yield/
($in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
ASSETS
Interest-earning assets:
Loans (1) $ 775,082 $ 28,249 7.33% $533,845 $ 22,283 8.42%
Securities 173,283 1,564 1.82 146,532 1,657 2.28
Other interest-earning assets 36,776 171 0.94 24,217 155 1.29
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Total interest-earning assets 985,141 $ 29,984 6.12% 704,594 $ 24,095 6.90%
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Noninterest-earning assets 15,945 14,564
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Total assets $1,001,086 $719,158
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest checking deposits $ 10,194 $ 78 1.54% $ 11,492 $ 100 1.75%
Savings deposits 31,414 279 1.79 31,443 313 2.01
Money market deposits 178,409 1,579 1.78 140,169 1,392 2.00
Certificates of deposit 523,382 9,282 3.57 343,716 7,166 4.20
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Total deposit accounts 743,399 11,218 3.03 526,820 8,971 3.43
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Federal funds purchased 193 1 1.56 - - -
Debentures and related interest payable 109,212 4,331 7.97 101,366 4,024 8.01
Debentures - capital securities 39,935 1,522 7.66 15,000 748 10.06
Mortgage note payable 252 9 6.98 264 9 6.98
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Total borrowed funds 149,592 5,863 7.88 116,630 4,781 8.27
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Total interest-bearing liabilities 892,991 $ 17,081 3.85% 643,450 $ 13,752 4.31%
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Noninterest-bearing deposits 6,509 5,060
Noninterest-bearing liabilities 23,562 15,788
Stockholders' equity 78,024 54,860
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Total liabilities and stockholders' equity $1,001,086 $719,158
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Net interest and dividend income/spread $ 12,903 2.27% $ 10,343 2.59%
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Net interest-earning assets/margin $ 92,150 2.63% $ 61,144 2.96%
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.10 1.10
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
OTHER RATIOS:
Return on average assets (2) 1.05% 1.21%
Return on average equity (2) 13.43% 15.92%
Noninterest expense to average assets (2) 0.79% 1.02%
Efficiency ratio (3) 25% 31%
Average stockholders' equity to average assets 7.79% 7.63%
- ------------------------------------------------- ----------- ---------- ------- --------- ---------- -------
<FN>
(1) Includes nonaccrual loans, if any.
(2) Annualized.
(3) Defined as noninterest expenses as a percentage of net interest income before the provision for loan losses
plus noninterest income.
PROVISION FOR LOAN LOSSES
- ----------------------------
The provision for loan losses increased to $2,361,000 in the first half of 2004,
from $774,000 in the same period of 2003. The provision is based on management's
ongoing assessment of the adequacy of the allowance for loan losses that takes
into consideration a number of factors as discussed on pages 21 and 22 in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003. The
higher provision for the 2004 period was a function of significant loan growth,
which amounted to $208,814,000 in the 2004 period, versus $87,296,000 in the
2003 period.
26
NONINTEREST INCOME
- -------------------
Noninterest income increased $1,176,000 to $2,681,000 in the first half of 2004,
from $1,505,000 in the same period of 2003. The increase was primarily due to
higher income from the prepayment of mortgage loans of $853,000 and an increase
in loan service charges of $212,000. The amount and timing of, as well as income
from, loan prepayments, if any, cannot be predicted and can fluctuate
significantly. Normally, the number of instances of prepayment of mortgage loans
tends to increase during periods of declining interest rates and tends to
decrease during periods of increasing interest rates. Many of the Company's
mortgage loans include prepayment provisions, and others prohibit prepayment of
indebtedness entirely.
NONINTEREST EXPENSES
- ---------------------
Noninterest expenses increased $300,000 to $3,963,000 in the first half of 2004,
from $3,663,000 in the same period of 2003. The increase was due to increases in
salary and employee benefits expense of $138,000, occupancy expenses of $187,000
and director expense of $105,000, partially offset by decreases in data
processing expenses of $82,000 and all other expenses of $103,000.
Salaries and employee benefits expense increased due to the following: $259,000
from normal salary increases, a higher cost of employee benefits and additional
staff, $146,000 from bonus payments to certain executives of the Company in
connection with the sale of capital securities and leasing of new space in 2004,
and $27,000 of commission expense. These items were partially offset by a
$194,000 decrease in compensation from common stock warrants held by employees
and directors, and a $100,000 increase in SFAS No. 91 direct fee income (due to
more loan originations).
Occupancy expense increased due to the leasing of larger office space. In May,
Intervest Bancshares Corporation and its wholly owned subsidiaries, Intervest
National Bank (New York office), Intervest Mortgage Corporation and Intervest
Securities Corporation, completed their move to newly constructed offices on the
entire fourth floor at One Rockefeller Plaza in New York City. Intervest
Mortgage Corporation's lease obligation of approximately $22,000 per month on
its former space at 10 Rockefeller Plaza will expire in September 2004.
Director expense increased due to higher fees paid to directors for each board
and committee meeting attended beginning in June 2003.
Data processing expenses decreased due to lower fees incurred by the Bank. The
Bank renegotiated its data processing contract during late 2003 by extending the
expiration date to 2010 and reducing the processing fee to a fixed amount until
its assets reach $1.1 billion and thereafter the fee becomes variable and is
calculated based on total assets. Previously, the data processing fee was
entirely variable and a function of the Bank's total assets.
All other expenses were lower due to a decrease of $49,000 in losses from
transactional accounts and a decrease in foreclosed real estate expenses of
$57,000.
PROVISION FOR INCOME TAXES
- -----------------------------
The provision for income taxes increased $976,000 to $4,020,000 in the first
half of 2004, from $3,044,000 in the first half of 2003, due to higher pre-tax
income and a higher effective income tax rate. The Company's effective tax rate
(inclusive of state and local taxes) amounted to 43.4% in the 2004 period,
compared to 41.1% in the 2003 period. The higher rate is due to a larger portion
of consolidated taxable income being generated from the Company's New York
operations, which is taxed at higher income tax rate than its Florida
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Company's market risk arises primarily from interest rate
risk inherent in its lending and deposit-taking activities, and the issuance of
its debentures. The Company has not engaged in and accordingly has no risk
related to trading accounts, commodities or foreign exchange. The measurement of
market risk associated with financial instruments is meaningful only when all
related and offsetting on-and off-balance sheet transactions are aggregated, and
the resulting net positions are identified. Disclosures about the fair value of
financial instruments as of December 31, 2003, which reflect changes in market
prices and rates, can be found in note 20 to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2003. Management believes that there have been no significant
changes in the Company's market risk exposure since December 31, 2003.
27
Management actively monitors and manages the Company's interest rate risk
exposure. The primary objective in managing interest rate risk is to limit,
within its established guidelines, the adverse impact of changes in interest
rates on the Company's net interest income and capital. For a further
discussion, see the section "Asset and Liability Management"
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The Company maintains
----------------------------------------------------
controls and procedures designed to ensure that information required to be
disclosed in the reports that the Company files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange
Commission. Based upon their evaluation of those controls and procedures
performed within 90 days of the filing date of this report, the Chief Executive
and Chief Financial Officer of the Company concluded that the Company's
disclosure controls and procedures were adequate.
(b) Changes in internal controls. The Company made no significant changes in
------------------------------
its internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the Chief
Executive and Chief Financial Officer.
28
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
(e) Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not Applicable
(b) Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) An Annual Meeting of Stockholders was held on May 27, 2004.
(b) Pursuant to the Company's charter and bylaws, one-third of the directors
are elected by the holders of Class A common stock and two-thirds are
elected by holders of Class B common stock. On all other matters, Class A
and Class B common stockholders vote together as a single class. Each of
the persons named in the Proxy Statement dated April 22, 2004 as a nominee
for Director was elected for a one-year term expiring on the date of the
next annual meeting (see Item 4-c).
(c) The table below summarizes voting results on the matter submitted to the
Company's common stockholders:
FOR AGAINST OR WITHHELD ABSTAINED
- -------------------------------- --------- ------------------- ---------
ELECTION OF DIRECTORS - CLASS A
- -------------------------------
Michael A. Callen 5,399,580 22,171 -
Wayne F. Holly 4,914,396 507,355 -
Lawton Swan, III 5,395,896 25,855 -
ELECTION OF DIRECTORS - CLASS B
- --------------------------------
Lawrence G. Bergman 385,000 - -
Jerome Dansker 385,000 - -
Lowell S. Dansker 385,000 - -
Paul DeRosa 385,000 - -
Stephen A. Helman 385,000 - -
Thomas E. Willett 385,000 - -
David J. Willmott 385,000 - -
Wesley T. Wood 385,000 - -
- -------------------------------- --------- ------------------- ---------
(d) Not Applicable
ITEM 5. OTHER INFORMATION
(a) Not Applicable
(b) Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report.
31 - Certification of the principal executive and financial officer
pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
32 - Certification of the principal executive and financial officer
pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
(b) A current report on Form 8-K dated July 19, 2004 was filed by the
registrant to furnish, under Item 12, its quarterly earnings release for
the period ended June 30, 2004.
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
Date: August 12, 2004 By: /s/ Lowell S. Dansker
-------------------------------
Lowell S. Dansker, Vice Chairman, President and
Treasurer
(Principal Executive and Financial Officer)
Date: August 12, 2004 By: /s/ Lawrence G. Bergman
------------------------------
Lawrence G. Bergman, Vice President and Secretary
30