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 quarter ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 33-22976-NY
INTERVEST CORPORATION OF NEW YORK
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 13-3415815
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Rockefeller Plaza, New York, New York 10020-1903
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)218-2800
- --------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock as of the latest practicable date.
Class of Common Stock Outstanding at September 30, 1999
--------------------- ---------------------------------
Common Stock: No Par Value 31.84 Shares
Class B Stock: No Par Value 15.89 Shares
1
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
Results for the three months and for the nine months ended September 30, 1999
and 1998 include, in the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of the results
for such interim periods. Results for the three months and for the nine months
ended September 30, 1999 and 1998 are not necessarily indicative of the results
for the full years.
2
<PAGE>
INTERVEST CORPORATION OF NEW YORK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $41,630,000 $27,426,000
Mortgages receivable, including due from affiliates
of $500,000 in 1998 (notes 2,4 and 5) 52,353,000 67,533,000
Deferred debenture offering costs, net of accumulated
amortization of $3,529,000 and $3,482,000 (Note 2) 3,462,000 3,646,000
Other assets (Note 7) 1,102,000 1,282,000
-------------- -------------
TOTAL ASSETS $98,547,000 $99,887,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 112,000 $ 169,000
Mortgage escrow deposits 1,978,000 2,035,000
Subordinated debentures payable (Note 3) 77,400,000 80,300,000
Debenture interest payable at maturity (Note 3) 6,602,000 5,491,000
Deferred mortgage interest and fees 276,000 324,000
------------- -------------
TOTAL LIABILITIES 86,368,000 88,319,000
----------- -----------
Commitments and other matters (Note 6)
STOCKHOLDERS' EQUITY
Common stock, no par value; authorized 200 shares;
issued and outstanding 32 shares 2,000,000 2,000,000
Class B stock, no par value; authorized 100 shares;
issued and outstanding 16 shares 100,000 100,000
Additional paid-in capital 3,509,000 3,509,000
Retained earnings 6,570,000 5,959,000
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 12,179,000 11,568,000
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $98,547,000 $99,887,000
=========== ===========
</TABLE>
See notes to financial statements
3
<PAGE>
INTERVEST CORPORATION OF NEW YORK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
REVENUE
Interest income
<S> <C> <C> <C> <C>
Affiliates $ 4,000 $ 219,000 $ 29,000 $ 606,000
Others 2,582,000 2,551,000 7,688,000 7,777,000
--------- ---------- --------- ---------
2,586,000 2,770,000 7,717,000 8,383,000
Other income (Note 5) 322,000 227,000 663,000 527,000
Gain on early repayment of discounted
mortgages receivable (Note 4) 67,000 142,000 369,000 279,000
----------- ---------- ---------- ----------
2,975,000 3,139,000 8,749,000 9,189,000
--------- --------- --------- ---------
EXPENSES
Interest 2,044,000 2,147,000 6,121,000 6,416,000
General and administrative (Note 5) 280,000 206,000 820,000 570,000
Amortization of deferred debenture
offering costs (Note 2) 225,000 223,000 678,000 671,000
Depreciation expense 1,000 3,000
------------ ---------------- ------------
2,550,000 2,576,000 7,622,000 7,657,000
--------- --------- --------- ---------
Income before income taxes 425,000 563,000 1,127,000 1,532,000
Provision for income taxes (Note 7) 195,000 259,000 516,000 703,000
---------- ---------- ------------ -----------
NET INCOME 230,000 304,000 611,000 829,000
Retained earnings - beginning 6,340,000 5,537,000 5,959,000 5,012,000
----------- ----------- ----------- -----------
RETAINED EARNINGS - END $6,570,000 $5,841,000 $6,570,000 $5,841,000
========== ========== ========== ==========
</TABLE>
See notes to financial statements
4
<PAGE>
INTERVEST CORPORATION OF NEW YORK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
1999 1998
---- ----
(Unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $611,000 $829,000
Adjustments to reconcile net income to net
Cash provided by operating activities:
Amortization of discount on mortgages receivable (250,000) (442,000)
Amortization of deferred debenture offering costs 678,000 671,000
Gain on early repayment of discounted mortgages (369,000) (279,000)
Changes in operating assets and liabilities:
Other assets 180,000 17,000
Accounts payable and accrued liabilities (57,000) 277,000
Mortgage escrow deposits (57,000) 500,000
Debenture interest payable at maturity 1,111,000 987,000
Deferred mortgage interest and fees (48,000) (42,000)
----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,799,000 2,518,000
---------- ---------
INVESTING ACTIVITIES
Collection of mortgages receivable 37,807,000 35,132,000
Mortgages receivable acquired
Properties owned by affiliates (2,000,000)
Properties owned by others (22,008,000) (33,918,000)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 15,799,000 (786,000)
------------ --------------
FINANCING ACTIVITIES
Proceeds from issuance of Class B Stock 100,000
Proceeds from subordinated debenture offerings 7,100,000
Payment of debenture offering costs (494,000)
Principal payments of subordinated debentures (10,000,000) (1,000,000)
--------------- -------------
NET CASH (USED IN) FINANCING ACTIVITIES (3,394,000) (900,000)
---------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS 14,204,000 832,000
Cash and cash equivalents at beginning of period 27,426,000 15,596,000
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $41,630,000 $16,428,000
=========== ===========
</TABLE>
See notes to financial statements
5
<PAGE>
INTERVEST CORPORATION OF NEW YORK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited with Respect to the Nine Month Periods
Ended September 30, 1999 and 1998)
(NOTE 1) - The Company:
Intervest Corporation of New York (the "Company") was formed by Lowell S.
Dansker, Lawrence G. Bergman and Helene D. Bergman for the purpose of engaging
in the real estate business, including the acquisition and purchase of real
estate mortgage loans.
(NOTE 2) - Significant Accounting Policies:
(a) Consolidation Policy:
The financial statements include the accounts of all
subsidiaries. Material inter-company items are eliminated in consolidation.
(b) Mortgage Loans:
Loans are stated at their outstanding principal balances, net
of any deferred fees or costs on originated loans and unamortized discounts on
purchased loans. Interest income is accrued on the unpaid principal balance.
Discounts are amortized to income over the life of the related receivables using
the constant interest method. Loan origination fees net of certain direct
origination costs are deferred and recognized as an adjustment of the yield of
the related loans.
(c) Allowance for losses:
An allowance for loss related to loans that are impaired is
based on discounted cash flows using the loan's initial effective interest rate
or the fair value of the collateral. Management's periodic evaluation of the
need for, or adequacy of the allowance is based on the Company's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay (including the timing of future
payments), the estimated value of the underlying collateral and other relevant
factors. This evaluation is inherently subjective as it requires material
estimates including the amounts and timing of future cash flows expected to be
received on any impaired loans that may be susceptible to significant change.
For financial reporting purposes mortgages are deemed to be delinquent when
payment of either principal or interest is more than 90 days past due.
(d) Deferred debenture offering costs:
Costs relating to offerings of debentures are amortized over
the terms of the debentures based on serial maturities. Deferred debenture
offering costs consist primarily of underwriter's commissions.
6
<PAGE>
INTERVEST CORPORATION OF NEW YORK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited with Respect to the Nine Month Periods
Ended September 30, 1999 and 1998)
(NOTE 2) - Significant Accounting Policies: (continued)
(e) Statement of cash flows:
For purposes of the statement of cash flows, the Company
considers all highly liquid instruments purchased with an original maturity of
three months or less to be cash equivalents. Interest and income taxes were paid
as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30, Interest Income Taxes
------------------------------- -------- ------------
<S> <C> <C> <C>
1999..................................... $5,011,000 $ 624,000
1998..................................... 5,430,000 417,000
</TABLE>
(f) Estimated fair value of financial instruments:
The Company considers the carrying amounts presented for
mortgages receivable and subordinated debentures payable on the consolidated
balance sheets to be reasonable approximations of fair value. The Company's
variable or floating interest rates on large portions of its receivables and
payables approximate those which would prevail in current market transactions.
Considerable judgement is necessarily required in interpreting market data to
develop the estimates of fair value, and accordingly, the estimates are not
necessarily indicative of the amounts that the Company could realize in a
current market transaction.
(g) Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(h) Concentration of credit risk:
(1) The Company places its temporary cash investments with
higher credit-quality financial institutions, including banks, which are
affiliated with the Company and in governmental obligations. Such investments
are generally in excess of the FDIC insurance limit. The Company has not
experienced any losses from such investments.
7
<PAGE>
INTERVEST CORPORATION OF NEW YORK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited with Respect to the Nine Month Periods
Ended September 30, 1999 and 1998)
(NOTE 2) - Significant Accounting Policies: (continued)
(2) The Company's mortgage portfolio is composed predominantly
of mortgages on multi-family residential properties in the New York City area,
most of which are subject to applicable rent control and rent stabilization
statutes and regulations. In both cases, any increases in rent are subject to
specific limitations. As such, properties of the nature of those constituting
the most significant portion of the Company's mortgage portfolio are not
affected by the general movement of real estate values in the same manner as
other income-producing properties, although there can be no assurances that this
will continue, the rental housing market in New York City remains stable.
(NOTE 3) - Subordinated Debentures Payable:
The Company's Registered Floating Rate Redeemable Debentures consist of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Series 5/13/91, interest at 2% above prime.................. $ 0 $5,000,000
Series 2/20/92, interest at 2% above prime.................. 0 4,500,000
Series 6/29/92, interest at 2% above prime.................. 7,000,000 7,000,000
Series 9/13/93, interest at 2% above prime.................. 8,000,000 8,000,000
Series 1/28/94, interest at 2% above prime.................. 4,500,000 4,500,000
Series 10/28/94, interest at 2% above prime................. 4,500,000 4,500,000
Series 5/12/95, interest at 2% above prime.................. 9,000,000 9,000,000
Series 10/19/95, interest at 2% above prime................. 9,000,000 9,000,000
Series 5/10/96, interest at 2% above prime.................. 10,000,000 10,000,000
Series 10/15/96, interest at 2% above prime................. 5,500,000 5,500,000
Series 4/30/97, interest at 9%.............................. 0 500,000
Series 4/30/97, interest at 1% above prime.................. 8,000,000 8,000,000
Series 11/10/98, interest at 8%............................. 1,400,000 1,400,000
Series 11/10/98, interest at 8 1/2%......................... 1,400,000 1,400,000
Series 11/10/98, interest at 9%............................. 2,600,000 2,000,000
Series 6/28/99, interest at 8%.............................. 2,500,000 0
Series 6/28/99, interest at 8 1/2%.......................... 2,000,000 0
Series 6/28/99, interest at 9%.............................. 2,000,000 0
------------- -------------------
$77,400,000 $80,300,000
</TABLE>
"Prime" refers to the prime rate of Chase Manhattan Bank.
8
INTERVEST CORPORATION OF NEW YORK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited with Respect to the Nine Month Periods
Ended September 30, 1999 and 1998)
(NOTE 3) - Subordinated Debentures Payable (continued):
Prime was 8 1/4% on September 30, 1999 and 7 3/4% on December 31, 1998. Series
6/29/92 has maximum interest of 14% and Series 9/13/93, 1/28/94, 10/28/94,
5/12/95, 10/19/95, 5/10/96, 10/15/96 and 4/30/97 due October 1, 2005 have
maximum interest of 12%.
Payment of interest on an aggregate of $22,410,000 of debentures is deferred
until maturity and such deferred interest earns interest. Any debenture holder
who has deferred receipt of interest may at any time elect to receive the
deferred interest and subsequently receive regular payments of interest, except
holders of Series 11/10/98 and Series 6/28/99.
The debentures may be redeemed, in whole or in part, at any time at the option
of the Company. For debentures issued after 1996, redemption would generally be
at a premium of 1% or 2% if the redemption is prior to 2000. Series 11/10/98 and
Series 6/28/99 debenture holders can require the Company to repurchase up to
$100,000 principal amount of debentures plus accrued interest each year after
January 1, 2000 and July 1, 2002, respectively.
The debentures are unsecured and subordinated to all present and future senior
indebtedness, as defined.
Maturities of debentures are summarized as follows:
<TABLE>
<CAPTION>
Year Ending December 31, September 30, 1999
------------------------ ------------------
<S> <C> <C>
1999................................................. $ 0
2000................................................. 7,000,000
2001................................................. 9,400,000
2002................................................. 7,000,000
2003................................................. 5,900,000
Thereafter until 2005................................. 48,100,000
-----------
Total................................................. $77,400,000
===========
</TABLE>
9
<PAGE>
INTERVEST CORPORATION OF NEW YORK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited with Respect to the Nine Month Periods
Ended September 30, 1999 and 1998)
(NOTE 4) - Mortgages Receivable:
Information as to mortgages receivable is summarized as follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
First Mortgages................................ $47,127,000 $67,574,000
Junior Mortgages............................. 5,680,000 500,000
----------- ------------
52,807,000 68,074,000
Less Unearned Discount...................... 454,000 541,000
-------------- --------------
Total.......................................... $52,353,000 $67,533,000
=========== ===========
</TABLE>
Interest rates on mortgages range from 6% to 24%. Certain mortgages have been
discounted utilizing rates ranging from 8% to 14%.
During the first nine months of 1999 and 1998, certain mortgages were paid in
full prior to their maturity date. This resulted in the recognition of a gain,
which represents the balance of the unamortized discount applicable to these
mortgages.
Annual maturities of mortgages receivable during the next five years are
summarized as follows:
<TABLE>
<CAPTION>
Year Ending December 31, September 30, 1999
------------------------ ------------------
<S> <C> <C>
1999.................................................. $ 9,113,000
2000.................................................. 14,907,000
2001................................................. 8,775,000
2002................................................. 2,270,000
2003................................................. 1,935,000
Thereafter until 2015................................. 15,807,000
------------
Total.................................................. $52,807,000
============
</TABLE>
The Company evaluates its portfolio of mortgage loans on an individual basis,
comparing the amount at which the investment is carried to its estimated net
realizable value. At the respective balance sheet dates, no allowances were
required.
(NOTE 5) - Related Party Transactions:
During the first nine months of 1999, the Company acquired first mortgages in
the aggregate principal amount of $5,629,000 from Intervest Bancshares
Corporation, an affiliate of the Company.
Other income includes fees of $135,000 and $4,000 from affiliates for the nine
months ended September 30, 1999 and 1998, respectively.
10
<PAGE>
INTERVEST CORPORATION OF NEW YORK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited with Respect to the Nine Month Periods
Ended September 30, 1999 and 1998)
(NOTE 5) - Related Party Transactions: (continued)
The Company utilized personnel and other facilities of affiliated entities and
was charged service fees for general and administrative expenses for placing
mortgages, servicing mortgages and distributing debenture interest checks. Such
fees amounted to $224,000 for the nine months ended September 30, 1998.
Management believes these service fees are reasonable. Effective January 1,
1999, personnel performing the services became employees of the Company and
accordingly, the affliated entities discontinued charging service fees to the
Company.
The Company participates with Intervest Bank in one mortgage. The balance of the
Company's participation in the mortgage was $272,000 and $237,000 at September
30, 1999 and December 31, 1998, respectively. The stockholders of the Company
are officers, directors and stockholders of the parent of Intervest Bank.
(NOTE 6) - Commitments:
(a) Office lease:
The Company occupies its office space under a lease, which terminates on
September 30, 2004. In addition to minimum rents the Company is required to pay
its proportionate share of increases in the building's real estate taxes and
costs of operation and maintenance as additional rent. Rent expense amounted to
$133,000 for both nine months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Future minimum rents under the lease are as follows:
Year Ending December 31 September 30,1999
----------------------- -----------------
<S> <C> <C>
1999....................................................... $ 43,726
2000....................................................... 179,134
2001....................................................... 191,828
2002....................................................... 191,828
2003....................................................... 191,828
Thereafter................................................. 143,871
Total........................................................ $942,215
</TABLE>
(b) Employment agreement:
Effective as of July 1, 1995, the Company entered into an employment agreement
with its Executive Vice President for a term of ten years at an annual salary in
the present amount of $157,810, which is subject to increase annually by six
percent or by the percentage increase in the consumer price index, if higher. In
the event of the executive's death or disability, one-half of this amount will
continue to be paid for a term as defined in the agreement.
Effective August 3, 1998, the Company modified the employment agreement to
provide for additional compensation of $1,000 per month for each $10,000,000 of
gross assets of the Company in excess of $100,000,000.
11
<PAGE>
INTERVEST CORPORATION OF NEW YORK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited with Respect to the Nine month Periods
Ended September 30, 1999 and 1998)
(Note 7) - Income Taxes:
The Company has provided for income taxes in the periods presented based on the
federal, state and city tax rates in effect for these periods.
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1999 1998
---- ----
Current taxes:
<S> <C> <C>
Federal................................................. $308,000 $418,000
State and local....................................... 205,000 278,000
Deferred taxes:
Federal............................................ 2,000 4,000
State and local.................................. 1,000 3,000
------------ -----------
Total tax provision.................................. $516,000 $703,000
======== ========
</TABLE>
Temporary differences exist between financial accounting and tax reporting,
which result in a net deferred asset, included in other assets, as follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Debenture underwriting commissions................... $ 0 $ 3,000
Deferred fees and interest 44,000 45,000
Discount on mortgages receivable (17,000) (18,000)
-------- --------
Total $ 27,000 $ 30,000
=========== ========
</TABLE>
12
<PAGE>
INTERVEST CORPORATION OF NEW YORK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited with Respect to the Nine Month Periods
Ended September 30, 1999 and 1998)
(NOTE 7) - Income Taxes: (continued)
The amounts of income taxes provided varied from the amounts which would be
"expected" to be provided at the statutory federal income tax rates in effect
for the following reasons:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1999 1998
---- ----
<S> <C> <C>
Tax computed based upon the statutory federal tax rate............... $383,000 $521,000
State and local income tax, net of federal income tax benefit........ 137,000 186,000
Non-taxable income .................................................. (8,000) (4,000)
Other................................................................ 4,000
---------- --------
Total .............................................................. $516,000 $703,000
========== ========
</TABLE>
(NOTE 8) - Subsequent Event
On October 18, 1999, Intervest Bancshares Corporation, an affiliate of the
Company, agreed to acquire the Company. Shareholders of the Company are officers
of Intervest Bancshares Corporation and serve on the boards of both companies.
In the merger, which was approved by both Boards of Directors, the Company will
receive an aggregate of 1,250,000 shares of Class A common stock of Intervest
Bancshares Corporation in exchange of all common stock of the Company. The
merger, which is subject to regulatory approvals, as well as approval by
shareholders of Intervest Bancshares Corporation, is expected to be closed
before the end of this year.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources:
The Company is engaged in the real estate business, including the origination
and purchase of real estate mortgage loans, consisting of first mortgage, junior
mortgage and wraparound mortgage loans. The Company's current investment policy
emphasizes the investment in mortgage loans on income producing properties. The
majority of the Company's loans are expected to mature within approximately five
years.
The Company's liquidity is managed to ensure that sufficient funds are available
to meet maturities of borrowings or to make other investments, taking into
account anticipated cash flows and available sources of funds. The Company's
principal sources of funds have consisted of borrowings (principally through the
issuance of its subordinated debentures), mortgage repayments and cash flow from
ongoing operations. Total stockholder's equity at September 30, 1999 was
$12,179,000, compared with $11,568,000 at December 31, 1998. The Company
considers its current liquidity and additional sources of funds sufficient to
satisfy its outstanding commitments and its maturing liabilities.
On August 5, 1999, the Company completed the sale of a $6,500,000 of Floating
Rate Redeemable Subordinated Debentures.
On October 18, 1999, Intervest Bancshares Corporation, an affiliate of the
Company, agreed to acquire the Company. Shareholders of the Company are officers
of Intervest Bancshares Corporation and serve on the boards of both companies.
In the merger, which was approved by both Boards of Directors, the Company will
receive an aggregate of 1,250,000 shares of Class A common stock of Intervest
Bancshares Corporation in exchange of all common stock of the Company. The
merger, which is subject to regulatory approvals, as well as approval by
shareholders of Intervest Bancshares Corporation, is expected to be closed
before the end of this year.
Results of Operations:
Three Months Ended September 30, 1999 and 1998
For the three months ended September 30, 1999 interest income was $2,586,000 as
compared to $2,770,000 for the same period a year ago. The decrease of $184,000
resulted primarily from a decrease in mortgages receivable from $75,823,000 at
September 30, 1998 to $52,353,000 at September 30, 1999 and lower interest rates
on certain mortgages.
Other income for the 1999 period was $322,000 as compared to $227,000 for the
1998 period. The increase of $95,000 resulted mainly from an increase in
mortgage fees, offset in part by a decrease in prepayment premiums.
Interest expense for the 1999 period was $2,044,000 as compared to $2,147,000
for the 1998 period. The decrease of $103,000 resulted mainly from lower
interest rates on debentures issued since November 1998.
General and administrative expenses for 1999 period was $280,000 as compared to
$206,000 for 1998. The increase of $74,000 resulted mainly from increases in
payroll expenses, offset in part by the elimination of management fees.
The provision for income taxes are $195,000 and $259,000 for three months ended
September 30, 1999 and 1998, respectively. These provisions represent 46% of
pretax income for each period.
14
<PAGE>
Nine Months Ended September 30, 1999 and 1998
For the nine months ended September 30, 1999 interest income was $7,717,000 as
compared to $8,383,000 for the same period a year ago. The decrease of $666,000
resulted mainly from a decrease in mortgages receivable, and lower interest
rates on certain mortgages.
Other income for the 1999 period was $663,000 as compared to $527,000 for the
1998 period. The increase of $136,000 resulted mainly from an increase in
mortgage fees, offset in part by a decrease in prepayment premiums.
Interest expense for the 1999 period was $6,121,000 as compared to $6,416,000
for the 1998 period. The decrease of $295,000 resulted mainly from lower
interest rates on debentures issued since November 1998.
General and administrative expenses for the 1999 period was $820,000 as compared
to $570,000 for 1998. The increase of $250,000 resulted mainly from increases in
payroll and advertising expenses offset in part by the elimination of management
fees.
The provision for income taxes are $516,000 and $703,000 for nine months ended
September 30, 1999 and 1998, respectively. These provisions represent 46% of
pretax income for each period.
Since the Company intends to continue to expand its asset base, including its
mortgage portfolio, it is anticipated that its interest income will continue to
grow. To the extent that such growth is funded in reliance upon long-term
obligations, such as the Debentures, interest expense will likewise increase.
Such increase will depend upon the principal amounts of the additional assets or
liabilities, as well as interest rates.
The Company is engaged in the real estate business and its results of operations
are affected by general economic trends in real estate markets, as well as by
trends in the general economy and the movement of interest rates. Since the
properties underlying the Company's mortgages are concentrated in the New York
City area, the economic condition in that area can also have an impact on the
Company's operations.
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. Certain of the Company's mortgages include prepayment
provisions, and others prohibit prepayment of indebtedness entirely. In any
event, the Company believes that it would reinvest the proceeds of any
prepayments of mortgage loans in new mortgages consistent with its mortgage
investment policy.
The rental housing market in New York City remains stable and the Company
expects that such properties will continue to appreciate in value with little or
no reduction in occupancy rates. The Company's mortgage portfolio is composed
predominantly of mortgages on multi-family residential properties, most of which
are subject to applicable rent control and rent stabilization statutes and
regulations. In both cases, any increases in rent are subject to specific
limitations. As such, properties of the nature of those constituting the most
significant portion of the Company's mortgage portfolio are not affected by the
general movement of real estate values in the same manner as other
income-producing properties.
Business:
The Company is engaged in the real estate business and has historically invested
primarily in real estate mortgage loans secured by income producing real
property. It is anticipated that a substantial portion of the loans to be made
by the Company will be loans with terms of approximately five years. Such
transactions typically require an understanding of the underlying real estate
transaction and rapid processing and funding as a principal basis for competing
in the making of these loans. The Company does not finance new construction.
15
<PAGE>
At September 30, 1999, 66% of the outstanding principal amount of the Company's
loans (net of discounts) were secured by properties located in the greater New
York metropolitan area. The balance of the Company's loans are secured by
properties located in Connecticut, Florida, Georgia, Maryland, New Jersey,
suburbs of New York City, North Carolina, Pennsylvania and Virginia.
Certain of the Company's real estate mortgage loans bear interest at a fixed
rate. The balance of such loans bear interest at fluctuating rates. Interest on
the loans is usually payable monthly.
The Company may also, from time to time, acquire interests in real property,
including fee interests.
Investment Policy-Operations:
The Company's current investment policy related to mortgages emphasizes
investments in short-term real estate mortgages secured by income producing real
property, located primarily in the greater New York metropolitan area.
The properties to be mortgaged are personally inspected by management and
mortgage loans are made only on those properties where management is
knowledgeable as to operating income and expense. The Company generally relies
upon its management in connection with the valuation of properties. From time to
time, however, it may engage independent appraisers and other agents to assist
in determining the value of income-producing properties underlying mortgages, in
which case the costs associated with such services are generally paid by the
mortgagor.
Current Loan Status:
At September 30, 1999, the Company had 43 real estate mortgage loans in its
portfolio, totaling $52,807,000 (face amount) in aggregate principal amount.
Interest rates on the mortgage portfolio range between 6% and 24% per annum.
Certain mortgages have been discounted utilizing rates between 8% and 14% per
annum.
Certain information concerning the Company's mortgage loans outstanding at
September 30, 1999 is set forth below:
<TABLE>
<CAPTION>
Carrying
Amount of
Mortgage No. of
Loans Prior Liens Loans
----- ----------- -----
<S> <C> <C> <C>
First Mortgage Loans................................ $46,673,000 $ 0 38
Junior Mortgages................................... 5,680,000 35,389,000 5
----------- ----------- --
Total............................................... $52,353,000 $35,389,000 43
=========== =========== ==
</TABLE>
The historical cost of the mortgage loans, which originated in connection with
the sale of real estate includes a discount to reflect an appropriate market
interest rate at the date of origination.
16
<PAGE>
Year 2000 Readiness Disclosure:
The Year 2000 issue is the result of computer programs, which were written using
two digits rather than four digits to define the applicable year. As a result,
such programs may recognize a date using "00" as the year 1900 instead of the
year 2000, which could result in system failures or miscalculations.
The Company's operations are real estate related and are handled by desktop
computer processing. Such processing utilizes third-party software. Software
that is used to process the Company's general ledger, general cash
disbursements, cash receipts and loan accounting is Year 2000 compliant.
Incidental calculations are performed on spreadsheets, which are not date
dependent. The Company's ability to produce revenues is also not dependent upon
computer systems.
The Company also has subordinated debentures for which the Company relies on a
third-party vendor to provide registrar and trustee services. Such vendor has
informed the Company that it has completed its testing phase of mission-critical
systems, and has determined that these systems are year 2000 compliant. In
connection with the debentures, the Company utilizes third-party software to
generate checks for the payment of interest to the debenture holders. The Year
2000 compliant version of this software has been installed and tested.
Notwithstanding the above, there can be no assurance that all hardware and
software that the Company uses will function properly on and after January 1,
2000, or that its vendors will perform according to their representations, or
that other third parties may cause adverse effects because of the Year 2000
issue. Therefore, there can be no assurance that the failure of others to
address the Year 2000 issue will not have a material adverse effect on the
Company's business, financial condition, and results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
None
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - the following exhibit is filed herewith
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during this quarter
18
<PAGE>
SIGNATURES
PURSUANT to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTERVEST CORPORATION OF NEW YORK
(Registrant)
Dated: November 9, 1999 /s/Lowell S. Dansker
--------------------
Lowell S. Dansker, President
(Principal Executive Officer),
Treasurer (Principal Financial Officer
and Principal Accounting Officer)
and Director
Dated: November 9, 1999 /S/Lawrence G. Bergman
----------------------
Lawrence G. Bergman,
Vice President, Secretary
and Director
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains information extracted from Form 10-Q at September 30,
1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 41,630
<SECURITIES> 0
<RECEIVABLES> 52,353
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 62
<DEPRECIATION> 3
<TOTAL-ASSETS> 98,587
<CURRENT-LIABILITIES> 0
<BONDS> 77,400
0
0
<COMMON> 2,100
<OTHER-SE> 10,079
<TOTAL-LIABILITY-AND-EQUITY> 98,547
<SALES> 0
<TOTAL-REVENUES> 8,749
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 823
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,799
<INCOME-PRETAX> 1,127
<INCOME-TAX> 516
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 611
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
