As filed with the Securities and Exchange Commission on May 6, 1997
Registration No. 333-___________
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INTERVEST BANCSHARES CORPORATION
(Name of Small Business Issuer in Its charter)
Delaware 6060 13-3699013
- ---------------------- ---------------------------- -------------
(State or Jurisdiction (Primary Standard Industrial (IRS Employer
of Incorporation Classification Code Number) Identification No.)
or Organization)
10 Rockefeller Plaza (Suite 1015), New York, New York 10020-1903, (212) 757-7300
- --------------------------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices)
10 Rockefeller Plaza (Suite 1015), New York, New York 10020-1903
(Address of Principal Place of Business)
Lawrence G. Bergman, Vice President
Intervest Bancshares Corporation
10 Rockefeller Plaza (Suite 1015)
New York, New York 10020-1903
---------------------------------------------------------
(Name, Address and Telephone Number of Agent For Service)
-----------------
with copies to:
Thomas E. Willett, Esq.
Harris Beach & Wilcox
130 East Main Street
Rochester, New York 14604
Approximate Date of Proposed Sale to the Public: As soon as practicable.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]__________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________________________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE(1)
- -------------------------------------------------------------------------------------------
Title of Each Class of Dollar Amount Proposed Maximum Proposed Amount of
Securities to be to be Offering Price Maximum Registration
Registered Registered Per Unit Offering Price Fee
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Warrants(2) $ 0 $ 0 $ 0 $ 0
- -------------------------------------------------------------------------------------------
Class A Common Stock, par
value $1.00 $1,601,100 $10.00 $1,601,100 $485.18
- -------------------------------------------------------------------------------------------
Class B Common
Stock, par value $1.00 $1,000,000 $10.00 $1,000,000 $303.03
- -------------------------------------------------------------------------------------------
Total $2,601,100 $10.00 $2,601,100 $788.21
- -------------------------------------------------------------------------------------------
</TABLE>
(1) As permitted by Rule 429(a) of the Securities Act, the Prospectus included
herein also relates to a Registration Statement on Form SB-2 (No. 33-82246) with
respect to 450,000 Warrants and 450,000 shares of Class A Common Stock, par
value $1.00, and a Registration Statement on Form SB-2 (No. 333-3522) with
respect to 409,000 Warrants and 409,000 shares of Class A Common Stock, par
value $1.00.
(2) No dollar value has been attributed to the Warrants.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY ____, 1997
PROSPECTUS
INTERVEST BANCSHARES CORPORATION
(A Bank Holding Company for Intervest Bank)
Warrants Related to the Issuance of
1,019,110 Shares of Class A Common Stock
and
100,000 Shares of Class B Common Stock
--------------
The securities offered hereby consist of warrants related to 1,019,110
shares of Class A Common Stock issued by Intervest Bancshares Corporation (the
"Company"), a warrant related to the purchase of 100,000 shares of Class B
Common Stock (the "Warrants"), and 1,019,110 shares of Class A Common Stock, par
value $1.00 per share (the "Class A Common Stock") and 100,000 shares of Class B
Common Stock, par value $1.00 per shares (the "Class B Common Stock") issuable
upon exercise of the Warrants. All of the Warrants provide for the purchase of
shares at a purchase price of $10.00 per share. See "Description of Securities"
and "Exercise Instructions for Warrants."
As of the date of this Prospectus, there has been no public market for
the securities of the Company, and there can be no assurance that any such
market will develop.
Prospective investors should consider the information discussed under
"Investment Considerations and Risk Factors."
-----------------
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Underwriting
Discounts and Proceeds to
Price to Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
Per Share $ 10.00 $ 0 $ 10.00
- --------------------------------------------------------------------------------
Per Warrant(3) $ 0 $ 0 $ 0
- --------------------------------------------------------------------------------
Total $11,191,100 $ 0 $11,191,100
- --------------------------------------------------------------------------------
(1) The Offering is not underwritten and the Company has employed no
brokers or dealers in connection with the Offering.
(2) Before deducting expenses of the Offering estimated at $40,000.
(3) The Company has attributed no value to the Warrants. Accordingly, no
proceeds will be received by the Company from the issuance of Warrants.
The date of this Prospectus is _________________, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
and regulations promulgated thereunder, and in accordance therewith, files
reports, and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, and other information can be inspected and copied
at prescribed rates at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can also be obtained at
prescribed rates by writing to the Securities and Exchange Commission's Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a website that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of that site is: "http://www.sec.gov".
This Prospectus constitutes a part of a Registration Statement on Form
SB-2 filed by the Company with the Commission through the Electronic Data
Gathering and Retrieval ("EDGAR") system with respect to the securities offered
hereby. This Prospectus omits certain information contained in the Registration
Statement, certain items of which are contained in exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement including the exhibits
filed as a part thereof, which may be inspected at the principal or regional
offices of the Commission, without charge.
The Company will furnish annual reports to its shareholders which will
contain audited financial statements certified by its independent public
accountants. The Company may distribute unaudited quarterly reports and other
interim reports to its shareholders as it deems appropriate.
The Company will provide without charge to each person to whom a
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all documents referred to above that have been incorporated into this
Prospectus by reference. Written or oral requests for such copies should be
directed to: Mr. Lawrence G. Bergman, Intervest Bancshares Corporation, 10
Rockefeller Plaza, New York, New York 10020; (212) 757-7300.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and the consolidated financial statements and the notes thereto
appearing elsewhere or incorporated by reference in this Prospectus.
The Company
Intervest Bancshares Corporation (the "Company") is a bank holding
company incorporated under the laws of the State of Delaware whose only
subsidiary is Intervest Bank (the "Bank"), a Florida chartered bank which is a
member of the Federal Reserve System. The Company owns approximately 96% of the
issued and outstanding shares of the Bank. The Bank is a community- oriented,
full service, commercial bank serving the Clearwater area of the State of
Florida.
The principal business of the Bank is to attract deposits and to loan
or invest those deposits on profitable terms. The Bank offers a variety of
deposit accounts which are insured by the Federal Deposit Insurance Corporation
("FDIC") up to $100,000 per depositor. The lending of the Bank consists
primarily of commercial loans, real estate loans and consumer loans. The Bank is
one of several providers of funds for such purposes in its market area, and its
lending policies, deposit products and related services are intended to meet the
needs of individuals and businesses in its market area.
As of December 31, 1996, the Company had consolidated assets and
deposits of $105.2 million and $93.4 million, respectively. The Company's
stockholders' equity at December 31, 1996 was $9.7 million. Unless the context
otherwise requires, references herein to the Company include the Company and its
subsidiary, the Bank, on a consolidated basis.
The Offering
Securitie 1,019,110 shares of Class A Common Stock and
100,000 shares of Class B Common Stock issuable
upon exercise of the Warrants at a price of $10.00
per share. See "Description of Securities."
Shares of Class A
Common Stock Currently
Outstandig 900,000 shares
Shares of Class A Common
Stock Outstanding Assuming
all of the Warrants are
Exercised 1,919,110 shares
Shares of Class B Common
Stock Currently Outstanding 200,000 shares
Shares of Class B Common
Stock Outstanding Assuming
Exercise of the Class B
Warrants 300,000 shares
Use of Proceeds The Company intends to apply the net proceeds of
this Offering to the Company's capital to further
increase its capital and for the Company's general
corporate purposes, including without limitation,
the financing of the expansion of the Company's
operations through acquisitions, and the infusion
of capital to the Bank and any future subsidiaries
of the Company. See "Use of Proceeds."
Investment Considerations Prospective investors in the Class A Common Stock
should consider the information discussed under
the heading "Investment Considerations and Risk
Factors."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share figures)
As of or for the
----------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
------------ ------------ ------------
1996 1995 1994
---- ---- ----
Income Statement Summary:
Interest income $ 6,381 4,190 2,158
Interest expense 3,745 2,225 803
Net interest income 2,636 1,965 1,355
Provision for credit losses 250 233 124
Net interest income
after provision
for credit losses 2,386 1,732 1,231
Other Income 106 89 112
Other expense 1,551 1,415 1,054
Earnings (Loss) before
income taxes 941 406 289
Provision for income
taxes 383 136 108
Net Earnings (Loss) 558 270 181
Per Share Data:
Net Earnings (Loss) .51 .25 .22
Cash dividends -- -- --
Book value (1) 8.86 8.35 8.08
Shares outstanding at
period-end 1,100,000 1,100,000 1,100,000
Period-End Balance Sheet Summary:
Total assets 105,196 68,942 40,117
Investment securities 34,507 19,630 8,638
Loans (net of unearned
income) 60,341 37,058 22,754
Allowance for credit losses 811 593 369
Deposits 93,447 58,601 30,092
Shareholders' equity 9,747 9,189 8,884
- ----------
(1) Represents shareholder's equity divided by the number of outstanding
shares of Class A and Class B Common Stock at period-end.
5
<PAGE>
As of or for the
----------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
------------ ------------ ------------
1996 1995 1994
---- ---- ----
Selected Financial Ratios:
Return on average
assets ......................... .67% .51% .61%
Return on average
equity ......................... 5.91% 3.01% 3.02%
Dividends declared to
net earnings ................... -- -- --
Loans (net of unearned
income) to deposits ............ 63.67% 63.24% 75.61%
Net charge-offs to
loans at period-end ............ .05% .02% .03%
Ratio of Allowance for loan
losses to loans
at period-end .................. .013 .016 .016
Average stockholders'
equity to average total
assets ......................... 11.29% 16.89% 20.05%
Ratio of Allowance for Loan losses
to nonperforming loans ......... -- -- 1.05
- ------------------------------
6
<PAGE>
THE COMPANY AND THE BANK
Intervest Bancshares Corporation
- --------------------------------
The Company, a Delaware corporation organized in 1993, is a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended (the "BHCA"). The Company's principal asset is its ownership interest of
approximately 96% of the issued and outstanding shares of the Bank. The Company,
through its ownership of the Bank, is engaged in the commercial banking business
and its primary source of earnings is derived from income generated by its
ownership and operation of the Bank. As of December 31, 1996, the Company, on a
consolidated basis, had total assets of $105.2 million, net portfolio loans of
$59.5 million, total deposits of $93.4 million, and stockholders' equity of $9.7
million. Unless the context otherwise requires, references herein to the Company
include the Company and its majority-owned subsidiary, the Bank, on a
consolidated basis.
The Company is a legal entity, separate and distinct from the Bank.
There are various legal limitations with respect to the Bank's financing or
otherwise supplying funds to the Company. In particular, under federal banking
law, the Bank may not declare a dividend that exceeds undivided profits. In
addition, the approval of the Federal Reserve Bank of Atlanta (the "Atlanta
FRB"), as well as the Florida Department of Banking and Finance, is required if
the total amount of all dividends declared in any calendar year exceeds the
Bank's net profits, as defined, for that year, combined with its retained net
profits for the proceeding two years. The Atlanta FRB also has the authority to
limit further the payment of dividends by the Bank under certain circumstances.
In addition, federal banking laws prohibit or restrict the Bank from extending
credit to the Company under certain circumstances.
Intervest Bank
- --------------
The Bank is a Florida chartered banking corporation originally
chartered in December, 1987. It operated as Countryside Bankers until 1994, when
its name was changed to Intervest Bank. The Bank engages in commercial banking
from its main and three branch offices, all of which are located in Clearwater,
Florida.
The Bank primarily focuses on providing personalized banking services
to businesses and individuals within its market area. The Bank originates
commercial loans to businesses, collateralized and uncollateralized consumer
loans, and real estate loans (including commercial loans collateralized by real
estate).
The Bank's income is derived principally from interest and fees earned
in connection with its lending activities, interest and dividends on investment
securities, short-term investments and other services. Its principal expenses
are interest paid on deposits and operating expenses. The Bank intends to expand
its deposit and loan customer relationships at its existing offices and to
examine opportunities for expansion to new locations. The Bank also intends to
increase its origination of commercial mortgage loans. The principal sources of
funds for the Bank's lending and investment activities are deposits, loan
repayments and proceeds from income, and sales and maturities of investment
securities.
The Bank is subject to examination and comprehensive regulation by the
Federal Reserve Board (the "FRB") and its deposits are insured by the Federal
Deposit Insurance Corporation (the "FDIC") to the extent permitted by law. The
Bank is a member of the Federal Reserve System. The Bank is also subject to the
supervision of and examination by the Florida Department of Banking and Finance.
The principal executive offices of the Company are located at 10
Rockefeller Plaza (Suite 1015), New York, New York 10020, and its telephone
number is (212) 757-7300. The principal executive offices of the Bank are
located at 1875 Belcher Road North, Clearwater, Florida 34625, and its telephone
number is (813) 791-6115. In addition to its principal office, which is leased,
the Bank owns three branch offices in Clearwater, Florida. One branch is located
at 606 Chestnut Street, another at 2175 Nursery Road, and the third at 2575
Ulmerton Road.
7
<PAGE>
INVESTMENT CONSIDERATIONS AND RISK FACTORS
A prospective investor should review and consider carefully the
following factors, together with the other information contained in this
prospectus in evaluating an investment in the Class A Common Stock.
Limited Operating History
- -------------------------
The principal current business activity of the Company consists of its
controlling ownership of the Bank and, accordingly, it is dependent upon the
success and profitability of the Bank. The Company was formed in February of
1993 for the purpose of acquiring a controlling interest in the Bank, which
transaction occurred in May of 1993. Prior to that transaction, the Bank had
operated under separate ownership and management. The Bank was not profitable
through its fiscal year ended December 31, 1992. The Bank achieved profitability
for the fiscal year ended December 31, 1993 and has been profitable in each year
thereafter. The Company had a small loss in 1993 and has been profitable
thereafter. In light of the relatively brief period of the Company's operations,
there can be no assurance of future profitability. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Consolidated
Financial Statements."
Management's Broad Discretion Over Proceeds
- -------------------------------------------
Proceeds will be received only upon exercise of the Warrants, which is
in the sole discretion of the holders of the Warrants.
The net proceeds of this Offering have not yet been committed to
specific applications. All determinations concerning the use and investment of
the proceeds will be made by management of the Company.
Dividends
- ---------
Since its inception, the Company has not paid any dividends on its
common stock and there is no immediate prospect or contemplation of the payment
of such dividends.
Dividends paid by the Company are subject to the financial conditions
of both the Bank and the Company as well as other business considerations. In
addition, banking regulations limit the amount of dividends that may be paid by
the Bank to the Company without prior regulatory approval. The amount of
allowable dividends which could be payable by the Company are in substance
limited to net profits earned by the Company, less any earnings retention
consistent with the Company's capital needs, asset quality and overall financial
condition. Distributions paid by the Company to shareholders will be taxable to
the shareholders as dividends, to the extent of the Company's accumulated
current earnings and profits.
The payment of dividends by the Bank to the Company is regulated by
various state and federal laws and by regulations promulgated by the FRB, which
restrict the payment of dividends under certain circumstances. In addition, such
regulations also impose certain minimum capital requirements which affect the
amount of cash available for the payment of dividends by a regulated banking
institution such as the Bank. Even if the Bank is able to generate sufficient
earnings to pay dividends, there is no assurance that the Board of Directors
might not decide or be required to retain a greater portion of the Bank's
earnings in order to maintain or achieve the capital deemed necessary or
appropriate. The occurrence of any of these events would decrease the amount of
funds potentially available for the payment of dividends by the Bank to the
Company. In addition, in some cases, the FRB could take the position that it has
the power to prevent the Bank from paying dividends if, in its view, such
payments would constitute unsafe or unsound banking practices. Further, the
determination of whether dividends are paid and their frequency and amount will
depend upon the financial condition and performance of the Bank and the Company,
and other factors deemed appropriate by both of the Board of Directors of the
Bank and of the Company. Accordingly, there can be no assurance that any
dividends will be paid in the future by the Bank or the Company.
8
<PAGE>
Securities Not Insured
- ----------------------
The Warrants, the Class A Common Stock and the Class B Common Stock are
equity securities and are not savings accounts or deposits insured by the FDIC
or any other government agency.
Adequacy of Allowance For Loan Losses.
- --------------------------------------
There is a risk that losses may be experienced in the Company's loan
portfolio. The risk of loss will vary with, among other things, general economic
conditions, the type of loan being made, the creditworthiness of the borrower
over the term of the loan and, in the case of a collateralized loan, the quality
of the collateral for the loan. Management maintains an allowance for loan
losses which is established through a provision for loan losses charged to
operations. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely.
Subsequent recoveries are added to the allowance. The allowance is an amount
that management believes will be adequate to absorb possible losses inherent in
existing loans and loan commitments, based on evaluations of collectibility and
prior loss experience. Management evaluates the adequacy of the allowance
monthly, or more frequently if considered necessary. The evaluation takes into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, loan concentrations, specific problem
loans and commitments and current and anticipated economic conditions that may
affect the borrower's ability to repay. In recent years, the banking industry
has experienced significant loan losses with respect to commercial loans.
As of December 31, 1996, the Company had a loan portfolio of
approximately $59.5 million and the allowance for loan losses was $811,000,
which represented 1.30% of the total amount of loans. At December 31, 1996,
non-performing assets totaled $185,000. The Bank actively manages its
nonperforming loans in an effort to minimize credit losses and monitors its
asset quality to maintain an adequate loan loss allowance. Although management
believes that its allowance for loan losses is adequate, there can be no
assurance that the allowance will prove sufficient to cover future loan losses.
Further, although management uses the best information available to make
determinations with respect to the allowance for loan losses, future adjustments
may be necessary if economic conditions differ substantially from the
assumptions used or adverse developments arise with respect to the Bank's
nonperforming or performing loans. Material additions to the Bank's allowance
for loan losses would result in a decrease of the Company's net income, and
possibly its capital, and could result in the inability to pay dividends, among
other adverse consequences. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Asset Quality and Loan
Impairment and Losses."
Supervision and Regulation
- --------------------------
Bank holding companies and banks operate in a highly regulated
environment and are subject to the supervision and examination by several
federal and state regulatory agencies. The Company is subject to the BHCA and to
regulation and supervision by the FRB. The Bank is also subject to the
regulation and supervision of the FDIC and the Florida Department of Banking and
Finance. Federal and state laws and regulations govern matters ranging from the
regulation of certain debt obligations, changes in control of bank holding
companies, and the maintenance of adequate capital for the general business
operations and financial condition of the Bank, including permissible types,
amounts and terms of loans and investments, the amount of reserves against
deposits, restrictions on dividends, establishment of branch offices, and the
maximum rate of interest that may be charged by law. The FRB also possesses
cease and desist powers over bank holding companies to prevent or remedy unsafe
or unsound practices or violations of law. These and other restrictions limit
the manner by which the Bank and the Company may conduct their business and
obtain financing. Furthermore, the commercial banking business is affected not
only by general economic conditions, but also by the monetary policies of the
FRB. These monetary policies have had and/or are expected to continue to have
significant effects on the operating results of commercial banks. Changes in
monetary or legislative policies may affect the ability of the Bank to attract
deposits and make loans. See "Supervision and Regulation."
No Public Trading Market
- ------------------------
As of the date of this Prospectus, there has been no public trading
market for the Company's securities. The initial public offering price of the
Units was determined by the Company based upon several factors and does not
necessarily bear any relationship to the Company's assets, book value, results
of operation, net worth or any other generally accepted criteria of value, and
should not be considered as indicative of the actual value of the Company.
9
<PAGE>
It is not presently contemplated that the Class A and Class B Common
Stock or the Warrants will be included in the NASDAQ system and there can be no
assurance that any market will develop. Further, if a market does develop, it
may be limited and there can be no assurance that it will be sustained. To the
extent that a public market does develop, factors such as variations in the
Company's financial results, announcements by the Company or others, general
market conditions, or certain regulatory pronouncements may cause the market
price of the Company's securities to fluctuate substantially. See "Market for
Securities."
Exercisability of Warrants
- --------------------------
The Warrants are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the shares of Class A and Class B
Common Stock issuable upon exercise of the Warrants and such shares have been
registered, qualified or deemed to be exempt under the securities laws of the
state of residence of the holders of such Warrants. While the Company will use
its best efforts to see that these conditions are met, there can be no assurance
that it will be able to do so. See "Description of Securities-Warrants."
Competition
- -----------
Competition in the banking and financial services industry is intense.
In its primary market area, the Bank competes with other commercial banks,
savings and loan associations, credit unions, finance companies, mutual funds,
insurance companies and brokerage and investment banking firms operating locally
and elsewhere. Most of these competitors have substantially greater resources
and lending limits than the Bank and may offer certain services, that the Bank
does not provide at this time. The profitability of the Company depends upon the
Bank's ability to compete in its market areas. See "Business - Competition."
Local Economic Conditions
- -------------------------
The success of the Company and the Bank is dependent to a certain
extent upon the general economic conditions in geographic markets served by the
Bank which focuses on Pinellas County, Florida and the immediate surrounding
areas. The Bank's primary market area is particularly dependent on the economic
conditions within Clearwater, Florida. Although the Bank expects economic
conditions will continue to improve in this market area, there is no assurance
that favorable economic development will occur or that the Bank's expectation of
corresponding growth will be achieved. Adverse changes in its geographic markets
would likely impair the Bank's ability to collect loans and could otherwise have
a negative effect on the financial condition of the Company. See "Business -
Market Area."
Lack of Diversification
- -----------------------
The primary business activity of the Company consists of its ownership
and control of the capital stock of the Bank. As a result, the Company presently
lacks diversification as to business activities and market area, and any event
affecting the Bank will have a direct impact on the Company. See "Business."
Dependence on Key Personnel
- ---------------------------
The Company and the Bank are dependent upon the services of their
principal officers. If the services of any of these persons were to become
unavailable for any reason, the operation of the Company and the Bank might be
adversely affected in a material manner. The Bank presently has a written
employment agreement with its President. Neither the Company nor the Bank
maintains key man life insurance policies on its executives and do not have any
immediate plans to obtain such policies. The successful development of the
Company's business will depend, in part, on its and the Bank's ability to
attract or retain qualified officers and employees. See "Management."
Dilution
- --------
Upon the exercise of the Warrants, holders thereof will incur immediate
dilution equal to the difference between the warrant exercise price of $10.00
and the net tangible book value of their Class A Common Stock after giving
effect to the exercise of such warrants. The pro forma net tangible book value
of the Common Stock as of December 31, 1996, after giving effect to the exercise
of all the Warrants would be $9.38 per share or a dilution of $.62 per share.
See "Dilution."
10
<PAGE>
Voting Control
- --------------
Prior to the 1994 Offering all of the issued and outstanding voting
shares of the Company were owned by three persons. As of the date of this
Prospectus those same persons own 600,000 shares of Class A Common Stock or
66.6% of the issued and outstanding shares of Class A Common Stock of the
Company. These same persons own all of the issued and outstanding shares of
Class B Common Stock. See "Management -- Security Ownership of Certain
Beneficial Owners and Management." The shares of Class B Common Stock, as a
separate class, are entitled to elect two-thirds of the directors of the
Company. As a result, voting control will continue to rest with the three
persons.
Interest Rates
- --------------
The principal source of income for the Company is its net interest
income, which is affected by movements in interest rates. Although the Bank
monitors its interest rate sensitivity and attempts to reduce the risk of the
significant decrease in net interest income caused by a change in interest
rates, rising interest rates could nevertheless adversely affect the Bank's
results of operations.
DETERMINATION OF OFFERING PRICE
As of the date of this Prospectus, there has been no market for or any
trading in any of the Company's securities. Consequently, in determining the
public offering price of the Units for the 1994 Offering and the value of the
Warrants subsequently issued, the Company considered a number of factors,
including the following, the then: (i) current financial position of the Company
and the Bank; (ii) experience of management; (iii) ratio of the share price to
book value; (iv) position of the Company in its industry and its prospects; and
(v) general status of the securities market and other relevant factors. The
exercise price of the Warrants was set at $10.00 per share so as to afford
subscribers the opportunity to obtain any future appreciation in the value of
Class A Common Stock during the Warrant's exercise period.
USE OF PROCEEDS
The amount of net proceeds that the Company will receive from this
Offering will depend upon the number of Warrants actually exercised and cannot
be determined at this time. However, assuming that all of the Warrants are
exercised and that the expenses of the Offering will be $40,000, the net
proceeds to the Company from this Offering will be $11,151,100. The actual
expenses of the Offering may be more or less than those estimated.
Proceeds will be received by the Company only upon exercise of
Warrants, which is in the sole discretion of the holders of the Warrants. All of
the net proceeds to be received by the Company from the exercise of all the
Warrants will become a part of the Company's capital funds to be used for
general corporate purposes including, without limitation, the financing of the
expansion of the Company's or the Bank's business through acquisitions, the
establishment of new branches or subsidiaries, and the infusion of capital to
the Bank and any future subsidiaries of the Company.
The actual application of the net proceeds will depend on the capital
needs of the Bank, the Company's own financial requirements and available
business opportunities. None of the uses described herein constitute a
commitment by the Company to expend the proceeds in a particular manner. The
Company reserves the right to make shifts in the allocation of the proceeds from
this offering if future events, including changes in the economic climate or the
Company's planned operations, make such shifts necessary or desirable. In such
events, proceeds may be applied to the working capital requirements of the
Company or the Bank. Pending their ultimate application, the net proceeds will
be invested in such relatively short-term investments or otherwise applied as
management may determine.
MARKET FOR SECURITIES
As of the date of this Prospectus, there has been no established public
trading market for the securities of the Company. It is not presently
contemplated that the Class A Common Stock, the Class B Common Stock or the
Warrants will be included in the NASDAQ system or any other established
exchange. As of the date of this Prospectus, there were outstanding 900,000
shares of Class A Common Stock (adjusted for the recapitalization), and 200,000
shares of Class B Common Stock. The 200,000 issued and outstanding shares of the
Company's Class B Common Stock are convertible, on a share for share basis, into
shares of the Company's Class A Common Stock, at any time after January 1, 2000.
600,000 shares of Class A Common Stock and all of the shares of Class B Common
Stock are held by the three initial shareholders of the Company. See "Security
Ownership of Certain Beneficial Owners and Management." The shares of Class B
Common Stock and the Shares of Class A Common Stock into which they are
convertible, together with the 600,000 shares of the Company's issued and
outstanding shares of Class A Common Stock held of record by the three initial
11
<PAGE>
shareholders (collectively referred to as "Restricted Shares"), may be sold
pursuant to Securities and Exchange Commission Rule 144, promulgated under the
Securities Act, if the conditions of Rule 144 are met. In addition, the shares
held by directors and executive officers of the Company are considered to be
"Control Shares" and may be sold pursuant to Rule 144 without regard to any
holding period.
Restricted Shares may not be sold under Rule 144 unless they had been
fully paid for and held for one year. After such one year holding period, a
stockholder's shares may be sold in broker's transactions in an amount in any
three months not in excess of the greater one of one percent of the number of
shares then outstanding (for example, in the case of Class A Common Stock, 9,000
shares, equivalent to one percent of the number of shares of Class A Common
Stock outstanding, but not accounting for the conversion of the Class B Common
Stock) or the average weekly trading volume for a four-week period prior to each
such sale. After they have been paid for and held for more than two years,
restricted shares held by persons who are not affiliates of the Company may be
sold without such limitations on amount. However, under Rule 144, restricted
shares held by affiliates must continue, after the two year holding period, to
be sold in broker's transactions subject to the volume limitations described
above. 600,000 shares of the Company's Class A Common Stock will become eligible
for sale in the public market, subject to the conditions of Rule 144 or, if sold
upon registration under the Securities Act, without regard to the conditions of
Rule 144. The above is a summary of Rule 144 and is not intended to be a
complete description thereof.
DIVIDENDS
Holders of the Company's Class A Common Stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds legally
available therefor. No dividends may be declared or paid with respect to shares
of Class B Common Stock until January 1, 2000.
The Company has not paid any dividends on its capital stock in the past
and there is currently no immediate prospect or contemplation of the payment of
dividends on the Company's Stock.
The Company's ability to pay dividends is generally limited to earnings
from the prior year, although retained earnings and dividends from the Bank to
the Company may also be used to pay dividends under certain circumstances.
Management has determined to retain earnings for the short term at the Bank
level for the purpose of further enhancing the Bank's capital position and to
fund its growth.
The payment of dividends by the Bank is subject to a determination by
the Bank's Board of Directors and will depend upon a number of factors,
including capital requirements, regulatory limitations, the Bank's results of
operations and financial condition, tax considerations of the Bank and the
Company, the number of outstanding shares of stock, and general economic
conditions. State and federal banking laws regulate and restrict the ability of
the Bank to pay dividends to the Company. The FRB, which regulates the Bank, not
only has established certain financial and capital requirements that affect the
ability of the Bank to pay dividends, but it has also the general authority to
prohibit the Bank from engaging in an unsafe or unsound practice in conducting
its business. Depending upon the financial condition of the Bank, the payment of
cash dividends could be deemed to constitute such an unsafe or unsound practice.
See "Investment Considerations and Risk Factors -Uncertainty of Payment of
Dividend" and "Supervision and Regulation - Bank Regulation."
Both the FRB and the Florida Department of Banking and Finance, which
regulate and supervise the Bank and the Company, have publicly stated their view
that it is generally an unsafe and unsound practice to pay cash dividends except
out of current operating earnings. Under FRB policy, a bank holding company is
expected to act as a source of financial strength to its subsidiary banks and to
commit resources to support each such bank. Consistent with this policy, the FRB
has stated that, as a matter of prudent banking, a bank holding company
generally should not pay cash dividends unless the available net earnings of the
bank holding company is sufficient to fully fund the dividends, and the
prospective rate of earnings retention appears to be consistent with the
Company's capital needs, asset quality and overall financial condition. See
"Investment Considerations and Risk Factors - Limited Operating History."
The ability of the Bank and the Company to pay cash dividends is
currently, and in the future could be further influenced by bank regulatory
policies or agreements and by capital guidelines. Accordingly, the actual
amount, if any, and timing of future dividends will depend on, among other
things, future earnings, the financial condition of the Bank and the Company,
the amount of cash on hand at the Company level, outstanding debt obligations,
if any, and the requirements imposed by regulatory authorities.
12
<PAGE>
DILUTION
The net tangible book value of the Company at December 31, 1996, was
approximately $9.7 million or $8.86 per outstanding share of Common Stock. After
giving effect to this Offering and the receipt of $11,151,000 net proceeds from
the exercise of all of the Warrants, the pro forma net tangible book value as of
December 31, 1996 would be $20,898,000 or $9.42 per then outstanding share of
Common Stock. This represents a dilution of net tangible book value to new
investors purchasing shares in this offering.
The following table illustrates the per share dilution:
Assumed initial public offering price per share................... $10.00
======
Net tangible book value per share of Common Stock
as of December 31, 1996(1)........................................ $ 8.86
======
Increase per share attributable to new investors.................. $ .56
======
Pro forma net tangible book value per share of Common Stock
after this offering(1)........................................... $ 9.42
======
Dilution per share to new investors(2)............................ $ .58
======
- --------------------
(1) Net tangible book value per share of Common Stock is determined by
dividing the Company's tangible net worth (tangible assets less
liabilities), by the number of outstanding shares of Class A and Class
B Common Stock.
(2) Dilution per share to new investors is determined by subtracting pro
forma net tangible book value per share of Common Stock after this
offering from the initial public offering price per share. The
estimated offering expenses are deducted from the net proceeds in this
computation, and no commissions related to the sale of Units are being
paid in this offering.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996, and as adjusted at that date after giving effect to the
issuance of the Class A Common Stock in conjunction with the exercise of all of
the Warrants.
<TABLE>
<CAPTION>
Actual As Adjusted(1)
------ --------------
(in thousands)
Stockholders' Equity:
<S> <C> <C>
Class A Common Stock, $1.00 par value, 2,600,000 shares
authorized,900,000 shares issued and outstanding
(1,919,110 as adjusted)(2) ....................... 900 1,919
Class B Common Stock, $1.00 par value, 400,000 shares
authorized, 300,000 shares issued and outstanding 200 300
Additional Paid-in Capital ......................... 7,655 19,477
Retained Earnings .................................. 992 992
Unrealized Loss on Investment Securities
available-for-sale ............................... (--) (--)
----------- -----------
Total Stockholders' Equity .......................... $ 9,747 $ 22,688
=========== ===========
</TABLE>
(1) Reflects the 1,019,110 shares of Class A Common Stock and the 100,000
shares of Class B Common Stock issuable upon exercise of the Warrants.
The Company's Articles of Incorporation also authorize the issuance of
up to 200,000 shares of preferred stock, par value $1.00, in any number
of series as may be determined by the Company's Board of Directors from
time to time. No shares of preferred stock are issued or outstanding.
(2) Does not include 200,000 shares of Class A Common Stock issuable upon
conversion of the Class B Common Stock.
13
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected financial data for the Company
and the Bank. The data set forth below for the seven months ended December 31,
1993, five months ended May 31, 1993, and the years ended December 31, 1996,
1995, 1994 and 1992 are derived from the audited consolidated financial
statements of the Company or the Bank, as the case may be. The selected
financial data should be read in conjunction with, and are qualified in their
entirety by, the Consolidated Financial Statements and the Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein.
<TABLE>
<CAPTION>
At or for the
Seven Five
Years Ended Months Ended Months Ended Year Ended
December 31, December 31, May 31, December 31,
-------------------------------- ------------ ------- ------------
1996 1995 1994 1993(1) 1993(2) 1992(2)
---- ---- ---- ------- ------- -------
(Dollars in Thousands, Except Per Share Data)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C>
Total assets .............. $ 105,196 68,942 40,117 29,071 22,557 24,771
Cash and cash equivalents . 6,320 8,551 6,088 5,519 2,569 3,155
Net Loans ................. 59,499 36,465 22,385 16,224 16,163 16,732
Investment securities ..... 34,507 19,630 8,638 5,231 2,958 3,883
Deposits .................. 93,447 58,601 30,092 22,195 20,138 23,192
Borrowed funds ............ -- -- -- -- -- --
Retained earnings
(Accumulated deficit) ... 992 434 164 (17) (2,050) (2,067)
Total stockholders' equity 9,747 9,189 8,884 5,828 1,275 1,258
Income Statement Data:
Interest income ........... 6,381 4,190 2,158 1,007 741 2,078
Interest expense .......... 3,745 2,225 803 345 335 998
Net interest income ....... 2,636 1,965 1,355 662 406 1,080
Provision for loan losses . (250) (233) (124) -- (90) (279)
Net interest income after
provision for loan losses 2,386 1,732 1,231 662 316 801
Other income .............. 106 89 112 59 102 189
Other expense ............. (1,551) (1,415) (1,054) (738) (401) (1,261)
Earnings (Loss) before
income taxes .............. 941 406 289 (17) 17 (271)
Provision for income taxes 383 (136) (108) -- -- --
Net earnings (Loss) ....... 558 270 181 (17) 17 (271)
Per Share Data:
Net earnings (Loss) ......... .51 .25 .22 (.02) .05 (.77)
Book value at period end .... $ 8.86 8.35 8.08 7.29 3.64 3.59
- ---------------------------------
(1) Includes the consolidated financial information of the Company from
June 1, 1993.
(2) Financial information of the Bank only
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's principal asset is its ownership of a controlling interest in
the Bank. Accordingly, the Company's results of operations are primarily
dependent upon the results of operations of the Bank. The Bank conducts a
commercial banking business which consists of attracting deposits from the
general public and applying those funds to the origination of commercial,
consumer and real estate loans (including commercial loans collateralized by
real estate). The Bank's profitability depends primarily on net interest income,
which is the difference between interest income generated from interest-earning
assets (i.e., loans and investments) less the interest expense incurred on
interest-bearing liabilities (i.e., customer deposits and borrowed funds). Net
interest income is affected by the relative amounts of interest-earning assets
and interest-bearing liabilities, and the interest-rate earned and paid on these
balances. Net interest income is dependent upon the Bank's interest-rate spread,
which is the difference between the average yield earned on its interest-earning
assets and the average rate paid on its interest-bearing liabilities. When
interest-earning assets approximate or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The interest
rate spread is impacted by interest rates, deposit flows, and loan demand.
Additionally, and to a lesser extent, the Bank's profitability is affected by
such factors as the level of noninterest income and expenses, the provision for
credit losses, and the effective tax rate. Noninterest income consists primarily
of loan and other fees. Noninterest expense consists of compensation and
benefits, occupancy related expenses, deposit insurance premiums paid to the
FDIC, and other operating expenses.
Since its acquisition of control of the Bank in 1993, the Company has sought
to strengthen the operation of the Bank, to improve asset quality, to increase
the loan portfolio and to decrease nonperforming loans. During 1994, the Company
completed a public offering of 300,000 Units for gross proceeds of $3,000,000
(the "1994 Offering"). Each Unit consisted of one share of the Company's common
stock and one warrant to purchase an additional share of Class A common stock.
The Company has issued additional warrants related to 384,800 shares of Class A
common stock to officers, directors, and employees of the Company and the Bank,
which are exercisable at a price of $10 per share. During 1996, a warrant to
purchase shares of Class A Common Stock was issued to the Company's Executive
Vice President, which is exercisable for 334,310 shares on or before January 31,
2006 at $10 per share. The Company has reserved a total of 1,019,110 shares of
Class A stock for issuance upon exercise of the Company's warrants to purchase
shares of Class A Common Stock. During 1996, the Board of Directors authorized
the issuance of a warrant to purchase 100,000 shares of Class B Common Stock to
its Executive Vice President. That warrant is exercisable at $10.00 per share on
or before January 31, 2007.
In November of 1994, the Bank acquired two bank branches located in
Clearwater, Florida, each of which includes a single free-standing office
facility. The aggregate purchase price for the properties was $1,077,000. In
1995, the Bank acquired and opened a third branch office in Clearwater, Florida,
which is a three-story office building. The purchase price for that facility was
$850,000. During 1996, the Bank also acquired a branch site in South Pasadena,
Florida at a purchase price of $187,700 and expects to open a branch there in
the summer of 1997. Management believes that additional capital is the key to
any expansion program and, to this end, it will continually assess the need for
capital, both at the Bank and the Company levels. If it is determined that
additional capital is necessary to support the operations of the Company or the
Bank or to support any expansion or acquisition activities, transactions to
obtain additional financing will be considered by the Company. In that regard,
during 1995, the Company purchased 200,000 additional shares of the common stock
of the Bank at a purchase price of $5.00 per share, for an aggregate amount of
$1.0 million. In connection with that transaction, the Company was granted a
warrant, exercisable from time to time, in whole or in part, to purchase up to
200,000 additional shares at that price. The warrant expires December 31, 1999.
The Bank's present offices are located in Clearwater, Florida. Clearwater is
located in Pinellas County, which is the most populous county in the Tampa Bay
area of Florida. It anticipates an additional office in South Pasadena, which is
also in Pinellas County. The "Tampa Bay" area is located on the West Coast of
Florida, midway up the Florida peninsula. The major cities in the area are Tampa
(Hillsborough County) and St. Petersburg and Clearwater (Pinellas County).
16
<PAGE>
The current population of the Tampa Bay area is estimated at approximately
2,200,000, which reflects population increases of approximately 45% between 1970
and 1980, and approximately 27% between 1980 and 1990. Pinellas is the most
densely populated county in Florida, with more than 2,800 people per square
mile. The average age of the population for the region is estimated at 45 years
(as compared to 38 years for the State of Florida), and this reflects the
history of Pinellas County as a retirement area. Recent years have shown a
slight drop in average age due to an increase in office and manufacturing
employment opportunities.
The economy of Pinellas County has historically been tourist and retirement
oriented. Pinellas County has recently attracted a larger share of new business,
particularly in the high technology industries. Total per capita personal income
in Pinellas County increased from approximately $15,000 in 1984 to approximately
$22,700 in 1992. Employment in the region reflects a broad-based economy, with
an emphasis on the retail trade and service industries.
The housing market in the region remains stable in the view of management,
although housing starts have slowed from the high levels experienced during the
1970's.
Clearwater is the county seat of Pinellas County and its second largest city.
It encompasses approximately 32 square miles and has a population of
approximately 100,000.
Management's discussion and analysis of earnings and related financial data
are presented herein to assist investors in understanding the financial
condition and results of operations of the Company for the years ended December
31, 1996 and 1995. This discussion should be read in conjunction with the
consolidated financial statements and related footnotes presented elsewhere
herein.
Results Of Operations
Comparison of Year Ended December 31, 1996 and 1995.
General
- -------
Net earnings for the year ended December 31, 1996 were $558,000 compared to
$270,000 for the year ended December 31, 1995. This increase in the Company's
net earnings was primarily due to an increase in net interest income partially
offset by an increase in other expenses and provision for income taxes.
Interest Income and Expense
- ---------------------------
Interest income increased by $2,191,000 from $4,190,000 for the year ended
December 31, 1995 to $6,381,000 for the year ended December 31, 1996. Interest
income on loans increased $1,746,000 due to an increase in the average loan
portfolio balance from $28.1 million for the year ended December 31, 1995 to
$49.3 million for 1996, partially offset by a decrease in the weighted average
yield of 87 basis points. Interest on securities increased $434,000 due to an
increase in the average securities balance from $16.8 million in 1995 to $25.6
million in 1996, partially offset by a decrease in average yield from 6.44% in
1995 to 5.92% in 1996. Interest on other interest-earning assets increased
$11,000 primarily due to an increase from $4.3 million in average other
interest-earning assets in 1995 to $4.7 million in 1996.
Interest expense increased to $3,745,000 for the year ended December 31, 1996
from $2,225,000 for the year ended December 31, 1995. Interest expense on
deposit accounts increased because of a $28.6 million increase in the average
balance, although there was a decrease of 6 basis points in the average yield
paid on deposits for the year ended December 31, 1996 compared to 1995.
Provision for Loan Losses
- -------------------------
The provision for loan losses is charged to earnings to bring the total
allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by the Bank,
industry standards, the amount of nonperforming loans, general economic
conditions, particularly as they relate to the Bank's market areas, and other
factors related to the collectability of the Bank's loan portfolio. The
17
<PAGE>
provision increased from $233,000 for the year ended December 31, 1995 to
$250,000 for the year ended December 31, 1996. The ratio of net charge-offs to
average loans outstanding was .001 at December 31, 1996 and 1995. The ratio of
allowance for loan losses to period-end total loans was .013 at December 31,
1996 and .016 at December 31, 1995. At December 31, 1996, there were no
non-performing loans. Management believes that the allowance for loan loss of
$811,000 is adequate at December 31, 1996.
Other Income
- ------------
Total other income increased $17,000 for the year ended December 31, 1996
compared to 1995.
Other Expenses
- --------------
Total other expenses increased $136,000 for the year ended December 31, 1996
when compared to 1995, primarily due to an increase in employee compensation and
benefits, partially offset by a decrease in occupancy and equipment expenses and
federal insurance premiums. The increase in employee compensation and benefits
is primarily due to additional personnel for the new branches. The decrease in
occupancy and equipment expense is due to an increase in income from the leasing
of space in Company buildings to third parties.
Provision for Income Taxes
- --------------------------
In 1996 the provision for income taxes is $383,000, an effective income tax
rate of 40.7%, as compared to $136,000 and 33.5% respectively, in 1995. The
increase is primarily due to an increase in net earnings of the holding company,
which are taxed at a higher state income tax rate than those of the Bank.
Net Interest Income
Net interest income, which constitutes the principal source of income for the
Company, represents the difference between income on interest-earning assets and
interest expense on interest-bearing liabilities. The principal interest-earning
assets are investments and loans made to businesses and individuals.
Interest-bearing liabilities primarily consist of time deposits, interest paying
checking accounts ("NOW accounts"), retail savings deposits and money market
accounts. Funds attracted by these interest-bearing liabilities are invested in
interest-earning assets. Accordingly, net interest income depends upon the
volume of the average interest-earning assets and average interest-bearing
liabilities and the interest rates earned or paid on them.
Net interest income was $2,636,000 for the Company for the year ended December
31, 1996 compared with $1,965,000 for the year ended December 31, 1995. This
improvement in net interest income is primarily a result of a higher volume of
net interest-earning assets.
18
<PAGE>
The following tables set forth, for the periods indicated, information
regarding (i) the total dollar amount of interest and dividend income of the
Company from interest-earning assets and the resultant average yields; (ii) the
total dollar amount of interest expense on interest-bearing liabilities and the
resultant average costs; (iii) net interest/dividend income; (iv) interest rate
spread; (v) net interest margin. Average balances are based on average daily
balances.
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------
1996 1995
--------------------------------- -----------------------------------
(Dollars in thousands)
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans(1) .................................. $49,266 4,624 9.39% $28,052 2,878 10.26%
Securities ................................ 25,577 1,514 5.92% 16,775 1,080 6.44%
Other interest-earning assets(2) .......... 4,730 243 5.14% 4,266 232 5.44%
------- ---- ------- ------- -----
Total interest-earning
assets.................... 79,573 6,381 8.02% 49,093 4,190 8.53%
------- -----
Noninterest-earning assets .................. 4,089 4,007
------- -----
Total assets ....................... $83,662 53,100
======= ======
Interest-bearing liabilities:
Demand, money market and
NOW deposits ........................... 8,432 310 3.68% 5,515 141 2.56%
Savings .................................. 1,470 62 4.22% 681 15 2.20%
Certificates of deposit .................. 59,437 3,371 5.67% 34,562 2,068 5.98%
Other .................................... 34 2 5.88% 17 1 5.88%
------- ----- ------- ------- -----
Total interest-bearing
liabilities ..................... 69,373 3,745 5.40% 40,775 2,225 5.46%
------- -----
Noninterest-bearing liabilities ............. 4,840 3,356
Stockholders' equity ........................ 9,449 8,969
------- -----
Total liabilities and
stockholders' equity.. $83,662 $53,100
======= =======
Net interest/dividend income ................ $ 2,636 $ 1,965
======= =======
Interest rate spread(3) ..................... 2.62% 3.07%
===== =====
Net interest margin(4) ...................... 3.31% 4.00%
===== =====
Ratio of average interest-earning
assets to average interest-
bearing liabilities ...................... 1.15 1.20
==== ====
19
<PAGE>
- ------------------------------------
</TABLE>
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits.
(3) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
Rate/Volume Analysis
- --------------------
The following table sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in rate (change
in rate multiplied by prior volume), (2) changes in volume (change in volume
multiplied by prior rate) and (3) changes in rate-volume (change in rate
multiplied by change in volume).
December 31,
1996 vs. 1995
-----------------------------------
Increase (Decrease) Due to
-----------------------------------
Rate/
Rate Volume Volume Total
Interest-earning assets: (Dollars in thousands)
Loans $(245) 2,176 (185) 1,746
Securities (87) 567 (46) 434
Other interest-earning assets (13) 25 (1) 11
----- ----- ----- -----
Total $(345) 2,768 (232) 2,191
----- ----- ----- -----
Interest-bearing liabilities:
Demand, Money Market and NOW Deposits 62 74 33 169
Savings 14 17 16 47
Certificates of Deposit (107) 1,488 (78) 1,303
Other Borrowings -- 1 -- 1
----- ----- ----- -----
Total (31) 1,580 (29) 1,520
----- ----- ----- -----
Net change in net interest income
before provision for credit losses $(314) 1,188 (203) 671
===== ===== ===== =====
Income Taxes
- ------------
At December 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes available to offset future federal taxable income.
They were in the aggregate amount of $826,000, with specified portions expiring
in each year from 2004 through 2008. The carryforwards are subject to an annual
limitation of $332,000.
At the time of its incorporation, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires it to take into account changes in tax rates when valuing
the deferred income tax amounts carried on its balance sheets.
Asset/Liability Management
- --------------------------
A principal objective of the Bank's asset/liability management strategy is to
minimize the Bank's exposure to changes in interest rates by matching the
maturity and repricing horizons of interest-earning assets and interest-bearing
20
<PAGE>
liabilities. This strategy is overseen in part through the direction of the
Asset and Liability Committee of the Bank (the "ALCO Committee") which
establishes policies and monitors results to control interest rate sensitivity.
As a part of the Bank's interest rate risk management policy, the ALCO
Committee examines the extent to which its assets and liabilities are "interest
rate-sensitive" and monitors the Bank's interest rate sensitivity "gap." An
asset or liability is considered to be interest rate-sensitive if it will
reprice or mature within the time period analyzed, usually one year or less. The
interest rate-sensitivity gap is the difference between interest-earning assets
and interest-bearing liabilities scheduled to mature or reprice within such time
period. A gap is considered positive when the amount of interest rate-sensitive
assets exceeds the amount of interest rate-sensitive liabilities. A gap is
considered negative when the amount of interest rate-sensitive liabilities
exceeds interest rate-sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income, while
a positive gap would tend to result in an increase in net interest income.
During a period of falling interest rates, a negative gap would tend to result
in an increase in net interest income, while a positive gap would tend to
adversely affect net interest income. If the repricing of the Bank's assets and
liabilities were equally flexible and moved concurrently, the impact of any
increase or decrease in interest rates on net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO Committee also evaluates how the repayment of
particular assets and liabilities is impacted by changes in interest rates.
Income associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in general market rates. In addition, certain
assets, such as adjustable rate mortgage loans, have features (generally
referred to as "interest rate caps") which limit changes in interest rates on a
short-term basis and over the life of the asset. In the event of a change in
interest rates, prepayment and early withdrawal levels also could deviate
significantly from those assumed in calculating the interest-rate gap. The
ability of many borrowers to service their debts also may decrease in the event
of an interest-rate increase.
Management's strategy is to maintain a balanced interest rate risk position to
protect its net interest margin from market fluctuations. To this end, the ALCO
Committee reviews, on a monthly basis, the maturity and repricing of assets and
liabilities. The ALCO Committee has adopted a goal of achieving and maintaining
a six-month ratio between rate sensitive assets to rate sensitive liabilities of
.80 to 1.20.
Principal among the Bank's asset/liability management strategies has been the
emphasis on managing its interest-rate sensitive liabilities in a manner
designed to attempt to reduce the Bank's exposure during periods of fluctuating
interest rates. Management believes that the type and amount of the Bank's
interest rate-sensitive liabilities may reduce the potential impact that a rise
in interest rates might have on the Bank's net interest income. Additionally,
the Bank maintains a "floor," or minimum rate, on many of its floating or prime
based loans. The "floor" amount for each specific loan is determined in relation
to the prevailing market rates on the date of origination and management retains
a great deal of flexibility in connection with the establishment of floors for
particular loans. Management recognizes that floors allow the Bank to continue
to earn a higher rate when the floating rate falls below the established "floor"
rate.
21
<PAGE>
The following table sets forth certain information relating to the Company's
interest-earning assets and interest-bearing liabilities at December 31, 1996
that are estimated to mature or are scheduled to reprice within the period
shown.
<TABLE>
<CAPTION>
More than More than
One Year and Five Years and
0-3 4-12 Less than Less than
Months Months Five Years Ten Years Total
------ ------ ---------- --------- -----
(Dollars in thousands)
Mortgage and commercial loans (1):
<S> <C> <C> <C> <C> <C>
Commercial loans $ 2,554 $ 382 $ 578 $----- $ 3,514
Commercial real estate loans 5,941 9,617 38,581 59 54,198
Residential mortgage loans 238 547 400 1,599 2,784
Consumer loans 57 8 92 -- 157
-------- -------- -------- -------- --------
Total loans 8,790 10,554 39,651 1,658 60,653
-------- -------- -------- --------
Federal funds sold 3,452 -- -- -- 3,452
Interest-bearing deposits with banks -- -- 99 -- 99
Securities (2)(3) 4,492 3,650 26,365 203 34,710
-------- -------- -------- --------
Total rate-sensitive assets 16,734 14,204 66,115 1,861 98,914
======== ======== ======== ========
Deposit accounts (2):
Money market deposits 7,507 -- -- -- 7,507
NOW deposits 4,536 -- -- -- 4,536
Savings deposits 4,742 -- -- -- 4,742
Certificates of deposit 11,826 30,994 30,613 828 74,261
-------- -------- -------- --------
Total rate-sensitive liabilities 28,611 30,994 30,613 91,046
======== ======== ======== ======== ========
GAP (repricing differences) $(11,877) (16,790) 35,502 1,033 7,868
-------- -------- -------- -------- --------
Cumulative GAP (11,877) (28,667) 6,835 7,868
-------- -------- -------- --------
Cumulative GAP/total assets (11.29)% (27.25)% 6.50% 7.48%
======== ======== ======== ========
- -------------------------------
</TABLE>
(1) In preparing the table above, adjustable-rate loans are included in the
period in which the interest rates are next scheduled to adjust rather
than in the period in which the loans mature. Fixed rate loans are
scheduled, including repayment, according to their maturities.
(2) Money market, NOW, and savings deposits are regarded as ready
accessible withdrawable accounts. All other time deposits are scheduled
through the maturity dates. Securities are also scheduled through the
maturity dates.
(3) Includes Federal Reserve Bank stock.
22
<PAGE>
Financial Condition
Lending Activities
- ------------------
A significant source of income for the Company is the interest earned
on loans. At December 31, 1996, the Company's total assets were $105.2 million
and its net loans were $59.5 million or 57% of total assets as compared to $68.9
million of total assets at December 31, 1995, and net loans of $36.5 million
representing 53% of the total assets at December 31, 1995.
Lending activities are conducted pursuant to a written policy which has
been adopted by the Bank. Each loan officer has defined lending authority beyond
which loans, depending upon their type and size, must be reviewed and approved
by a loan committee comprised of certain directors of the Bank.
LOAN PORTFOLIO ANALYSIS
The following table sets forth information concerning the Company's
loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1995
-------------------------- -------------------------
% of % of
Amount Total Amount Total
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial loans $ 3,514 5.8% $ 4,391 11.8%
Commercial real estate loans 54,198 89.4 29,719 79.7
Residential mortgage loans 2,784 4.6 3,046 8.2
Consumer loans 157 .2 115 .3
-------- --------- -------- ---------
Total loans 60,653 100.0% 37,271 100.0%
-------- ========= -------- =========
Add (Deduct):
Deferred loan fees (343) (186)
Unamortized discount -- (27)
-------- ---------
Loans, net $ 60,310 $ 37,058
======== =========
</TABLE>
The following table reflects the contractual principal repayments by
period of the Company's loan portfolio at December 31, 1996.
<TABLE>
<CAPTION>
Residential Commercial
Years Ended Commercial Mortgage Real Estate Consumer
December 31, Loans Loans Loans Loans Total
------------ ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
1997 $2,872 362 4,012 96 7,342
1998 237 372 3,438 33 4,080
1999 156 300 6,962 12 7,430
2000-2001 184 582 17,502 16 18,284
2002-2003 65 437 4,279 --- 4,781
2004-2010 --- 731 18,005 --- 18,736
------- --- ------ --- ------
Total $3,514 $2,784 $54,198 $157 $60,653
====== ====== ======= ==== =======
</TABLE>
23
<PAGE>
Of the $53.3 million of loans due after 1997, 25.9% of such loans have
fixed interest rates and 74.1% have adjustable interest rates.
The following table sets forth total loans originated and repaid during
the periods indicated.
Year Ended Year Ended
December 31, December 31,
1996 1995
---- ----
(in thousands)
Originations:
Commercial loans $ 497 777
Commercial real estate loans 30,802 18,709
Consumer loans 145 124
-------- --------
Total loans originated 31,444 19,610
Principal reductions (8,082) (5,174)
-------- --------
Increase (decrease) in total loans $ 23,362 14,436
======== ========
Asset Quality
- -------------
Management seeks to maintain a high quality of assets through
conservative underwriting and sound lending practices. The majority of the loans
in the Bank's loan portfolio are collateralized by commercial real estate
mortgages. As of December 31, 1996, approximately 89.4%, and as of December 31,
1995, approximately 79.7% of the total loan portfolio was collateralized by this
type of property. The level of delinquent loans and foreclosed real estate also
is relevant to the credit quality of a loan portfolio. As of December 31, 1996,
non-performing assets totaled $185,000, while as of December 31, 1995, there
were no non-performing assets.
In an effort to maintain the quality of the loan portfolio management
seeks to minimize higher risk types of lending. In view of the relative
significance of real estate related loans, a downturn in the value of the real
estate could have an adverse impact on the Company's profitability. However, as
part of its loan portfolio management strategy, the Company typically limits its
loans to a maximum of 75% of the value of the underlying real estate as
determined by an MAI appraisal. In addition, knowledgeable members of management
make physical inspections of properties being considered for mortgage loans.
Management believes that such precautions reduce the Company's exposure to the
risks associated with a downturn in real estate values. See "Investment
Considerations and Risk Factors--Local Economic Conditions."
Commercial loans also entail risks since repayment is usually dependent
upon the successful operation of the commercial enterprise. They also are
subject to adverse conditions in the economy. Commercial loans are generally
riskier than mortgage loans because they are typically underwritten on the basis
of the ability to repay from the cash flow of a business rather than on the
ability of the borrower or guarantor to repay. Further, the collateral
underlying commercial loans may depreciate over time, cannot be appraised with
as much precision as real estate, and may fluctuate in value based on the
success of the business.
Loan concentrations are defined as amounts loaned to a number of
borrowers engaged in similar activities which would cause them to be similarly
impacted by economic or other conditions. The Company, on a routine basis,
monitors these concentrations in order to make necessary adjustments in its
leading practices that most clearly reflect the economic conditions, loan to
deposit ratios, and industry trends. Concentrations of loans in the following
categories constituted the total loan portfolio as of December 31, 1996:
Commercial loans 5.8%
Real estate mortgage loans 94.0%
Consumer and other loans .2%
24
<PAGE>
The Loan Committee of the Board of Directors of the Bank concentrates
its efforts and resources, and that of its senior management and lending
officers, on loan review and underwriting procedures. Internal controls include
ongoing reviews of loans made to monitor documentation and ensure the existence
and valuations of collateral. In addition, management of the Bank has
established a review process with the objective of quickly identifying,
evaluating, and initiating necessary corrective action for marginal loans. The
goal of the loan review process is to address classified and non-performing
loans as early as possible. Management maintains a cautious outlook in
anticipating the potential effects of uncertain economic conditions (both
locally and nationally) and the possibility of more stringent regulatory
standards. See "Investment Considerations and Risk Factors-Supervision and
Regulation."
Classification of Assets
- ------------------------
Generally, interest on loans is accrued and credited to income based
upon the principal balance outstanding. It is management's policy to discontinue
the accrual of interest income and classify a loan as non-accrual when principal
or interest is past due 90 days or more and the loan is not adequately
collateralized, or when in the opinion of management, principal or interest is
not likely to be paid in accordance with the terms of the obligation. Consumer
installment loans will be charged-off after 90 days of delinquency unless
adequately collateralized and in the process of collection. Loans will not be
returned to accrual status until principal and interest payments are brought
current and future payments appear reasonably certain. Interest accrued and
unpaid at the time a loan is placed on nonaccrual status is charged against
interest income. Subsequent payments received are applied to the outstanding
principal balance.
Real estate acquired by the Bank as a result of foreclosure or by deed
in lieu of foreclosure is classified as foreclosed real estate. At December 31,
1996, the Bank had foreclosed real estate totaling $185,000. Foreclosed real
estate is recorded at the lower of cost or fair value less estimated selling
costs, and the estimated loss, if any, is charged to the allowance for loan
losses at the time it is transferred. Further allowances for losses are recorded
at the time management believes additional deterioration in value has occurred.
The following table sets forth certain information on nonaccrual loans
and foreclosed real estate, the ratio of such loans and foreclosed real estate
to total assets as of the dates indicated, and certain other related
information.
At December 31,
1996 1995
---- ----
(Dollars in thousands)
Nonaccrual loans:
Residential mortgage loans -- --
Commercial loans -- --
Consumer and other loans -- --
----- -------
Total non-accrual loans -- --
===== =======
Total nonperforming loans -- --
===== =======
Total nonperforming loans to
total loans --% --%
Total nonperforming loans to
total assets -- --
----- -------
Foreclosed real estate:
Real estate acquired by foreclosure or
deed in lieu of foreclosure $ 185 --
----- -------
Total nonperforming loans and
foreclosed real estate $ 185 --
===== =======
Total nonperforming loans and
foreclosed real estate to total assets .17% --%
===== =======
25
<PAGE>
Loan Impairment and Losses
- --------------------------
On January 1, 1995, the Company adopted Statements of Financial
Accounting Standards No. 114 and 118 ("SFAS 114 and 118"). These Statements
address the accounting by creditors for impairment of certain loans. The
Statements generally require the Company to identify loans for which the Company
probably will not receive full repayment of principal and interest, as impaired
loans. The Statements require that impaired loans be valued at the present value
of expected future cash flows, discounted at the loan's effective interest rate,
or at the observable market price of the loan, or the fair value of the
underlying collateral if the loan is collateral dependent. The Company has
implemented the Statements by modifying its monthly review of the adequacy of
the allowance for loan losses to also identify and value impaired loans in
accordance with guidance in the Statements. The adoption of the Statements did
not have any material effect on the results of operations for the years ended
December 31, 1996 and 1995.
Management considers a variety of factors in determining whether a loan
is impaired, including (i) any notice from the borrower that the borrower will
be unable to repay all principal and interest amounts contractually due under
the loan agreement, (ii) any delinquency in the principal and interest payments
other than minimum delays or shortfalls in payments, and (iii) other information
known by management which would indicate that full repayment of the principal
and interest is not probable. In evaluating loans for impairment, management
generally considers delinquencies of 60 days or less to be minimum delays, and
accordingly does not consider such delinquent loans to be impaired in the
absence of other indications of impairment.
Management evaluates smaller balance, homogeneous loans for impairment
and adequacy of allowance for loan losses collectively, and evaluates other
loans for impairment individually, on a loan-by-loan basis. The Company
evaluates the consumer loan portfolio which are smaller homogeneous loans for
impairment on an aggregate basis, and utilizes its own historical charge-off
experience, as well as the charge-off experience of its peer group and industry
statistics to evaluate the adequacy of the allowance for loan losses. For all
commercial, commercial real estate and residential mortgage loans, the Company
evaluates loans for impairment on a loan-by-loan basis.
The Company evaluates all nonaccrual loans as well as any accruing
loans exhibiting collateral or other credit deficiencies for impairment. With
respect to impaired, collateral-dependent loans, any portion of the recorded
investment in the loan that exceeds the fair value of the collateral is charged
off.
For impairment recognized in accordance with SFAS 114 and 118, the
entire change in the present value of expected cash flows, or the entire change
in estimated fair value of collateral for collateral dependent loans is reported
as a provision for loan losses in the same manner in which impairment initially
was recognized or as a reduction in the amount of the provision that otherwise
would be reported.
The Company had no impaired loans at December 31, 1996 or 1995. The
average recorded investment in impaired loans during 1996 and 1995 was $31,000
and $5,000, respectively. No interest income on impaired loans was recognized in
1996 or 1995.
Loans are reported at the principal amount outstanding net of the
allowance for loan losses and unamortized premiums, discounts and deferred loan
origination fees and costs.
The allowance for loan losses is established through a provision for
loan losses charged to operations. Loans are charged against the allowance for
loan losses when management believes that the collectability of the principal is
unlikely. Subsequent recoveries are added to the allowance. The allowance is an
amount that management believes will be adequate to absorb possible losses
inherent in existing loans and loan commitments, based on evaluations of
collectability and prior loss experience. Management evaluates the adequacy of
the allowance monthly, or more frequently if considered necessary. The
evaluation takes into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, loan concentrations,
specific problem loans and commitments, and current and anticipated economic
conditions that may affect the borrower's ability to repay.
Management continues to actively monitor the Bank's asset quality and
to charge-off loans against the allowance for loan losses when appropriate or to
provide specific loss allowances when necessary. Although management believes it
26
<PAGE>
uses the best information available to make determinations with respect to the
allowance for loan losses, future adjustments may be necessary if economic
conditions differ from the economic conditions in the assumptions used in making
the initial determinations. The Bank's allowance at December 31, 1995 was
$593,000, and the Bank increased its allowance for loan losses to $811,000 as of
December 31, 1996, consistent with the increase in the loan portfolio,
reflecting management's intent to maintain reserves at a level management
believes to be adequate. See "Investment Considerations and Risk
Factors--Adequacy of Allowance for Loan Losses."
The following table sets forth information with respect to activity in
the Bank's allowance for loan losses during the periods indicated:
Year Ended Year Ended
December 31, December 31,
1996 1995
---- ----
(Dollars in thousands)
Average loans outstanding, net $49,266 $28,052
------- -------
Allowance at beginning of period 593 369
------- -------
Charge-offs:
Real estate loans 62 --
Commercial loans -- 23
Consumer loans 3 7
------- -------
Total loans charged-off 65 30
------- -------
Recoveries 33 21
------- -------
Net charge-offs 32 9
------- -------
Provision for loan losses charged
to operating expenses 250 233
------- -------
Allowance at end of period $ 811 $ 593
======= =======
Ratio of net charge-offs to
average loans outstanding .001 .001
======= =======
Ratio of allowance for loan losses
to period-end total loans .013 .016
======= =======
Ratio of allowance for loan losses
to nonperforming loans -- --
======= =======
Period end total loan $60,653 $37,271
======= =======
The following table presents information regarding the Company's total
allowance for losses as well as the allocation of such amounts to the various
categories of loans:
At December 31, At December 31,
1996 1995
------------------ ----------------
Loans to Loans to
Total Total
Amount Loans Amount Loans
------ ----- ------ -----
(Dollars in thousands)
Commercial loans $ 82 10.1% $140 23.6%
Commercial real estate loans 677 83.5 378 63.7
Residential real estate loans 50 6.2 72 12.2
Consumer loans and other 2 .2 3 .5
---- ----- ---- -----
Total allowance for
loan losses $811 100.0% $593 100.0%
==== ===== ==== =====
27
<PAGE>
The allowance for loan losses represented 1.3% of the total loans
outstanding at December 31, 1996, compared with 1.6% at December 31, 1995.
Securities
- ----------
The following table sets forth the carrying value of the Bank's
securities portfolio as of the dates indicated:
At December 31,
---------------
1996 1995
---- ----
(in thousands)
Securities held to maturity:
U.S. Treasury securities $ 1,499 $ 2,265
Other U.S. Government and
agency securities 33,008 17,365
------- -------
$34,507 $19,630
======= =======
28
<PAGE>
The following table sets forth, by maturity distribution, certain
information pertaining to the securities held-to maturity portfolio as follows:
<TABLE>
<CAPTION>
One Year After One Year After Five Years
Or Less to Five Years to Ten Years Total
- ---------------------------------------------------------------------------------------------------------------------------
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
December 31, 1996:
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 500 6.04% $ 999 6.17% $----- ----% $ 1,499 6.12%
Other U.S. Government
agency securities 8,142 5.97 22,856 6.16 2,010 6.33 33,008 6.12
---- ------- ---- ------- ------ ------- ----
Total $ 8,642 5.97% $23,855 6.16% $ 2,010 6.33% $34,507 6.12%
======= ==== ======= ==== ======= ====== ======= ====
December 31, 1995:
U.S. Treasury Securities $ 2,265 5.21% $----- --% $----- -----% $ 2,265 5.21%
Other U.S. Government
agency securities 8,856 6.11 7,503 6.01 1,006 5.86 17,365 6.05
------- ---- ------- ---- ------- ------ ------- ----
$11,121 5.93% $ 7,503 6.01% $ 1,006 5.86% $19,630 5.95%
======= ==== ======= ==== ======= ====== ======= ====
</TABLE>
Deposit Activities
- ------------------
Deposits are the major source of the Bank's funds for lending and other
investment purposes. Deposits are attracted principally from within the Bank's
primary market area through the offering of a broad variety of deposit
instruments including checking accounts, money market accounts, regular savings
accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more) and retirement savings plans.
Maturity terms, service fees and withdrawal penalties are established by
the Bank on a periodic basis. The determination of rates and terms is predicated
on funds acquisition and liquidity requirements, rates paid by competitors,
growth goals and federal regulations.
Regulations promulgated by the FDIC pursuant to the Federal Deposit
Insurance Company Improvement Act of 1991 ("1991 Banking Law") place limitations
on the ability of certain insured depository institutions to accept, renew, or
rollover deposits by offering rates of interest which are significantly higher
than the prevailing rates of interest on deposits offered by other insured
depository institutions having the same type of charter in such depository
institution's normal market area. Under these regulations, "well capitalized"
depository institutions may accept, renew, or roll such deposits over without
restriction, "adequately capitalized" depository institutions may accept, renew
or roll such deposits over with a waiver from the FDIC (subject to certain
restrictions on payments of rates), and "undercapitalized" depository
institutions may not accept, renew or roll such deposits over. The regulations
contemplate that the definitions of "well capitalized," "adequately capitalized"
and "undercapitalized" will be the same as the definitions adopted by the
agencies to implement the corrective action provisions of the 1991 Banking Law."
See "Supervision and Regulation--Impact of the 1991 Banking Law." At December
31, 1996, the Bank met the definition of a "well capitalized" depository
institution.
29
<PAGE>
The following table shows the distribution of, and certain other
information relating to, the Bank's deposit accounts by type:
At December 31, 1996 At December 31, 1995
---------------------- ----------------------
% of % of
Amount Deposits Amount Deposits
------ -------- ------ --------
(Dollars in thousands)
Demand deposits $ 2,401 2.6 $ 2,729 4.7%
NOW deposits 4,536 4.9 2,705 4.6
Money market deposits 7,507 8.0 3,518 6.0
Savings deposits 4,742 5.0 595 1.0
------- ----- ------- -----
Subtotal 19,186 20.5 9,547 16.3
------- ----- ------- -----
Certificate of deposits:
3.00%-3.99% -- -- 24 --
4.00%-4.99% 1,682 1.8 255 .4
5.00%-5.99% 53,507 57.3 23,756 40.5
6.00%-6.99% 13,307 14.2 14,109 24.2
7.00%-7.99% 5,765 6.2 10,910 18.6
------ ------- ----- ----
Total certificates
of deposit (1) 74,261 79.5 49,054 83.7
------- ----- ------- -----
Total deposit $93,447 100.0% 58,601 100.0%
======= ===== ======= =====
- -------------------------
(1) Includes individual retirement accounts ("IRAs") totaling $5,434,000
and $3,464,000 at December 31, 1996 and 1995 respectively, all of which
are in the form of certificates of deposit.
30
<PAGE>
The following table shows the average amount of and the average rate
paid on each of the following deposit account categories during the periods
indicated:
Year Ended Year Ended
December 31, December 31,
------------ ------------
1996 1995
Average Average Average Average
Balance Yield Balance Yield
------- ----- ------- -----
(Dollars in thousands)
Demand, money market
& NOW $ 8,432 3.68% 5,515 2.56%
Savings deposit 1,470 4.22 681 2.20
Certificates of deposit 59,437 5.67 34,562 5.98
Other 34 5.88 17 5.88
------- ---- ------- ----
Total deposits $69,373 5.40% 40,775 5.46%
======= ==== ======= ====
The Bank does not have a concentration of deposits from any one source,
the loss of which would have a material adverse effect on the business of either
the Bank or the Company. Management believes that substantially all of the
Bank's depositors are residents in its primary market area. The Bank currently
does not accept brokered deposits.
31
<PAGE>
The following tables presents by various interest rate categories the
amounts of certificates of deposit at December 31, 1996 and December 31, 1995
which mature during the periods indicated:
<TABLE>
<CAPTION>
Year Ending December 31,
1996 1997 1998 1999 2000 Total
---- ---- ---- ---- ---- -----
(dollars in thousands)
December 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
4.00%-4.99% $ 1,636 46 -- -- -- 1,682
5.00%-5.99% 36,664 10,477 620 3,741 2,005 53,507
6.00%-6.99% 4,545 404 803 465 7,090 13,307
7.00%-7.99% -- 62 1,831 3,631 241 5,765
------- ------- ------- ------- ------- -------
Total certificates
of deposit $42,845 10,989 3,254 7,837 9,336 74,261
======= ======= ======= ======= ======= =======
Year Ending December 31,
1996 1997 1998 1999 2000 Total
---- ---- ---- ---- ---- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995:
3.00%-3.99% $ 24 -- -- -- -- 24
4.00%-4.99% 189 66 -- -- -- 255
5.00%-5.99% 15,218 3,152 1,582 12 3,792 23,756
6.00%-6.99% 7,865 4,214 393 806 831 14,109
7.00%-7.99% 5,440 -- 61 1,751 3,658 10,910
------- ------- ------- ------- ------- -------
Total certificates
of deposit $28,736 7,432 2,036 2,569 8,281 49,054
======= ======= ======= ======= ======= =======
</TABLE>
32
<PAGE>
Jumbo certificates ($100,000 and over) mature as follows:
At December 31, At December 31,
1996 1995
(in thousands)
Due three months or less $ 733 630
Due over three months to six months 2,136 923
Due over six months to one year 2,566 2,048
Due over one year 1,826 1,221
------ ------
$7,261 4,822
====== ======
The following table sets forth the net deposit flows of the Bank during the
periods indicated:
Year Ended Year Ended
December 31, 1996 December 31, 1995
----------------- -----------------
(in thousands)
Net increase (decrease) before
interest credited $31,168 26,343
Net interest credited $ 3,678 2,166
------- -------
Net deposit increase 34,846 28,509
======= =======
Liquidity and Capital Resources
The Company's principal sources of funds are those generated by the
Bank. The Bank's principal sources of funds are deposits, principal and interest
payments on loans, maturities and interest on securities, and capital
contributions from the Company. The Company's cash flow is affected by its
operations, investing activities, and financing activities. Net cash provided
from operations primarily results from net earnings adjusted for noncash
accounting entries.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the State and
Federal regulators categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the Bank's
category.
33
<PAGE>
<TABLE>
<CAPTION>
To be Well
Capitalized under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(dollars in thousands)
As of December 31, 1996:
Total capital
<S> <C> <C> <C> <C> <C> <C>
(to Risk Weighted Assets) $8,051 11.90% $5,412 8.00% $6,765 10.0%
Tier I Capital
(to Risk Weighted Assets) 7,240 10.70% 2,706 4.00% 4,059 6.0%
Tier I Capital
(to Average Assets) 7,240 7.48% 3,871 4.00 4,839 5.0%
As of December 31, 1995:
Total capital
(to Risk Weighted Assets) 7,272 16.11% 3,610 8.00% 4,512 10.0%
Tier I Capital
(to Risk Weighted Assets) 6,699 14.85% 1,805 4.00 2,708 6.0%
Tier I Capital
(to Average Assets) 6,699 10.83% 2,475 4.00% 3,093 5.0%
</TABLE>
Management believes that additional capital is the key to any expansion
program and, to this end, it will continually assess the need for capital, both
at the Bank and the holding company levels. If it is determined that additional
capital is necessary to support the operations of the Company or the Bank or to
support any expansion or acquisition activities, transactions to obtain
additional funds will be considered by the Company. In that regard, during 1995,
the Company purchased 200,000 shares of common stock of the Bank at a purchase
price of $5.00 per share, for an aggregate purchase price of $1.0 million. In
consideration for the Company's purchase, the Company was also granted a warrant
to purchase up 200,000 additional shares at a price of $5.00 per share,
exercisable from time to time, in whole or in part, until and including December
31, 1999.
Future Accounting Matters
- -------------------------
The FASB has issued Statement of Financial Accounting Standards No. 125
("SFAS 125"). This Statement provides accounting and reporting standards for
transfers and servicing of financial assets as well as extinguishments of
liabilities. This Statement also provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS 125 is effective for transfers and servicing of
financial assets as well as extinguishments of liabilities occurring in 1997.
Management does not anticipate SFAS 125 will have a material impact on the
Company.
Impact of Inflation and Changing Prices
- ---------------------------------------
The financial statements and related financial data concerning the
Company presented herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary impact of inflation on the operations of the Company is
reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant impact on the performance of a financial institution than do the
effects of changes in the general rate of inflation and changes in prices.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services.
34
<PAGE>
BUSINESS
General
- -------
The Company is a registered bank holding company incorporated under the
laws of the State of Delaware on February 5, 1993. Its 96%-owned subsidiary and
primary asset is the Bank. The Company, through its controlling ownership of the
Bank, engages in the business of commercial banking. Although the Company is
also engaged in mortgage lending activities, its primary business activity is
its ownership of the Bank. The Bank is a Florida chartered banking corporation
and is a member of the Federal Reserve System.
The Bank primarily focuses on providing personalized banking services to
businesses and individuals within the market area where its banking office is
located. Management believes that this local market strategy enables the Bank to
attract and retain low cost core deposits which provide substantially all of the
Bank's funding requirements.
Deposit services include certificates of deposit, individual retirement
accounts ("IRAs") and other time deposits, checking and other demand deposit
accounts, NOW accounts, savings accounts and money market accounts. The
transaction accounts and time certificates are tailored to the principal market
areas at rates competitive to those in the area. All deposit accounts are
insured by the FDIC up to the maximum limits permitted by law. The Bank solicits
these accounts from small businesses, professional firms and households located
throughout its primary market area.
The Bank is presently installing ATM facilities in each of its branches
and offers ATM cards with access to local, state, and national networks. The
bank also offers safe deposit boxes, wire transfers, direct deposit of payroll
and social security checks, and automatic drafts for various accounts. The Bank
periodically reviews the scope of the products and services it offers so as to
assess whether additional products or services should, consistent with market
opportunities and available resources, be included in the Bank's products and
services.
The Bank conducts commercial and consumer banking business which
primarily consists of attracting deposits from the areas served by its banking
offices and using those deposits, together with funds derived from other
sources, to originate a variety of commercial, consumer and real estate loans
(including commercial loans collateralized by real estate). The Bank offers a
broad range of short to medium-term business and personal loans. Commercial
loans include both collateralized and uncollateralized loans for working capital
(including inventory and receivables), business expansion (including real estate
acquisitions and improvements), and purchases of equipment and machinery.
Consumer loans include collateralized and uncollateralized loans for financing
automobiles, boats, home improvements, and personal investments.
The revenues of the Bank are primarily derived from interest on, and
fees received in connection with, commercial real estate and other loans, and
from interest and dividends from investment securities, and short-term
investments. The principal sources of funds for the Bank's lending activities
are its deposits, repayment of loans, the sale and maturity of investment
securities and capital contributions from the Company. The principal expenses of
the Bank are the interest paid on deposits and operating and general
administrative expenses.
As is the case with banking institutions generally, the Bank's
operations are materially and significantly influenced by general economic
conditions and by related monetary and fiscal policies of financial institution
regulatory agencies, including the FRB, the FDIC, and the State of Florida.
Deposit flows and cost of funds are influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
affected by the demand for financing of real estate and other types of loans,
which in turn is affected by the interest rates at which such financing may be
offered and other factors affecting local demand and availability of funds. The
Bank faces strong competition in the attraction of deposits (its primary source
of lendable funds) and in the origination of loans.
35
<PAGE>
Market Area
- -----------
The Bank's facilities are located in Pinellas County, which is the
Bank's primary market area. Pinellas County has an estimated resident population
of approximately 850,000. The Bank's deposit gathering and lending markets are
concentrated on the communities surrounding its offices in Clearwater, Florida.
Management believes that its offices are located in an area serving small and
mid-sized businesses and serving middle and upper income residential
communities.
Market for Services
- -------------------
Management believes that the Bank's principal markets are: (i) the
established and expanding commercial market within the primary market area: and
(ii) the moderate and the affluent residential market within the primary market
area. Moreover, management believes that a community bank is well positioned to
establish these relationships with both commercial customers and households.
Management believes that the Bank is well positioned to take advantage of its
market segment.
Businesses are solicited through the personal efforts of the Bank's
directors and officers. Management believes a locally- based bank is often
perceived by the local business community as possessing a clearer understanding
of local commerce and its needs. Consequently, the Company expects that the Bank
will be able to make prudent lending decisions quickly and more equitably than
its competitors without compromising asset quality or the Bank's profitability.
Lending Activities
- ------------------
General
- -------
The primary source of income generated by the Bank is from the interest
earned from both the loan and investment portfolios. The Bank maintains
diversification when considering investments and the granting of loan requests.
Emphasis is placed on the borrower's ability to generate cash flow to support
its debt obligations and other cash related expenses. Lending activities include
commercial and consumer loans and real estate loans. Commercial loans are
originated for working capital funding. Consumer loans include those for the
purchase of automobiles, boats, home improvements and investments. Real estate
loans include primarily the origination of loans for commercial property. While
the Bank's lending activities include single-family residential mortgages, such
lending activities are not emphasized.
At December 31, 1996 the Bank's net loan portfolio was $59.5 million,
representing 56.6% of its total assets. As of such date, the loan portfolio
consisted of 5.8% commercial loans, 94.0% real-estate mortgage loans and .2%
consumer and other loans.
Real Estate Mortgage Loans
- --------------------------
A substantial portion of the Bank's real estate mortgage loans are made
to finance the acquisition and holding of commercial real estate. The Bank
requires mortgage title insurance and hazard insurance in amounts deemed
appropriate by Management.
Commercial Lending
- ------------------
The Bank offers a variety of commercial loan services including term
loans, lines of credit and equipment financing. Short-to- medium term commercial
loans, both collateralized and uncollateralized, are made available to
businesses for working capital (including inventory and receivables), business
expansion (including acquisitions of real estate and improvements), and the
purchase of equipment and machinery. The purpose of a particular loan generally
determines its structure.
The Bank's commercial loans primarily are underwritten in the Bank's
primary market area on the basis of the borrower's ability to service such debt
from income. As a general practice, the Bank takes as collateral a lien on any
available real estate, equipment, or other assets. Working capital loans are
primarily collateralized by short-term assets whereas term loans are primarily
collateralized by long-term assets.
36
<PAGE>
Unlike residential mortgage loans, which generally are made on the basis
of the borrower's ability to make repayment from his employment and other income
and which are collateralized by real property whose value tends to be more
readily ascertainable, commercial loans typically are underwritten on the basis
of the borrower's ability to make repayment from the cash flow of his business
and generally are collateralized by business assets, such as accounts
receivable, equipment and inventory. As a result, the availability of funds for
the repayment of commercial loans may be substantially dependent on the success
of the business itself. Further, the collateral underlying the loans may
depreciate over time, cannot be appraised with as much precision as residential
real estate, and may fluctuate in value based on the success of the business.
Consumer Loans
- --------------
Consumer loans made by the Bank have included automobiles, recreation
vehicles, boats, home improvements, home equity lines of credit, personal
(collateralized and uncollateralized) and deposit account collateralized loans.
The terms of these loans periodically range from 36 to 120 months and vary based
upon the kind of collateral and size of loan.
Consumer loans typically have a short term and carry higher interest
rates than that charged on other types of loans. Installment loans, however, do
pose additional risks of collectability when compared to traditional types of
loans granted by commercial banks such as residential mortgage loans. In many
instances, the Bank is required to rely on the borrower's ability to repay since
the collateral may be of reduced value at the time of collection. Accordingly,
the initial determination of the borrower's ability to repay is of primary
importance in the underwriting of consumer loans.
Loan Solicitation and Processing
- --------------------------------
Loan originations are derived from a number of sources. Loan
originations can be attributed to direct solicitation by the Bank's loan
officers, existing customers and borrowers, advertising, walk-in customers and
referrals from brokers.
Upon receipt of a loan application from a prospective borrower, a credit
report and verifications are ordered to verify specific information relating to
the loan applicant's employment income and credit standing. An appraisal, where
required, of any real estate intended to collateralize the proposed loan is
undertaken by an appraiser approved by the Bank.
Competition
- -----------
The Bank encounters strong competition both in making loans and
attracting deposits. The deregulation of the banking industry and the widespread
enactment of state laws which permit multi-bank holding companies as well as an
increasing level of interstate banking have created a highly competitive
environment for commercial banking in the Bank's primary market area. In one or
more aspects of its business, the Bank competes with other commercial banks,
savings and loan associations, credit unions, finance companies, mutual funds,
insurance companies, brokerage and investment banking companies, and other
financial intermediaries operating in Pinellas County and elsewhere. Most of
these competitors, some of which are affiliated with large bank holding
companies, have substantially greater resources and lending limits, and may
offer certain services that the Bank does not currently provide. In addition,
many of the Company's non-bank competitors are not subject to the same extensive
federal regulations that govern bank holding companies and federally insured
banks. See "Investment Considerations and Risk Factors-Competition."
Management believes that the Company and the Bank are well positioned to
compete successfully in its primary market area, although no assurances can be
given. Competition among financial institutions is based upon interest rates
offered on deposit accounts, interest rates charged on loans and other credit
and service charges, the quality and scope of the services rendered, the
convenience of banking facilities, and, in the case of loans to commercial
borrowers, relative lending limits. As an independent community bank
headquartered in the Bank's primary market area, management believes that the
Bank's community commitment and involvement in its primary market area, as well
as its commitment to quality, personalized banking services, are factors that
contribute to the Bank's competitiveness.
37
<PAGE>
Employees
- ---------
At December 31, 1996, the Company and the Bank together employed 24
full-time and 1 part-time employees. None of these employees is covered by a
collective bargaining agreement and the Company believes that its employee
relations are good.
Properties
- ----------
The office of the Company is located at 10 Rockefeller Plaza, New York,
New York. The Bank maintains its principal office in leased premises of
approximately 6,800 square feet at 1875 Belcher Road North, Clearwater, Florida.
The Bank's office includes an outside drive-through teller station. In addition
to its principal office, the bank owns three branch offices in Clearwater,
Florida. One branch is located at 606 Chestnut Street. This facility is
undergoing extensive reconstruction and is expected to reopen in June of 1997 as
a two-story building of approximately 22,000 square feet with drive-through
teller windows. The Bank will occupy the ground floor as its principal office
and the upper floor will be leased to commercial tenants. Another branch is
located at 2175 Nursery Road and consists of a facility of approximately 2,700
square feet and likewise includes drive-through teller facilities. The third
branch is located in a three-story building at 2575 Ulmerton Road. The branch
office occupies the ground floor, which consists of approximately 2,500 square
feet plus drive-through teller facilities. The Bank leases office space on the
upper floor to commercial tenants. During 1996, the Bank acquired a former bank
office located at 6750 Gulfport Boulevard in South Pasadena, Florida, which
consists of a one-story building of approximately 2,500 square feet, with a
drive-through teller facility. The building will be renovated and it is
anticipated that it will open as a branch office on or about July of 1997.
Litigation
- ----------
The Company and the Bank are periodically parties to or otherwise
involved in legal proceedings arising in the normal course of business, such as
claims to enforce liens, claims involving the making and servicing of real
property loans, and other issues incident to the Bank's business. Management
does not believe that there is any pending or threatened proceeding against the
Company or the Bank which, if determined adversely, would have a material effect
on the business, results of operations, or financial position of the Company or
the Bank.
Federal and State Taxation
- --------------------------
General. The Company and the Bank file a consolidated federal income tax
return on a calendar year basis. Consolidated returns have the effect of
eliminating intercompany distributions, including dividends, from the
computation of consolidated taxable income for the taxable year in which the
distributions occur. Banks and bank holding companies are subject to federal and
state income taxes in the same manner as other corporations. In accordance with
an income tax sharing agreement, income tax charges or credits are allocated to
the Company and the Bank on the basis of their respective taxable income or loss
included in the consolidated income tax return.
Federal Income Taxation. Although a bank's income tax liability is
determined under provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), which is applicable to all taxpayers or corporations, Sections 581
through 597 of the Code apply specifically to financial institutions.
The two primary areas in which the treatment of financial institutions
differs from the treatment of other corporations under the Code are in the areas
of bond gains and losses and bad debt deductions. Bond gains and losses
generated from the sale or exchange of portfolio instruments are generally
treated for financial institutions as ordinary gains and losses as opposed to
capital gains and losses for other corporations, as the Code considers bond
portfolios held by banks to be inventory in a trade or business rather than
capital assets. Banks are allowed a statutory method for calculating a reserve
for bad debt deductions. Based on the asset size of the Bank, the Bank is
permitted to maintain a bad debt reserve calculated on an experience method,
based on charge-offs for the current and preceding five years, or a
"grandfathered" base year reserve, if larger.
State Taxation. The Company files state income tax returns in Florida
and New York and franchise tax returns in Delaware. Florida taxes banks under
primarily the same provisions as other corporations. The holding company's
activities, other than the bank operations, are taxable in the State of New
York. Generally, state taxable income is calculated under applicable Code
sections with some modifications required by state law.
38
<PAGE>
MANAGEMENT
Directors and Executive Officers of the Company
- -----------------------------------------------
The directors and executive officers of the Company, their ages, and
positions with the Company are set forth below.
Lawrence G. Bergman, age 52, serves as a Director, Vice President and
Secretary of the Company and has served in such capacities since the Company was
organized. Mr. Bergman received a Bachelor of Science degree and a Master of
Engineering (Electrical) degree from Cornell University, and a Master of Science
in Engineering and a Ph.D degree from The Johns Hopkins University. Mr. Bergman
is also Co-Chairman of the Board of Directors and a member of the Loan Committee
of the Bank and a Director, Vice-President and Secretary of Intervest
Corporation of New York. During the past five years Mr. Bergman has been
actively involved in the ownership and operation of real estate and mortgage
investments.
Michael A. Callen, age 56, serves as a Director of the Company, and has
served in such capacity since May, 1994. Mr Callen received a Bachelor of Arts
degree from the University of Wisconsin in Economics and Russian. Mr. Callen has
been Senior Advisor, The National Commercial Bank, Jeddah, Kingdom of Saudi
Arabia since May, 1993. From the fall of 1992 through February of 1993, he was
an Adjunct Professor of International Banking at Columbia University Business
School. From 1987 until February of 1992 he was a Director and Sector Executive
at Citicorp/Citibank, responsible for corporate banking activities in North
America, Europe and Japan. He is also a Director of Intervest Corporation of New
York and AMBAC, Inc.
Jerome Dansker, age 78, serves as Chairman of the Board of Directors and
Executive Vice President of the Company. He has served as Executive Vice
President since 1994 and as Chairman of the Board since 1996. Mr. Dansker
received a Bachelor of Science degree from the New York University School of
Commerce, Accounts and Finance, a law degree from the New York University School
of Law, and is admitted to practice as an attorney in the State of New York. Mr.
Dansker is also a Director and Chairman of the Loan Committee of the Bank and is
Chairman of the Board of Directors and Executive Vice President of Intervest
Corporation of New York. During the past five years, Mr. Dansker has been
actively involved in the ownership and operation of real estate and mortgage
investments.
Lowell S. Dansker, age 46, serves as a Director, President and Treasurer
of the Company, and has served in such capacities since the Company was
organized. Mr. Dansker received a Bachelor of Science in Business Administration
from Babson College, a law degree from the University of Akron School of Law,
and is admitted to practice as an attorney in New York, Ohio, Florida and the
District of Columbia. Mr. Dansker is also Co-Chairman of the Board of Directors
and a member of the Loan Committee of the Bank and a Director, President and
Treasurer of Intervest Corporation of New York. During the past five years, Mr.
Dansker has been actively involved in the ownership and operation of real estate
and mortgage investments.
Milton F. Gidge, age 67, serves as a Director of the Company, and has
served in such capacity since March, 1994. Mr. Gidge received a Bachelor of
Business Administration degree in Accounting from Adelphi University and a
Masters Degree in Banking and Finance from New York University. Mr. Gidge
retired in 1994 and, prior to his retirement, was a Director and Chairman-Credit
Policy of Lincoln Savings Bank, F.S.B. (headquartered in New York City). He is
also a Director of Intervest Corporation of New York, Interboro Mutual Indemnity
Insurance Company and Vicon Industries, Inc. Mr. Gidge was an officer of Lincoln
Savings Bank, F.S.B. for more than five years.
William F. Holly, age 68, serves as a Director of the Company and has
served in such capacity since March, 1994. Mr. Holly received a Bachelor of Arts
degree in Economics from Alfred University. Mr. Holly is Chairman of the Board
and CEO of Sage, Rutty & Co., Inc., members of the Boston Stock Exchange, with
offices in Rochester, New York and Canandaigua, New York, and is also a Director
of Intervest Corporation of New York and a Trustee of Alfred University. Mr.
Holly has been an officer and director of Sage, Rutty & Co., Inc. for more than
five years.
David J. Willmott, age 59, serves as a Director of the Company, and has
served in such capacity since March, 1994. Mr. Willmott is a graduate of Becker
Junior College and attended New York University Extension and Long Island
University Extension of Southampton College. Mr. Willmott is the Editor and
Publisher of Suffolk Life Newspapers, which he founded more than 25 years ago
and is a Director of Intervest Corporation of New York.
39
<PAGE>
Wesley T. Wood, age 54, serves as a Director of the Company, and has
served in such capacity since March, 1994. Mr. Wood received a Bachelor of
Science degree from New York University, School of Commerce. Mr. Wood is
President of Marketing Capital Corporation, an international marketing
consulting and investment firm which he founded in 1973. He is also a Director
of Intervest Corporation of New York, a Director of the Center of Direct
Marketing at New York University, a member of the Marketing Committee at
Fairfield University in Connecticut, and a Trustee of St. Dominics R.C. Church
in Oyster Bay, New York.
All of the directors of the Company have been elected to serve as
directors until the next annual meeting of the Company's shareholders. Each of
the officers of the Company has been elected to serve as an officer until the
next annual meeting of the Company's directors.
Mr. Bergman's wife is the sister of Lowell S. Dansker, and Jerome
Dansker is the father of Lowell S. Dansker and Mrs. Bergman.
Directors and Executive Officers of the Bank
- --------------------------------------------
The current directors and executive officers of the Bank are as follows:
Lawrence G. Bergman serves as Co-Chairman of the Board of Directors and
as a member of the Loan Committee of the Bank and has served as a director since
May 1993. See "Directors and Executive Officers of the Company."
Stephen M. Bragin, age 66, serves as a Director of the Bank and has
served in such capacity since November 1993. Mr. Bragin attended the University
of Pennsylvania, where he majored in business. Mr. Bragin is the Director of
Development at the University of South Florida, College of Fine Arts. He is
retired from the citrus growing and processing business, where he had over 30
years of experience.
Robert J. Carroll, age 54, serves as a Director and as a member
of the Loan Committee of the Bank, and has served as a director since 1987. Mr.
Carroll received a Bachelor of Arts degree and a law degree from the University
of Florida, Gainesville. He is a senior partner in the law firm of Perenich,
Carroll, Perenich, Avril & Caulfield, P.A., and has been a member of such firm
for 25 years.
Petra H. Coover, age 50, serves as Vice President of the Bank
and has served in such capacity since June 1994. Ms. Coover received a Bachelor
of Arts degree in business administration from Eckerd College. She has also
attended The National School of Real Estate Finance of Ohio State University,
the Commercial Lending School of the University of South Florida and the
International Business Institute in the Netherlands. Ms. Coover has been a bank
officer for more than 13 years.
Jerome Dansker serves as a Director and as Chairman of the Loan
Committee of the Bank and has served as a director since November 1993. See
"Directors and Executive Officers of the Company."
Lowell S. Dansker serves as Co-Chairman of the Board of Directors and
as a member of the Loan Committee of the Bank, and has served as a director
since May 1993. See "Directors and Executive Officers of the Company."
David M. Egbert, age 54, serves as a Director of the Bank and has
served in such capacity since November 1993. Mr. Egbert received a Bachelor of
Arts degree from the University of Wisconsin in journalism and advertising. Mr.
Egbert is the President of the IMS Group, a marketing services company based in
St. Petersburg, Florida, which he founded in 1989. Prior to this, he was Senior
Vice President/Marketing at Chase Manhattan Bank. Mr. Egbert has over 25 years
of marketing experience, which includes approximately 10 years in banking as a
senior officer specializing in marketing.
Russell A. Kimball, age 52, serves as a director of the Bank, and has
served in such capacity since December 1995. Mr. Kimball received a Bachelor of
Science degree from Florida State University in Hotel and Restaurant Management.
Mr. Kimball is Executive Vice President and General Manager of the Sheraton Sand
Key Resort. Mr. Kimball has been appointed by the Governor of Florida to the
Florida Commission on Tourism, is Chairman of the Board of Directors of the
Florida Hotel & Motel Association and serves as a member of the Board of
Directors of various county and local tourism and hotel organizations.
40
<PAGE>
Mark W. Maconi, age 46, serves as a Director and as a member of the
Loan Committee of the Bank and has served as a director since 1987. He attended
St. Petersburg Junior College and is the President of Mark Maconi Homes, Inc., a
building and land development firm which he founded approximately 20 years ago.
Mr. Maconi is Vice President of the Contractors and Builders Association of
Pinellas County and is Chairman of the Building Advisory and Appeals Board of
Pinellas County.
Lawrence W. Nortrup, age 70, serves as a Director of the Bank and has
served in such capacity since March, 1994. Mr. Nortrup received a Bachelor of
Science degree from the University of Illinois in business management. Mr.
Nortrup retired as CEO and President of Michigan Avenue National Bank of Chicago
and has over twenty-five years of banking experience.
Keith A. Olsen, age 43, was elected President of the Bank in 1994.
Prior to such time, he was Senior Vice President of the Bank and had served in
that capacity since 1991. Mr. Olsen received an Associates Degree from St.
Petersburg Junior College and a Bachelors Degree in Business Administration and
Finance from the University of Florida, Gainesville. He is also a graduate of
the Florida School of Banking of the University of Florida, Gainesville, the
National School of Real Estate Finance of Ohio State University and the Graduate
School of Banking of the South of Louisiana State University. Mr. Olsen has been
a banker for more than 15 years and has served as a senior bank officer for more
than 10 years.
Marti J. Warren, age 35, serves as Vice President and Cashier of the
Bank and has served in that capacity since 1996. Mr. Warren is a graduate of the
Florida School of Banking of the University of Florida, Gainesville. Mr. Warren
has been a bank officer for more than ten years.
All of the directors of the Bank have been elected to serve as
directors until the next annual meeting of the Bank's shareholders. Each of the
officers of the Bank has been elected to serve as an officer until the next
annual meeting of the Bank's directors.
Executive Compensation
- ----------------------
The following table sets forth all compensation paid during the last
three years to the Bank's chief executive officer. No other officer of the
Company or Bank had annual compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Other Annual
Name and Principal Year Salary(1) Bonuses Compensation Awards(2) Pay-Outs
Position ---- --------- ------- -------------------------------
Keith A. Olsen, 1994 $87,500 $ 6,500 -- -- --
President 1995 $90,000 $10,000 -- $10,000 --
1996 $95,000 $10,000 -- $10,000 --
(1) All compensation or renumeration paid to employees is paid by the Bank.
At the present time, there are no employees of the Company and there is
no compensation paid by the Company.
(2) These represent warrants to purchase shares of Class A Common Stock.
Directors of the Company are paid director's fees of $500 per meeting.
Directors of the Bank are paid director's fees of $100 per meeting.
The Bank has a written agreement with Mr. Keith A. Olsen. The agreement
provides for a four-year term of employment at a base annual salary of not less
than $125,000. The agreement provides for the payment of one years' severance
upon termination of employment.
41
<PAGE>
Fringe Benefits
- ---------------
The Bank maintains a 401(k) and Profit Sharing Plan which encourages the
accumulation of savings for participants' retirement. The plan permits 401(k)
matching contributions, as well as employer profit-sharing contributions in the
discretion of the Bank. The Bank contributed $12,181 to this Plan in 1996.
Stock Option Plan-Bank
- ----------------------
The Bank maintains a 1992 Stock Option Plan (the "Option Plan"), which
provides for the grant of options to key employees of the Bank. The Compensation
Committee administers the Option Plan and determines those employees to whom
options will be granted. Up to 70,000 shares of common stock of the Bank may be
issued pursuant to options granted under the Option Plan, and no option may be
granted after April 16, 2002.
The options granted pursuant to the Option Plan are non-transferable
other than by will or under the laws of descent and distribution. The options
vest over 5 years after the date of grant at the rate of 20% per year. Options
may not be exercised more than 10 years after the date of grant. The exercise
price of options granted under the Option Plan may not be less than the fair
market value of the common stock of the Bank on the date of grant.
As of December 31, 1996, no shares of common stock had been issued upon
the exercise of options granted under the Option Plan, and options to purchase
11,000 shares of common stock at an exercise price of $5.00 were held by one
employee which expire on December 31, 2001. It is expected that the Option Plan
will be terminated and that no further options will be granted under the Option
Plan.
Warrants
- --------
At December 31, 1996, there were issued and outstanding warrants
related to the purchase of 1,019,110 shares of Class A Common Stock and the
Company has reserved a total of 1,019,110 shares of Class A Common Stock for
issuance, from time to time, upon exercise of these warrants. Of these warrants,
684,800 are exercisable at any time on or before December 31, 2001 and represent
the right to purchase one share of Class A Common Stock at a purchase price of
$10.00 per share (subject to adjustment in connection with certain issuances of
securities). The remaining warrant is exercisable at any time on or before
January 31, 2006 and represents the right to purchase 334,310 shares of Class A
Common Stock at a purchase price of $10.00 per share (subject to adjustment in
connection with certain issuances of securities). As of December 31, 1996 none
of the Company's warrants had been exercised.
During 1996, the Board of Directors authorized the issuance of a
warrant to purchase 100,000 shares of Class B Common Stock to the Chairman of
the Board. The warrant is exercisable at a price of $10.00 per share at any time
on or before January 31, 2007 (subject to adjustment in connection with certain
issuances of securities). A total of 100,000 shares of the Company's Class B
Common Stock has been reserved for issuance upon exercise of the foregoing
warrant.
Certain Relationships and Related Transactions
- ----------------------------------------------
The Bank has had, and expects to have in the future, various loan and
other banking transactions in the ordinary course of business with directors,
and executive officers (or associates of such persons). In the opinion of
management, all such transactions: (i) have been and will be made the ordinary
course of business, (ii) have been and will be made on substantially the same
terms, including interest rates and collateral on loans, as those generally
prevailing at the time for comparable transactions with unrelated persons, and
(iii) have not and will not involve more than the normal risk of collectability
or present other unfavorable features. The total dollar amount of extensions of
credit, including unused lines of credit, to directors and executive officers
and any of their associates was $2.9 million as of December 31, 1996, which
represented approximately 29.9% of total stockholders' equity.
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The holding company, as well as corporations affiliated with certain
directors of the Company, have in the past and may in the future participate in
mortgage loans originated by the Bank. Such participations are on substantially
the same terms as would apply for comparable transactions with other persons and
the interest of the participants in the collateral securing those loans is pari
passu with the Bank.
Except for the lease described below and outside of normal customer
relationships, none of the directors, officers, or present shareholders of the
Company and no corporations or firms with which such persons or entities are
associated, currently maintains or has maintained since the beginning of the
last fiscal year, any significant business or personal relationship with the
Company or the Bank, other than such as arises by virtue of such position or
ownership interest in the Company or the Bank.
The Bank leases certain office facilities from a corporation in which
Robert J. Carroll, a director of the Bank, is an officer and in which he has an
ownership interest. See Note 4 to Notes to Consolidated Financial Statements.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding common stock as of March 15, 1997 by
directors and executive officers of the Company, and the other person who owns
more than 5% of the issued and outstanding shares. Except as otherwise
indicated, the persons named in the table have sole voting and investment power
with respect to all shares of common stock owned by them.
Class A Common Stock Class B Common Stock
Name and Address of Percent of Number of Percent of
Beneficial Holder Number of Shares Class(1) Shares Class
- ----------------- ---------------- -------- ------ -----
Helene D. Bergman 150,000 16.67% 50,000 16.67%
201 East 62nd Street
New York, New York 10021
Lawrence G. Bergman 205,000(2) 20.21% 50,000 16.67%
201 East 62nd Street
New York, New York 10021
Lowell S. Dansker 355,000(2) 36.17% 100,000 33.33%
360 West 55th Street
New York, New York 10019
Michael A. Callen 30,000(3) 2.72% 0 0%
Ryutat
Jeddah, Saudi Arabia
Jerome Dansker 335,000(4) 26.23% 100,000(4) 33.33%
860 Fifth Avenue
New York, New York 10021
Milton F. Gidge 21,000(5) 1.75% 0 0%
43 Salem Ridge Drive
Huntington, New York 11743
William F. Holly 30,000(6) 2.70% 0 0%
206 Edgemere Drive
Rochester, New York 14612
David J. Wilmott 63,000(7) 6.21% 0 0%
West Way
Southhampton, New York
Wesley T. Wood 65,000(8) 6.42% 0 0%
24 Timber Ridge Drive
Oyster Bay, New York 11771
All directors and executive
officers as a group 1,254,000 85.98% 300,000 100%
---------
- -----------------------------
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(1) Percentages have been computed based upon the total outstanding shares
of the Company plus, for each person and the group, shares that person
or the group has the right to acquire pursuant to warrants.
(2) Includes 55,000 shares of Class A common stock issuable upon the
exercise of warrants.
(3) Includes 22,500 shares of Class A common stock issuable upon the
exercise of warrants.
(4) The 335,000 shares of Class A common stock are issuable upon the
exercise of outstanding warrants. The 100,000 shares of Class B Common
Stock are issuable upon exercise of a warrant.
(5) Includes 18,000 shares of Class A common stock issuable upon the
exercise of warrants.
(6) Includes 22,500 shares of Class A common stock issuable upon the
exercise of warrants.
(7) Includes 4,000 shares of Class A common stock owned by members of Mr.
Willmott's family, as well as 35,000 shares of Class A common stock
(and 4,000 shares of Class A common stock issuable to family members)
issuable upon the exercise of warrants.
(8) Includes 40,000 shares of Class A common stock issuable upon the
exercise of warrants.
DESCRIPTION OF SECURITIES
General
- -------
The Company's Articles of Incorporation provide for two classes of
common capital stock consisting of 2,600,000 shares of Class A Common Stock, par
value $1.00 per share, and 400,000 shares of Class B Common Stock, par value
$1.00 per share. In addition, the Company's Articles provide for 200,000 shares
of preferred stock, par value $1.00 per share ("Preferred Stock"). The Company's
Articles of Incorporation authorize the Board of Directors, without shareholder
approval, to fix the preferences, limitations and relative rights of the
Preferred Stock, to establish one or more series or classes of Preferred Stock,
and to determine the variations between each such series or class. No shares of
Preferred Stock are issued or outstanding.
As of the date of this Prospectus, there were issued and outstanding
900,000 shares of Class A Common Stock, 600,000 of which are held by the initial
stockholders of the Company and 200,000 shares of Class B Common Stock held by
the same initial stockholders.
Common Stock
- ------------
Both classes of common stock have equal voting rights as to all
matters, except that, so long as at least 50,000 shares of Class B Common Stock
remain issued and outstanding, the holders of the outstanding shares of Class B
Common Stock are entitled to vote for the election of two-thirds of the
directors (rounded up to the nearest whole number) and the holders of the
outstanding shares of Class A Common Stock are entitled to vote for the
remaining directors of the Company. Under Delaware law, the holders of Class A
and Class B Common Stock would be entitled to vote as separate classes upon
certain matters which would adversely affect or subordinate the rights of a
class.
Subject to preferences that may be applicable to any outstanding shares
of Preferred Stock, holders of Class A Common Stock are entitled to share
ratably in dividends when and as declared by the Company's Board of Directors
out of funds legally available therefor. See "Dividends."
No dividends may be declared or paid with respect to shares of Class B
Common Stock until January 1, 2000, after which time the holders of Class A
Common Stock and Class B Common Stock will share ratably in dividends when and
as declared by the Board of Directors.
The shares of Class B Common Stock are convertible, on a share for
share basis, into Class A Common Stock, at any time and from time to time after
January 1, 2000. Neither Class A nor Class B Common Stock holders have any
preemptive rights as to additional issues of common stock. Shareholders are
subject to no assessments and, upon liquidation, both Class A and Class B common
shareholders would be entitled to participate equally per share in the assets of
the Company available to common shareholders.
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<PAGE>
Class A Warrants
- ----------------
At the date of this prospectus, there are outstanding warrants related
to 1,019,110 shares of the Company's Class A Commons Stock. The Warrants entitle
the registered holders thereof to purchase one share of Class A Common Stock at
a price of $10.00 per share. The exercise price is subject to adjustment in
accordance with the anti-dilution and other provisions referred to below. The
holder of any Warrant may exercise such Warrant or any portion thereof by
surrendering the certificate representing the Warrant to the Company's transfer
and warrant agent, with the subscription on the reverse side of such certificate
properly completed and executed, together with payment of the exercise price.
The Warrant may be exercised at any time until expiration of the Warrant.
Warrants related to 684,800 of Class A Common Stock expire on December 31, 2001
and a Warrant related to 334,310 shares of Class A Common Stock expires on
January 31, 2006. Except for the expiration date, the Warrants related to Class
A Common Stock are alike in all respects. No fractional shares will be issued
upon the exercise of the Warrants. Warrants may not be exercised as to fewer
than 100 shares unless exercised as to all Warrants held by the holder thereof.
The exercise prices of the Warrants have been arbitrarily determined by the
Company and are not necessarily related to the Company's book value, net worth
or other established criteria of value. The exercise price should in no event be
regarded as an indication of any future market price of the securities offered
hereby.
The Warrants are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the shares of common stock issuable
upon exercise of such Warrants and such shares have been registered, qualified
or deemed to be exempt under the securities law of the state of residence of the
holders of such Warrants. Although the Company will use its best efforts to have
all such shares so registered or qualified on or before the exercise date and to
maintain a current prospectus relating thereto until the expiration of such
Warrants, there can be no assurance that it will be able to do so.
The exercise price and the number of shares of Class A Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications on or of the Class A Common Stock or sales by
the Company of shares of its Class A Common Stock at a price below the then
applicable exercise price of the Warrants. Additionally, an adjustment will be
made in the case of a reclassification or exchange of Class A Common Stock,
consolidation or merger of the Company with or into another corporation or sale
of all or substantially all of the assets of the Company in order to enable
warrant holders to acquire the kind and number of shares of stock or other
securities or property receivable in such event by a holder of the number of
shares of Class A Common Stock that might otherwise have been purchased upon the
exercise of the Warrant. In most cases, no adjustment will be made until the
number of shares issued by the Company exceeds 5% of the number of shares
outstanding after the offering and thereafter no adjustments will be made until
the accumulative adjustments and exercise price per share amount to $.05 or
more. No adjustment to the exercise price of the shares subject to the Warrants
will be made for dividends (other than stock dividends), if any paid on the
Class A Common Stock or for securities issued pursuant to a company stock option
plan, if any, or other employee benefit plans of the Company.
The Warrants are fully registered and may be presented to the transfer
and warrant agent for transfer, exchange or exercise at any time at or prior to
the close of business on the expiration date for such warrant, at which time the
Warrant becomes wholly void and of no value. If a market for the Warrants
develops, the holder may sell the Warrants instead of exercising them. There can
be no assurance, however, that a market for the Warrants will develop or
continue.
The Warrants do not confer upon holders any voting or any other rights
as a shareholder of the Company.
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<PAGE>
Class B Warrant
- ---------------
During 1996, the Company issued to its Executive Vice President a
warrant to purchase up to 100,000 shares of Class B Common Stock, at any time
prior to January 31, 2007, at a purchase price of $10.00 per share. The warrant
contains terms and conditions substantially in conformity with the warrant for
shares of Class A Common Stock. In addition, the Warrant provides for an
adjustment in the number of shares of Class B Common Stock purchasable upon the
exercise of the Warrant and the exercise price per share in accordance with
anti-dilution and other provisions which are in substantial conformity with
those described above, but which relate to share issuances and recapitalizations
for both Class A and Class B Common Stock.
Tax Consequences-Warrants
- -------------------------
Under current provisions of the Code, no gain or loss will be
recognized to a holder upon the exercise of a Warrant. The sale of a Warrant by
a holder or the redemption of a Warrant from a holder will result in the
recognition of gain or loss in an amount equal to the difference between the
amount realized by the holder and the Warrants adjusted basis in the hands of
the holder. Provided that the holder is not a dealer in the Warrants and that
the common stock would have been a capital asset in the hands of the holder had
the Warrant been exercised, gain or loss from the sale or redemption of a
Warrant will be long term or short term capital gain or loss to the holder and
loss on the expiration of a Warrant, equal to the Warrants adjusted basis in the
hands of the holder, will be long term or short term capital loss, depending
upon whether the Warrant had been held for more than one year. No gain or loss
will be recognized by the Company upon receipt of payment for a Unit, upon the
exercise of a Warrant, or upon the expiration of a Warrant.
Although the Company has been advised by its counsel, Harris Beach &
Wilcox, LLP, that the foregoing is an accurate summary of certain federal income
tax considerations attributable to the Warrants, it does not purport to be a
full description of the federal, state or local tax considerations applicable to
the Warrants or the underlying shares of common stock. Each holder of the
Warrants should seek the advice of his or her own tax advisor regarding the
affects that such an investment in the Warrants will have on his or her
individual tax situation.
On July 14, 1994, the Company's Board of Directors authorized a
recapitalization pursuant to which its shares of common stock were changed into
600,000 shares of Class A Common Stock and 400,000 shares of Class B Common
Stock. All references herein to the number of shares outstanding and to other
per share information have been adjusted to take into account such
recapitalization.
Transfer Agent and Warrant Agent
- --------------------------------
The registrar and transfer agent for the Common Stock and the Warrant
Agent for the Warrants is The Bank of New York.
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<PAGE>
Preferred Stock
- ---------------
The Company's Articles of Incorporation authorize the Board of
Directors, without further shareholder approval, to issue shares of Preferred
Stock in one or more series with powers, preferences, rights, restrictions,
limitations, and other qualifications that could adversely affect the voting and
other rights of the holders of Common Stock.
The Board of Directors has the authority to issue up to 200,000 shares
of the Preferred Stock of the Company in any number of series (to designate the
rights and preferences of such series) which could operate to render more
difficult the accomplishment of mergers or other business combinations. The
Board of Directors of the Company has no present intent to issue any Preferred
Stock at this time. Under certain circumstances and when, in the judgment of the
Board of Directors, the action will be in the best interest of the stockholders
and the Company, such shares could be used to create voting impediments or to
frustrate persons seeking to gain control of the Company. Such shares could be
privately placed with purchasers friendly to the Board of Directors in opposing
a hostile takeover bid. In addition, the Board of Directors could authorize
holders of a series of Preferred Stock to vote either separately as a class or
with the holders of the Company's Common Stock on any merger, sale or exchange
of assets by the Company or any other extraordinary corporate transaction. The
existence of the additional authorized shares could have the effect of
discouraging unsolicited takeover attempts or delaying, deferring or preventing
a change in control of the Company. Such an occurrence, in the event of a
hostile takeover attempt, may have an adverse impact on stockholders who may
wish to participate in such offer. The issuance of new shares could be used to
dilute the stock ownership of a person or entity seeking to obtain control of
the Company should the Board of Directors consider the action of such entity or
person not to be in the best interest of the stockholders and the Company. The
Board of Directors is not aware of any present attempt or effort by any person
to accumulate the Company's securities or obtain control of the Company.
Restrictions on Changes in Control
- ----------------------------------
Under the Federal Change in Bank Control Act (the "Control Act"), a
notice must be submitted to the FRB if any person, or group acting in concert,
seeks to acquire 10% or more of any class of outstanding voting securities of
the Company, unless the FRB determines that the acquisition will not result in a
change of control of the Company. Both the Class A Common Stock and the Warrants
are deemed to be voting securities for these purposes. Under the Control Act,
the FRB has 60 days within which to act on such notice, taking into
consideration certain factors, including the financial and managerial resources
of the acquiror, the convenience and needs of the community served by the bank
holding company and its subsidiary banks, and the antitrust effects of the
acquisition. Under the BHCA a company is generally required to obtain prior
approval of the FRB before it may obtain control of a bank holding company.
Control is generally described to mean the beneficial ownership of 25% or more
of all outstanding voting securities of a company.
SUPERVISION AND REGULATION
Bank holding companies and Banks are extensively regulated under both
federal and state law. These laws and regulations are intended to protect
depositors, not stockholders. To the extent that the following information
describes statutory and regulatory provisions it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change in
the applicable law or regulation may have a material effect on the business and
prospects of the Company and the Bank. See "Investment Considerations and Risk
Factors-Supervision and Regulation."
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<PAGE>
Bank Holding Company Regulation
- -------------------------------
As a bank holding company registered hereunder the BHCA, the Company is
subject to the regulation and supervision of the FRB. The Company is required to
file with the FRB annual reports and other information regarding its business
operations and those of its subsidiaries. Under the BHCA, the Company's
activities and those of its subsidiaries are limited to banking, managing or
controlling banks, furnishing services to or performing services for its
subsidiaries or engaging in any other activity which the FRB determines to be so
closely related to banking or managing or controlling banks as to be properly
incident thereto.
The BHCA requires, among other things, the prior approval of the FRB in
any case where a bank holding company proposes to (i) acquire all or
substantially all of the assets of any other bank, (ii) acquire direct or
indirect ownership or control of more than 5% of the outstanding voting stock of
any bank (unless it owns a majority of such bank's voting shares) or (iii) merge
or consolidate with any other bank holding company. The FRB will not approve any
acquisition merger or consolidation that would have a substantially
anti-competitive effect, unless the anti- competitive impact of the proposed
transaction is clearly outweighed by a greater public interest in meeting the
convenience and needs of the community to be served. The FRB also considers
capital adequacy and other financial and managerial resources and future
prospects of the companies and the banks concerned, together with the
convenience and needs of the community to be served, when reviewing acquisitions
or mergers. The BHCA further provides that the FRB shall not approve any such
acquisitions of control of any bank operating outside the bank holding company's
principal state of operations, unless such action is specifically authorized by
the statutes of the state in which the bank to be acquired is located.
Additionally, the BHCA prohibits a bank holding company, with certain
limited exceptions, from (i) acquiring or retaining direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any company which
is not a bank or bank holding company, or (ii) engaging directly or indirectly
in activities other than those of banking, managing or controlling banks, or
performing services for its subsidiaries, unless such non-banking business is
determined by the FRB to be so closely related to banking or managing or
controlling banks as to be properly incident thereto. In making such
determinations, the FRB is required to weigh the expected benefits to the
public, such as greater convenience, increased competition or gains in
efficiency, against the possible adverse effects, such as under concentration of
resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") made a significant addition to the list of permitted non-bank
activities for bank holding companies by specifically permitting a bank holding
company to acquire, upon approval of the FRB and other applicable regulatory
authorities, any savings association regardless of its financial condition.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by law and
regulatory policy that are designed to minimize potential loss to the depositors
of such depository institutions and the FDIC insurance funds in the event the
depository institution becomes in danger of default or in default. For example,
under the 1991 Banking Law, to avoid receivership of an insured depository
institution subsidiary, a bank holding company is required to guarantee the
compliance of any insured depository institution subsidiary that may become
"undercapitalized" with the terms of any capital restoration plan filed by such
subsidiary with its appropriate federal banking agency up to the lesser of (i)
an amount equal to 5% of the institution's total assets at the time the
institution became undercapitalized or (ii) the amount that is necessary (or
would have been necessary) to bring the institution into compliance with all
applicable capital standards as of the time the institution fails to comply with
such capital restoration plan. See (ii) "Supervision and Regulation Impact of
the 1991 Banking Law." Under a policy of the FRB with respect to bank holding
company operations, a bank holding company is required to serve as a source of
financial strength to its subsidiary depository institutions and to commit
resources to support such institutions in circumstances where it might not do so
absent such policy. The FRB also has the authority under the BHCA to require a
bank holding company to terminate any activity or to relinquish control of a
nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the FRB's
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<PAGE>
determination that such activity or control constitutes a serious risk to the
financial soundness and stability of any bank subsidiary of the bank holding
company.
In addition, the "cross-guarantee" provisions of the Federal Deposit
Insurance Act ("FDIA") require insured depository institutions which are under
common control to reimburse the FDIC for any loss suffered by the FDIC (whether
such loss is paid from the Savings Association Insurance Fund ("SAIF") or the
Bank Insurance Fund ("BIF") of the FDIC) as a result of the default of a
commonly controlled insured depository institution or for any assistance
provided by the FDIC to a commonly controlled insured depository institution in
danger of default. Accordingly, the cross- guarantee provisions enable the FDIC
to access a bank holding company's healthy SAIF and BIF members. The FDIC may
decline to enforce the cross-guarantee provisions if it determines that a waiver
is in the best interest of the SAIF or the BIF or both. The FDIC's claims under
the cross-guarantee provisions are superior to claims of stockholders of the
insured depository institution (including its holding company or any stockholder
or creditor of such company) but are subordinate to claims of depositors,
secured creditors and holders of subordinated debt (other than affiliates) of
the commonly controlled insured depository institutions.
In January 1989, the FRB adopted risk-based capital guidelines for bank
holding companies. The risk-based capital guidelines are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, to account for off-balance sheet
exposure, and to minimize disincentives for holding liquid assets. Under these
guidelines, assets and off-balance sheet items are assigned to broad risk
categories each with appropriate weights. The resulting capital ratios represent
capital as a percentage of total risk-weighted assets and off-balance sheet
items.
Bank holding companies currently are required to fully comply with the
FRB's risk-based capital guidelines, which were phased in over two years.
Effective December 31, 1992, the minimum ratio of total capital to
risk--weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) is 8%. At least 4% of the total capital is required
to be "Tier I Capital," particularly consisting of common stockholders' equity,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less certain goodwill items and other intangible
assets. The remainder ("Tier II Capital") may consist of (a) the allowance for
loan losses of up to 1.25% of risk weighted risk assets, (b) excess of
qualifying perpetual preferred stock, (c) hybrid capital instruments, (d)
perpetual debt, (e) mandatory convertible securities, and (f) subordinated debt
and intermediate term preferred stock up to 50% of Tier I capital. Total capital
is the sum of Tier I and Tier II capital less reciprocal holdings of other
banking organizations' capital instruments, investments in unconsolidated
subsidiaries and any other deductions as determined by the FRB (determined on a
case by case basis or as a matter of policy after formal rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50% and
100%. In addition, certain off-balance sheet items are given similar credit
conversion factors to convert them to asset equivalent amounts to which an
appropriate risk weight will apply. These computations result in the total
risk-weighted assets. Most loans will be assigned to the 100% risk category,
except for performing first mortgage loans fully secured by residential property
which carry a 50% risk rating. Most investment securities (including, primarily,
general obligation claims on states or other political subdivisions of the
United States) will be assigned to the 20% category, except for municipal or
state revenue bonds, which have a 50% risk weight, and direct obligations of the
U.S. Treasury or obligations backed by the full faith and credit of the U.S.
Government, which have a 0% risk weight in converting off-balance sheet items
direct credit substitutes including general guarantees and standby letters of
credit backing financial obligations are given a 100% conversion factor.
Transaction-related contingencies such as bid bonds, standby letters of credit
backing non-financial obligations, and undrawn commitments (including commercial
credit lines with an initial maturity or more than one year) have a 50%
conversion factor. Short term commercial letters of credit are converted at 20%
and certain short-term unconditionally cancelable commitments have a 0% factor.
The Company's management believes that the risk-weighing of assets
under these guidelines does not and will not have a material impact on the
Company's operations or on the operations of the Bank. As of December 31, 1996,
the Bank's total capital to risk-weighted assets was 11.90%. Its Tier I capital
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<PAGE>
to risk-weighted assets was 10.70%. In addition to the risk-based capital
guidelines, the FRB has adopted a minimum Tier l capital (leverage) ratio, under
which a bank holding company must maintain a minimum level of Tier I capital to
average total consolidated assets of at least 4% in the case of a bank holding
company that has the highest regulatory examination rating and is not
contemplating significant growth or expansion. All other bank holding companies
are expected to maintain a leverage ratio of at least 100 to 200 basis points
above the stated minimum. As of December 31, 1996 the Bank's Tier I capital
(leverage) ratio was 7.48%.
The 1991 Banking law requires each federal banking agency, including
the FRB, to revise its risk-based capital standards to ensure that those
standards take adequate account of interest rate risk, concentration of credit
risk and the risks of nontraditional activities, as well as reflect the actual
performance and expected risk of loss on multifamily mortgages. The FRB, the
FDIC and the United States Office of the Comptroller of the Currency have issued
a joint advance notice of proposed rule making, soliciting comments on a
proposed framework for implementing these revisions. Under the proposal, an
institution's assets, liabilities, and off-balance sheet positions would be
weighted by risk factors that approximate the instruments' price sensitivity to
a 100 basis point change in interest rates. Institutions with interest rate risk
exposure in excess of a threshold level would be required to hold additional
capital proportional to that risk. The notice also asked for comments on how the
risk-based capital guidelines of each agency may be revised to take account of
concentration of credit risk and the risk of nontraditional activities. The
Company cannot assess at this point the impact the proposal would have on the
capital requirements of the Company or the Bank.
The BHCA prohibits the FRB from approving a bank holding company's
application to acquire a bank or a bank holding company located outside the
state in which the operations of its banking subsidiaries are principally
conducted, unless such acquisition is specifically authorized by statute of the
state in which the bank or Bank holding company to be acquired is located.
Florida law permits bank holding companies in the Southeast region of the United
States to acquire Florida banking organizations, provided that the home state of
the acquiring company has enacted reciprocal legislation. In this context,
reciprocal legislation is generally defined as legislation that expressly
authorizes Florida banking organizations to acquire banking organizations
located in another state on terms and conditions substantially no more
restrictive that those applicable to such an acquisition in Florida by a bank
holding company located in the other state. For purposes of this paragraph, the
Company is a Florida bank holding company. It cannot be predicted to what
extent, if any, the business of the Bank or the Company may be affected by such
legislation.
Bank Regulation
- ---------------
The Bank is a state-chartered banking corporation subject to the
supervision of, and regular examination by the FRB and the State of Florida, as
well as to the supervision of the FDIC.
The operations of the Bank are subject to state and federal statutes
applicable to banks which are members of the Federal Reserve System and to the
regulations of the FRB, the FDIC and the State of Florida. The FDIC insures the
deposits of the Bank to the current maximum allowed by law. Such statutes and
regulations relate to required reserves against deposits, investments, loans,
mergers and consolidations, issuance of securities, payment of dividends,
establishment of branches, and other aspects of the Bank's operations. Various
consumer laws and regulations also affect the operations of the Bank, including
state usury laws, laws relating to fiduciaries, consumer credit and equal
credit, and fair credit reporting. Under the provisions of the Federal Reserve
Act, the Bank is subject to certain restrictions on any extensions of credit to
the Company or, with certain exceptions, other affiliates, on investments in the
stock or other securities of national banks, and on the taking of such stock or
securities as collateral. These regulations and restrictions may limit the
Company's ability to obtain funds from the Bank for its cash needs, including
funds for acquisitions, and the payment of dividends, interest and operating
expenses. Further, the Bank is prohibited from engaging in certain tying
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services. For example, the Bank may not generally
require a customer to obtain other services from the Bank or the Company, and
may not require the customer to promise not to obtain other services from a
competitor as a condition to an extension of credit. The Bank also is subject to
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<PAGE>
certain restrictions imposed by the Federal Reserve Act on extensions of credit
to executive officers, directors, principal stockholders or any related interest
of such persons. Extensions of credit (i) must be made on substantially the same
terms (including interest rates and collateral) as, and following credit
underwriting procedures that are not less stringent than those prevailing at the
time for, comparable transactions with persons not covered above and who are not
employees and (ii) must not involve more than the normal risk of repayment or
present other unfavorable features. In addition, extensions of credit to such
persons beyond limits set by FRB regulations must be approved by the Board of
Directors. The Bank also is subject to certain lending limits and restrictions
on overdrafts to such persons. A violation of these restrictions may result in
the assessment of substantial civil monetary penalties on the Bank or any
officer, director, employee, agent or other person participating in the conduct
of the affairs of the Bank or the imposition of a cease and desist order.
As an institution whose deposits are insured by the BIF and SAIF funds
of the FDIC, the Bank also is subject to insurance assessments imposed by the
FDIC. Under current law, as amended by the 1991 Banking Law, the insurance
assessment to be paid by BIF and SAIF insured institutions shall be as specified
in schedules to be issued by the FDIC from time to time. The amount of the
assessment will be determined in part to allow for a minimum BIF and SAIF
reserve ratio of 1.25% of estimated insured deposits (or such higher ratio as
the FDIC may determine in accordance with the statute). Further, the FDIC is
authorized under the 1991 Banking Law to impose one or more special assessments
in any amount deemed necessary to enable repayment of amounts borrowed by the
FDIC from the Treasury Department. Effective July 1, 1991, the semiannual BIF
assessment was set at 0.23% of an institution's average assessment base.
Effective January 1, 1993, the FDIC replaced the uniform assessment rate with a
transitional risk-based assessment schedule (which is required by the 1991
Banking Law to be fully effective by January 1994), having assessments for both
BIF and SAIF insured deposits ranging from 0.23% to 0.31% of the institution's
average assessment base. This same schedule was retained commencing July 1,
1993. The actual assessment to be paid by each BIF and SAIF member is based on
the institution's assessment risk classification, which is determined on whether
the institution is considered "well capitalized," "adequately capitalized," or
"under-capitalized," as those terms have been defined in applicable federal
regulations adopted to implement the prompt corrective action provision of the
1991 Banking law, and whether such institution is considered by its supervising
agency to be financially sound or to have supervising concerns. As a result of
the 1991 Banking Law, the assessment rate on deposits could further increase
significantly at any time over the next 15 years. Based on the current financial
condition and capital levels of the Bank, the Company does not expect that the
transitional risk-base assessment schedule will have a material impact on the
earnings of the Bank.
The FDIC has proposed a rule which would affect contracts between a
bank holding company, such as the Company (or related interests under common
control), and its insured depository institution affiliates, such as the Bank.
The FDIC proposed establishing a rebuttable regulatory presumption that certain
types of contracts between an insured depository institution and any company
which directly or indirectly controls it (or which is under common control with
it) are unsafe and unsound. The types of contracts to be covered by such
presumption would include those relating to: (i) making or purchasing loans,
(ii) servicing loans, (iii) performing trust functions, (iv) providing
bookkeeping or data processing services, (v) furnishing management services,
(vi) selling or transferring any department or subsidiary, (vii) payments for
intangible assets or (viii) transferring any asset for less than fair market
value as evidenced by an independent written appraisal or prepaying any
liability more than 30 days prior to its due date. The FDIC also has proposed
regulations which would prohibit any insured depository institution, such as the
Bank, from entering into any contract with any person to provide goods, products
or services if such contract is determined to adversely affect the safety or
soundness of the insured institution. The Company and the Bank cannot determine
at this point the impact these proposed rules would have if they are adopted in
their currently proposed form.
Impact of the 1991 Banking Law
- ------------------------------
Among other things, the 1991 Banking Law provides increased funding for
the BIF and provides for expanded regulation of depository institutions and
their affiliates, including parent holding companies.
The BIF funding provisions could result in a significant increase in
the assessment rate on deposits of BIF institutions over the next 15 years. No
52
<PAGE>
assurance can be given at this time as to what the level of premiums will be
during this 15-year period. The 1991 Banking Law provides authority for special
assessments against insured deposits and for the development of a general
risk-based deposit insurance assessment system which the FDIC began to implement
on a transitional basis effective January 1, 1993. See "Supervision and
Regulation-Bank Regulation."
The 1991 Banking Law provides the federal banking agencies with broad
powers to take prompt corrective action to resolve problems of insured
depository institutions. The extent of those powers depends upon whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." In September 1992, each of the federal banking agencies
issued final uniform regulations defining such capital levels to be effective
December 19, 1992. Under the final regulations, a bank would be considered "well
capitalized" if it has (i) a total risk-based capital ratio of 10% or greater,
(ii) a Tier I risk-based capital ratio of 6% or greater, (iii) a leverage ratio
of 5% or greater and (iv) is not subject to any order or written directive to
meet and maintain a specific capital level for any capital measure. An
"adequately capitalized" bank would be defined as one that has (i) a total
risk-based capital ratio of 8% or greater, (ii) a Tier I risk-based capital
ratio of 4% or greater, and (iii) a leverage ratio of 4% or greater (or 3% or
greater in the case of a bank with a composite CAMELS rating of 1). A bank would
be considered (A) "undercapitalized" if it has (i) a total risk-based capital
ratio of less than 8%, (ii) a Tier I risk-based capitalized ratio of less than
4%, or (iii) a leverage ratio of less than 4% (or 3% in the case of a bank with
a composite CAMELS rating of 1); (B) "significantly undercapitalized" if the
bank has (i) a total risk-based capital ratio of less than 6%, (ii) a Tier I
risk-based Capital ratio of less than 3%, or (iii) a leverage ratio of less than
3%, and (C) "critically undercapitalized" if the bank has a ratio of tangible
equity to total assets equal to or less than 2%.
As of December 31, 1996, the Bank met the definition of a "Well
Capitalized" institution.
The 1991 Banking law also amended the prior law with respect to the
acceptance of brokered deposits by insured depository institutions to permit
only a "well capitalized" depository institution to accept brokered deposits
without prior regulatory approval. In June 1992 the FDIC issued a final
regulation implementing these provisions regulating brokered deposits. Under the
regulation, "well capitalized" banks may accept brokered deposits without
restriction, "adequately capitalized" banks may accept brokered deposits with a
waiver from the FDIC (subject to certain restrictions on payments of rates),
while "undercapitalized" banks may not accept brokered deposits. The FDIC has
proposed to amend these regulations to conform the regulation's capital
classifications ("well capitalized," "adequately capitalized" and
"undercapitalized") to those contained in the regulations implemented by the
prompt corrective action provisions of the 1991 Banking Law (as described in the
previous paragraph). The Company does not believe that this regulation will have
a material adverse effect on its current operations.
To facilitate the early identification of problems, the 1991 Banking
law requires the federal banking agencies to review and, under certain
circumstances, prescribe more stringent accounting and reporting requirements
than those required by generally accepted accounting principles. Effective July
2, 1993, the FDIC issued final rules implementing those provisions. The final
rules are applicable to only those FDIC insured financial institutions, which,
at the beginning of any fiscal year, had total assets of $500 million or more.
The rules, among other things, require that management report on the
institution's responsibility for preparing financial statements and establishing
and maintaining an internal control structure and procedures for financial
reporting and compliance with laws and regulations concerning safety and
soundness, and that independent auditors attest to and report separately on
assertions in management's response concerning compliance with such laws and
regulations, using FDIC-approved audit procedures.
The 1991 Banking Law further requires the federal banking agencies to
develop regulations requiring disclosure of contingent assets and liabilities
and, to the extent feasible and practicable, supplemental disclosure of the
estimated fair market value of assets and liabilities. The 1991 Banking Law
further requires examinations of all insured depository institutions by the
institution's appropriate federal supervisory agency. Moreover, the 1991 Banking
Law, modified by the Federal Enterprises Financial Safety and Soundness Act,
requires the federal banking agencies to set operational and managerial, asset
quality, earnings and stock valuation standards for insured depository
institutions and depository institution holding companies (including bank
53
<PAGE>
holding companies such as the Company), as well as compensation standards for
insured depository institutions that prohibit excessive compensation, fees or
benefits to officers, directors, employees and principal stockholders. In July
1992, the federal banking agencies issued a joint advance notice of proposed
rule-making soliciting comments on all aspects of the implementation of these
standards in accordance with the 1991 Banking Law, including whether the
compensation standards should apply to depository institution holding companies.
The foregoing necessarily is a general description of certain
provisions of the 1991 Banking Law and does not purport to be complete. Several
of the provisions of the 1991 Banking Law will be implemented through
regulations issued by the various federal banking agencies, only a portion of
which have been adopted in final form. The effect of the 1991 Banking Law on the
Company and the Bank will not be fully ascertainable until after all of the
provisions are effective and after all of the regulations are adopted.
Monetary Policy and Economic Control
- ------------------------------------
The commercial banking business in which the Bank engages is affected
not only by general economic conditions, but also by the monetary policies of
the FRB. Changes in the discount rate on member bank borrowing, availability of
borrowing at the "discount window," open market operations, the imposition of
changes in reserve requirements against member banks' deposits and assets of
foreign branches and the imposition of and changes in reserve requirements
against certain borrowings by banks and their affiliates are some of the
instruments of monetary policy available to the FRB. These monetary policies are
used in varying combinations to influence overall growth and distributions of
bank loans, investments and deposits, and this use may affect interest rates
charged on loans or paid on deposits. The monetary policies of the FRB have had
a significant effect on the operating results of commercial banks and are
expected to do so in the future. The monetary policies of these agencies are
influenced by various factors, including inflation, unemployment, short-term and
long-term changes in the international trade balance and in the fiscal policies
of the United States Government. Future monetary policies and the effect of such
policies on the future business and earnings of the Company and the Bank cannot
be predicted.
EXERCISE INSTRUCTIONS FOR WARRANTS
General
This Prospectus relates to Warrants relating to 1,019,110 Shares of
Class A Common Stock and 100,000 shares of Class B Common Stock, and 1,019,110
Shares of Class A Common Stock and 100,000 shares of Class B Common Stock
issuable upon exercise of the Warrants.
Method of Exercising the Warrants
Shares of Class A Common Stock or Class B Common Stock may be purchased
by holders of the Warrants only by mailing or delivering a completed and duly
executed Election to Purchase Form which is on the reverse side of the Warrant
Certificate, together with payment of the exercise price of $10.00 per share for
each Warrant surrendered to The Bank of New York (the "Warrant Agent'), prior to
the expiration of the Warrant.
Payment may be made in certified funds, cashier's check, bank draft or
bank check, payable to the order of the Warrant Agent.
54
<PAGE>
Subscription Proceeds
All funds received by the Warrant Agent from the subscription for
shares of Common Stock will be forwarded to the Company.
LEGAL MATTERS
The validity of the Warrants and Shares of Class A Common Stock and
Class B Common Stock offered hereby will be passed upon for the Company by
Harris Beach & Wilcox, LLP, Rochester, New York.
EXPERTS
The consolidated balance sheets of Intervest Bancshares Corporation and
Subsidiary as of December 31, 1996 and 1995 and the related consolidated
statements of earnings, stockholders' equity and cash flows for the years then
ended included in this Prospectus, have been included herein in reliance on the
report of Hacker, Johnson, Cohen & Grieb, Tampa, Florida, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
55
<PAGE>
<TABLE>
<CAPTION>
Index to Financial Statements
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Intervest Bancshares Corporation and Subsidiary Page
- ----------------------------------------------- ----
<S> <C>
Independent Auditors' Report F-2
Balance Sheets as of December 31, 1996 and 1995 F-3
Statements of Earnings for the Years Ended December 31, 1996 and 1995 F-4
Statements of Stockholders' Equity for the Years Ended December 31, 1996 and 1995 F-5
Statements of Cash Flows for the Years Ended December 31, 1996 and 1995 F-6
Notes to Financial Statements F-7
</TABLE>
All schedules are omitted because of the absence of conditions under
which they are required or because the required information is included in the
Financial Statements and related Notes.
F-1
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
New York, New York
Audited Consolidated Financial Statements
December 31, 1996 and 1995 and
for the Years then Ended
(Together With Independent Auditors' Report)
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
Intervest Bancshares Corporation
New York, New York:
We have audited the accompanying consolidated balance sheets of Intervest
Bancshares Corporation and Subsidiary (the "Company") as of December 31, 1996
and 1995, and the related consolidated statements of earnings, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
HACKER, JOHNSON, COHEN & GRIEB
Tampa, Florida
January 7, 1997
F-2
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
($ in thousands, except per share amounts)
At December 31,
Assets 1996 1995
---- ----
Cash and due from banks..................................$ 2,868 2,844
Federal funds sold....................................... 3,452 5,707
------- ------
Total cash and cash equivalents................... 6,320 8,551
Interest-bearing deposits with banks..................... 99 298
Securities held to maturity.............................. 34,507 19,630
Loans receivable, net of allowance for loan losses
of $811 in 1996 and $593 in 1995.................... 59,499 36,465
Accrued interest receivable.............................. 842 643
Premises and equipment, net.............................. 2,940 2,449
Restricted securities, Federal Reserve Bank
stock, at cost ..................................... 203 203
Foreclosed real estate................................... 185 -
Deferred income tax asset................................ 526 593
Other assets............................................. 75 110
------- ------
$ 105,196 68,942
======= ======
Liabilities and Stockholders' Equity
Liabilities:
Demand deposits....................................... 2,401 2,729
Savings and NOW deposits.............................. 9,278 3,300
Money-market deposits................................. 7,507 3,518
Other time deposits................................... 74,261 49,054
------- ------
Total deposits.................................... 93,447 58,601
Other liabilities........................................ 1,676 807
------- ------
Total liabilities................................. 95,123 59,408
------- ------
Minority interest........................................ 326 345
------- ------
Commitments (Notes 4 and 7)
Stockholders' Equity:
Class A common stock - $1 par value,
2,600,000 shares authorized; 900,000 shares
issued and outstanding............................. 900 900
Class B common stock - $1 par value,
400,000 shares authorized; 200,000 shares
issued and outstanding............................. 200 200
Additional paid-in capital........................... 7,655 7,655
Retained earnings.................................... 992 434
------- ------
Total stockholders' equity....................... 9,747 9,189
------- ------
$ 105,196 68,942
======= ======
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
($ in thousands except per share amounts)
Year Ended December 31,
1996 1995
---- ----
Interest income:
Loans receivable........................ $ 4,624 2,878
Securities held to maturity............. 1,514 1,080
Other interest earning assets........... 243 232
--------- ---------
Total interest income.............. 6,381 4,190
--------- ---------
Interest expense:
Deposits................................ 3,745 2,225
--------- ---------
Net interest income................ 2,636 1,965
Provision for loan losses.................. 250 233
--------- ---------
Net interest income after
provision for loan losses........ 2,386 1,732
--------- ---------
Noninterest income:
Customer service charges................ 89 82
Other................................... 17 7
--------- ---------
Total noninterest income........... 106 89
--------- ---------
Noninterest expenses:
Salaries and employee benefits.......... 739 577
Occupancy and equipment................. 342 379
Advertising and promotion............... 9 12
Professional fees....................... 88 81
Deposit insurance premiums.............. 2 38
General insurance....................... 31 29
Stationery, printing and supplies....... 51 45
Other................................... 270 243
Minority interest in subsidiary......... 19 11
--------- ---------
Total noninterest expenses......... 1,551 1,415
--------- ---------
Earnings before income taxes............... 941 406
Income taxes............................... 383 136
--------- ---------
Net earnings....................... $ 558 270
========= =========
Earnings per share......................... $ .51 .25
========= =========
Weighted-average number of shares
outstanding................................ 1,100,000 1,100,000
========= =========
See Accompanying Notes to Consolidated Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
(In thousands)
Unrealized
Loss on
Class A Class B Additional Securities Total
Common Common Paid-In Retained Available Stockholders'
Stock Stock Capital Earnings for Sale Equity
------- ------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994.... $ 900 200 7,668 164 (48) 8,884
Net earnings.................. - - - 270 - 270
Stock issuance cost........... - - (13) - - (13)
Decrease in unrealized
loss on securities
available for sale......... - - - - 48 48
--- --- ----- --- -- -----
Balance, December 31, 1995.... 900 200 7,655 434 - 9,189
Net earnings.................. - - - 558 - 558
--- --- ----- --- -- -----
Balance, December 31, 1996.... $ 900 200 7,655 992 - 9,747
=== === ===== === == =====
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
1996 1995
---- ----
Cash flows from operating activities:
Net earnings .................................. $ 558 270
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation ............................ 176 170
Provision for deferred income taxes ..... 67 127
Decrease in other assets ................ 35 35
Increase in other liabilities ........... 850 11
Increase in accrued interest
receivable ............................ (199) (387)
Net amortization of fees, premiums
and discounts ......................... 271 (36)
Provision for loan losses ............... 250 233
-------- --------
Net cash provided by operating
activities ............................ 2,008 423
-------- --------
Cash flows from investing activities:
Purchase of Federal Reserve Bank stock ........ -- (30)
Purchase of securities held to maturity ....... (30,025) (22,703)
Maturities of securities held to maturity ..... 15,050 11,900
Net purchases of premises and equipment ....... (667) (1,286)
Net increase in loans ......................... (23,642) (14,436)
Purchase of interest-bearing deposits ......... -- (298)
Maturity of interest-bearing deposits ......... 199 397
-------- --------
Net cash used in investing activities ... (39,085) (26,456)
-------- --------
Cash flows from financing activities:
Net increase in demand, savings, NOW and
money market deposits ...................... 9,639 1,894
Net increase in time deposits ................. 25,207 26,615
Stock issuance costs .......................... -- (13)
Net cash provided by financing
activities ............................ 34,846 28,496
-------- --------
Net (decrease) increase in cash
and cash equivalents .................. (2,231) 2,463
Cash and cash equivalents at beginning
of year .................................... 8,551 6,088
-------- --------
Cash and cash equivalents at end of year ........ $ 6,320 8,551
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................ $ 3,678 2,166
======== ========
Income taxes ............................ $ 17 --
======== ========
Noncash transactions:
Reclassification of loans to other
real estate owned ..................... $ 185 --
======== ========
Unrealized gain on securities
available for sale, net of
income tax benefit .................... $ -- (48)
======== ========
Reclassify securities from available
for sale to held to maturity .......... $ -- 750
======== ========
See Accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1996 and 1995
(1) Description of Business and Summary of Significant Accounting Policies
GENERAL. Intervest Bancshares Corporation (the "Holding Company") was
incorporated on February 5, 1993. The Holding Company owns 95.76% of the
outstanding common stock of Intervest Bank (the "Bank") (collectively the
"Company"). The Bank is a Florida state-chartered bank, is insured by the
Federal Deposit Insurance Corporation and is a member of the Federal Reserve
Bank. The Holding Company's primary business is the operation of the Bank.
The Bank provides a wide range of banking services to small and middle-market
businesses and individuals through its four banking offices located in
Pinellas County, Florida.
BASIS OF PRESENTATION. The accompanying consolidated financial statements of the
Company include the accounts of the Holding Company and the Bank. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and to general practices within the banking
industry. The following summarizes the more significant of these policies and
practices.
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.
CASH AND CASH EQUIVALENTS. For purposes of presentation in the consolidated
statements of cash flows, cash and cash equivalents are defined as those
amounts included in the balance-sheet captions "cash and due from banks and
federal funds sold."
SECURITIES HELD TO MATURITY. United States government treasury and agency
securities for which the Company has the positive intent and ability to hold
to maturity are reported at cost, adjusted for amortization of premiums and
accretion of discounts which are recognized in interest income using the
interest method over the period to maturity.
LOANS RECEIVABLE. Loans receivable that management has the intent and ability to
hold for the foreseeable future or until maturity or pay-off are reported at
their outstanding principal adjusted for any charge-offs, the allowance for
loan losses, and any deferred fees or costs on originated loans.
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
(continued)
F-7
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Description of Business and Summary of Significant Accounting
Policies, Continued
LOANS RECEIVABLE, CONTINUED. The accrual of interest on impaired loans is
discontinued when, in management's opinion, the borrower may be unable to
meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
The allowance for loan losses is increased by charges to income and decreased
by charge-offs (net of recoveries). Management's periodic evaluation of the
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, the estimated value of any
underlying collateral, and current economic conditions.
FORECLOSED REAL ESTATE. Real estate properties acquired through, or in lieu of,
loan foreclosure are to be sold and are initially recorded at fair value at
the date of foreclosure establishing a new cost basis. After foreclosure,
valuations are periodically performed by management and the real estate is
carried at the lower of carrying amount or fair value less cost to sell.
Revenue and expenses from operations and changes in the valuation allowance
are included in the consolidated statement of earnings.
INCOME TAXES. Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in
tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
PREMISES AND EQUIPMENT. Land is carried at cost. Premises, furniture and
fixtures and equipment are carried at cost, less accumulated depreciation
computed by the straight-line method.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS. In the ordinary course of business the
Company has entered into off-balance-sheet financial instruments consisting
of commitment to extend credit, unused lines of credit and stand-by-letters
of credit. Such financial instruments are recorded in the consolidated
financial statements when they are funded or related fees are incurred or
received.
FAIR VALUES OF FINANCIAL INSTRUMENTS. The following methods and assumptions were
used by the Company in estimating fair values of financial instruments:
CASH AND CASH EQUIVALENTS AND INTEREST-BEARING DEPOSITS WITH BANKS. The carrying
amounts of cash and short-term instruments approximate their fair value.
SECURITIES HELD TO MATURITY. Fair values for securities held to maturity are
based on quoted market prices.
FEDERAL RESERVE BANK STOCK. Book value for these securities approximates fair
value.
(continued)
F-8
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Description of Business and Summary of Significant
Accounting Policies, Continued
FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED.
LOANS RECEIVABLE. For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values.
Fair values for fixed-rate mortgage (e.g. one-to-four family residential),
commercial real estate and commercial loans are estimated using discounted
cash flow analyses, using interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality.
DEPOSIT LIABILITIES. The fair values disclosed for demand, NOW, money-market and
savings deposits are, by definition, equal to the amount payable on demand at
the reporting date (that is, their carrying amounts). Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on time
deposits.
ACCRUED INTEREST. The carrying amounts of accrued interest approximate their
fair values.
OFF-BALANCE-SHEET INSTRUMENTS. Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing.
ADVERTISING. The Company expenses all advertising as incurred.
EARNINGS PER SHARE. Earnings per share of common stock has been computed on the
basis of the weighted-average number of shares of common stock outstanding.
The effect of outstanding warrants is not dilutive.
FUTURE ACCOUNTING REQUIREMENTS. The FASB has issued Statement of Financial
Accounting Standards No. 125 ("SFAS 125"). This Statement provides accounting
and reporting standards for transfers and servicing of financial assets as
well as extinguishments of liabilities. This Statement also provides
consistent standards for distinguishing transfers of financial assets that
are sales from transfers that are secured borrowings. SFAS 125 is effective
for transfers and servicing of financial assets as well as extinguishments of
liabilities occurring in 1997. Management does not anticipate SFAS 125 will
have a material impact on the Company.
(continued)
F-9
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Securities Held to Maturity
Debt securities have been classified in the consolidated balance sheets
according to management's intent. The carrying amount of securities and their
approximate fair values are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
December 31, 1996:
U.S. Treasury securities............$ 1,499 7 - 1,506
U.S. Government and
agency securities............... 33,008 44 105 32,947
------ -- --- ------
Total...........................$ 34,507 51 105 34,453
====== == === ======
December 31, 1995:
U.S. Treasury securities............ 2,265 - 2 2,263
U.S. Government and
agency securities............... 17,365 70 3 17,432
------ -- --- ------
Total...........................$ 19,630 70 5 19,695
====== == === ======
</TABLE>
There were no sales of securities in 1996 or 1995.
During 1995, the Company transferred $750,000 of securities from available
for sale to held to maturity at market value which approximated amortized
book value.
The scheduled maturities of securities held to maturity at December 31, 1996
are summarized as follows (in thousands):
Amortized Fair
Cost Value
--------- -------
Due in one year or less................. $ 8,642 8,647
Due after one year through five years... 23,855 23,811
Due after five years through ten years.. 2,010 1,995
------ ------
Total........................... $ 34,507 34,453
====== ======
(continued)
F-10
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans Receivable
The components of loans in the consolidated balance sheets are summarized as
follows (in thousands):
At December 31,
1996 1995
---- ----
Commercial loans.................................. $ 3,514 4,391
Commercial real estate............................ 54,198 29,719
Residential real estate........................... 2,784 3,046
Consumer loans.................................... 157 115
------ ------
60,653 37,271
Deferred loan fees................................. (343) (186)
Unamortized discounts.............................. - (27)
Allowance for loan losses.......................... (811) (593)
------ -------
$ 59,499 36,465
====== ======
An analysis of the change in the allowance for loan losses follows (in
thousands):
Year Ended December 31,
1996 1995
---- ----
Balance at beginning of year....................... $ 593 369
--- ---
Loans charged-off.................................. (65) (30)
Recoveries......................................... 33 21
--- ---
Net loans charged-off............................ (32) (9)
--- ---
Provision for loan losses.......................... 250 233
--- ---
Balance at end of year............................. $ 811 593
=== ===
The Company had no impaired loans at December 31, 1996 or 1995. The average
recorded investment in impaired loans during 1996 and 1995 was $31,000 and
$5,000, respectively. No interest income on impaired loans was recognized in
1996 or 1995.
(continued)
F-11
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Premises and Equipment
Premises and equipment is summarized as follows (in thousands):
At December 31,
1996 1995
---- ----
Land ......................................... $ 729 729
Bank buildings ............................... 1,926 1,397
Leasehold improvements ....................... 61 61
Furniture and fixtures and equipment ......... 565 427
------- -------
Total, at cost ............................. 3,281 2,614
Less accumulated depreciation and amortization (341) (165)
------- -------
Net book value ............................. $ 2,940 2,449
======= =======
In November, 1994 the Company purchased two properties which began operations as
branch offices in March, 1995. In addition, the Company acquired another
property in 1995 which became operational as a branch office in September,
1995.
On November 15, 1996, the Company entered into an agreement to purchase a
property for $185,000 which will be a branch office of the Bank. It is
anticipated that this branch office will open in June, 1997.
Also, the Bank is currently making major renovations to its office located on
Chestnut Street, Clearwater, Florida which will be completed in May, 1997.
The Bank will move its main office to this location. At December 31, 1996,
the Bank has remaining purchase commitments of $523,000 to complete this
renovation.
On September 26, 1986, the Bank entered into a lease agreement for the office
located on Belcher Road in Clearwater, Florida with a corporation, owned
entirely by certain of the Bank's directors, to lease the Bank's premises
(none of which are directors, officers or stockholders of the Holding
Company, Intervest Bancshares Corporation). On January 1, 1989, the Bank
entered into a second lease with the same corporation for additional space in
the same building. In January, 1996, both of these leases were renegotiated
for less space and a lower rental rate. The lease is accounted for as an
operating lease and will expire on October 31, 2007.
(continued)
F-12
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Premises and Equipment, Continued
The lease agreement contains escalation clauses based upon the consumer price
index and contains annual adjustments up to a maximum of 3% based upon the
previous year's rental. Rental expense was $163,000 and $167,000 for the
years ended December 31, 1996 and 1995, respectively. Approximate future
minimum annual rental payments under these noncancellable leases are as
follows (in thousands):
Year Ending
December 31, Amount
------------ ------
1997.............................................. $ 133
1998.............................................. 92
1999.............................................. 95
2000.............................................. 98
2001.............................................. 101
Thereafter........................................ 671
-----
Total............................................. $ 1,190
=====
The Company leases a portion of their office space in the branch office located
on Ulmerton Road, Largo, Florida and through 1996, its branch office located
on Belcher Road, Clearwater, Florida to other companies. Such leases begin to
expire in 1998. Rental income during 1996 and 1995 totaled approximately
$159,000 and $35,000, respectively. Approximate future minimum lease income
under these leases is as follows (in thousands):
Year Ending
December 31, Amount
------------ ------
1997............................................. $ 191
1998............................................. 128
1999............................................. 59
2000............................................. 58
2001............................................. 2
---
Total............................................ $ 438
===
(5) Deposits
The aggregate amount of short-term certificates of deposit with a minimum
denomination of $100,000, was approximately $7,261,000 and $4,822,000 at
December 31, 1996 and 1995, respectively.
(continued)
F-13
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) Deposits, Continued
At December 31, 1996, the scheduled maturities of certificates of deposit are as
follows (in thousands):
Year Ending
December 31, Amount
------------ ------
1997............................................... $ 42,845
1998............................................... 10,989
1999............................................... 3,254
2000............................................... 7,837
2001 and thereafter................................ 9,336
------
$ 74,261
======
(6) Other Borrowings
The Company has agreements with correspondent banks whereby the Company may
borrow up to $1,000,000 on an overnight basis under a repurchase agreement
and up to $3,457,000 in federal funds. There were no borrowings under these
agreements at December 31, 1996 or 1995.
(7) 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 financial instruments are commitments to extend credit and standby
letters of credit and may involve, to varying degrees, elements of credit and
interest-rate risk in excess of the amount recognized in the consolidated
balance sheet. The contract amounts of these instruments reflect the extent
of involvement the Company has in these financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit 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 to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates
each customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Company upon extension of
credit is based on management's credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers.
(continued)
F-14
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) Financial Instruments, Continued
The estimated fair values of the Company's financial instruments were as follows
(in thousands):
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1995
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 6,320 6,320 8,551 8,551
Investment securities held to
maturity......................... 34,507 34,453 19,630 19,695
Loans receivable, net.............. 59,499 59,692 36,465 36,653
Accrued interest receivable........ 842 842 643 643
Federal Reserve Bank stock......... 203 203 203 203
Interest-bearing deposits with
bank............................. 99 99 298 298
Financial liabilities-
Deposit liabilities................ 93,447 93,713 58,601 58,851
</TABLE>
A summary of the notional amounts of the Company's financial instruments,
which approximate fair value, with off balance sheet risk at December 31,
1996 follows (in thousands):
Unfunded loan commitments at variable rates....................... $ 2,100
=====
Available lines of credit......................................... $ 909
=====
Standby letters of credit......................................... $ 100
=====
(8) Credit Risk
The Company grants a majority of its loans to borrowers throughout the State of
Florida. Although the Company has a diversified loan portfolio, a significant
portion of its borrowers' ability to honor their contracts is dependent upon
the economy of the State of Florida. In addition, at December 31, 1996, the
Company's loan portfolio contained a concentration of credit risk in retail
shopping centers, apartment buildings and office buildings totaling
$41,585,000.
(9) Income Taxes
The provision for income taxes for the years ended December 31, 1996 and 1995
consisted of the following (in thousands):
Year Ended December 31, 1996: Current Deferred Total
----------------------------- ------- -------- -----
Federal......................... $ 244 63 307
State........................... 72 4 76
--- --- ---
Total....................... $ 316 67 383
=== === ===
Year Ended December 31, 1995:
-----------------------------
Federal......................... 9 108 117
State........................... - 19 19
--- --- ---
Total....................... $ 9 127 136
=== === ===
(continued)
F-15
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(9) Income Taxes, Continued
The reasons for the differences between the statutory Federal income tax rate
and the effective tax rate are summarized as follows:
Year Ended December 31,
1996 1995
---- ----
Tax provision at statutory rate.............. 34.0% 34.0%
Increase (decrease) in taxes resulting from:
State taxes.............................. 8.1 3.2
Other..................................... (1.4) (3.7)
---- ----
Income tax provision ........................ 40.7% 33.5%
==== ====
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets relate to the following at December 31 (in
thousands):
1996 1995
---- ----
Net deferred tax assets:
Allowance for loan losses................ $ 185 95
Depreciation............................. (20) (28)
Deferred loan fees....................... 19 25
Net operating loss carryforward.......... 311 443
Push-down accounting adjustments......... 31 56
Other.................................... - 2
---- ---
Net deferred tax assets............... $ 526 593
=== ===
At December 31, 1996, the Company has the following net operating loss
carryforwards relating to the operations of the Bank for federal income tax
purposes available to offset future federal taxable income (in thousands):
Expiration Amount
---------- ------
2004 ......... $ 149
2005 ......... 18
2006 ......... 358
2007 ......... 298
2008 ......... 3
---
$ 826
The net operating loss carryforwards are subject to an annual limitation of
$332,000 due to the ownership change of the Bank when the Holding Company
purchased its controlling ownership interest.
(continued)
F-16
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(10) Related Parties
The Bank has entered into loan transactions with certain of its directors and
their related entities. The activity for the year ended December 31, 1996 is
as follows (in thousands):
Amount
------
Balance at beginning of year................................. $ 1,484
Additions.................................................... 1,570
Repayments................................................... (113)
------
Balance at end of year....................................... $ 2,941
=====
There are no loans to directors or officers of the Holding Company, Intervest
Bancshares Corporation.
(11) Employee Stock Option Plan of the Bank
Prior to 1993, an officer of the Bank had been granted options to acquire 11,000
shares of the Bank's common stock. These options expire on December 31, 2001,
and are exercisable at $5 per share. All such options were exercisable and
outstanding during the years ended December 31, 1996 and 1995.
(12) Profit Sharing Plan
The Bank sponsors a profit sharing plan established in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. The profit sharing
plan is available to all employees electing to participate after meeting
certain length-of-service requirements. The Bank's contributions to the
profit sharing plan are discretionary and are determined annually. Expense
relating to the Bank's contributions to the profit sharing plan included in
the accompanying consolidated financial statements was $12,181 for 1996. The
Bank did not contribute to the profit sharing plan in 1995.
(13) Common Stock Warrants of the Bank
In 1995, Intervest Bancshares Corporation purchased 200,000 shares of the Bank's
common stock at $5.00 per share and received warrants to purchase an
additional 200,000 shares of common stock at $5.00 par value. These warrants
expire December 31, 1999.
(14) Stockholders' Equity
The Bank, as a state-chartered bank, is limited in the amount of cash dividends
that may be paid. The amount of cash dividends that may be paid is based on
the Bank's net earnings of the current year combined with the Bank's retained
net earnings of the preceding two years, as defined by state banking
regulations. However, for any dividend declaration, the Bank must consider
additional factors such as the amount of current period net earnings,
liquidity, asset quality, capital adequacy and economic conditions. It is
likely that these factors would further limit the amount of dividends which
the Bank could declare. In addition, bank regulators have the authority to
prohibit banks from paying dividends if they deem such payment to be an
unsafe or unsound practice. The ability of the Holding Company to pay
dividends could be affected by the amount of dividends the Bank is able to
pay to the Holding Company.
(continued)
F-17
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(15) Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgements by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1996,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the State and Federal
regulators categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier
I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
Bank's category. The Bank's actual capital amounts and ratios are also
presented in the table (dollars in thousands).
<TABLE>
<CAPTION>
For Well
For Capital Capitalized
Actual Adequacy Purposes: Purposes:
------ ------------------ ---------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital (to Risk
Weighted Assets).................... $ 8,051 11.90% $ 5,412 8.00% $ 6,765 10.0%
Tier I Capital (to Risk
Weighted Assets).................... 7,240 10.70 2,706 4.00 4,059 6.0
Tier I Capital
(to Average Assets)................. 7,240 7.48 3,871 4.00 4,839 5.0
As of December 31, 1995:
Total capital (to Risk
Weighted Assets).................... 7,272 16.11 3,610 8.00 4,512 10.0
Tier I Capital (to Risk
Weighted Assets).................... 6,699 14.85 1,805 4.00 2,708 6.0
Tier I Capital
(to Average Assets)................. 6,699 10.83 2,475 4.00 3,093 5.0
(continued)
</TABLE>
F-18
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(16) Holding Company Financial Information
The Holding Company's financial information is as follows at and for the years
ended December 31, 1996 and 1995 (in thousands):
Condensed Balance Sheets
At December 31,
1996 1995
---- ----
Assets
Cash............................................... $ 90 109
Short-term securities.............................. 1,158 1,039
----- -----
Cash and cash equivalents....................... 1,248 1,148
Loans receivable................................... 1,230 1,168
Investment in subsidiary........................... 7,340 6,845
Organizational costs, net.......................... 32 61
Other assets....................................... 17 25
----- ------
Total assets.................................... $ 9,867 9,247
===== =====
Liabilities and Stockholders' Equity
Liabilities........................................ 120 58
Stockholders' equity............................... 9,747 9,189
----- -----
Total liabilities and stockholders' equity...... $ 9,867 9,247
===== =====
Condensed Statements of Earnings
For the Year Ended
December 31,
1996 1995
---- ----
Revenues........................................... $ 325 169
Expenses........................................... 224 107
--- ---
Earnings before earnings of subsidiary.......... 101 62
Earnings of subsidiary.......................... 457 208
--- ---
Net earnings.................................... $ 558 270
=== ===
(continued)
F-19
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(16) Holding Company Financial Information, Continued
Condensed Statements of Cash Flows
For the Year Ended
December 31,
1996 1995
---- ----
Cash flows from operating activities:
Net earnings.......................................... $ 558 270
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Equity in undistributed income of subsidiary.... (457) (208)
Net decrease in organizational costs............ 29 30
Other........................................... 53 90
Decrease in minority interest................... 19 -
----- -----
Net cash provided by operating activities.... 202 182
----- -----
Cash flows used in investing activities -
Net increase in loans................................. (62) (1,168)
----- -----
Cash flows from financing activities-
Purchase of common stock of subsidiary................ (40) (1,000)
----- -----
Net cash used in financing activities........ (40) (1,000)
----- -----
Net increase (decrease) in cash and cash equivalents..... 100 (1,986)
Cash and cash equivalents at beginning of the year....... 1,148 3,134
----- -----
Cash and cash equivalents at end of year................. $ 1,248 1,148
===== =====
(17) Common Stock Recapitalization and Stock Warrants
On July 19, 1994, the Company's charter was amended to authorize 200,000 shares
of Class B Common Stock, 200,000 shares of Preferred Stock and to increase
the authorized shares of Class A Common Stock to 2,600,000. At that time, the
Company issued the 200,000 shares of Class B Common Stock to its then
stockholders without any change in total stockholders' equity. On October 10,
1996, the Company's charter was further amended to increase the authorized
number of shares of Class B Common Stock to 400,000.
(continued)
F-20
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(17) Common Stock Recapitalization and Stock Warrants, Continued
Both classes of common stock have equal voting rights as to all matters, except
that, so long as at least 50,000 shares of Class B Common Stock remain issued
and outstanding the holders of the outstanding shares of Class B Common Stock
are entitled to vote for the election of two-thirds of the directors (rounded
to the nearest whole number) and the holders of the outstanding shares of
Class A Common Stock are entitled to vote for the remaining directors of the
Company. No dividends may be declared or paid with respect to shares of Class
B Common Stock until January 1, 2000, after which time the holders of Class A
Common Stock and Class B Common Stock will share ratably in dividends. The
shares of Class B Common Stock are convertible, on a share-for-share basis,
into Class A Common Stock at any time after January 1, 2000.
At December 31, 1996, there were issued and outstanding warrants related to the
purchase of 1,019,110 shares of Class A Common Stock and the Company has
reserved a total of 1,019,110 shares of its Class A Common Stock for
issuance, from time to time, upon exercise of these warrants. Of these
warrants, 684,800 are exercisable at any time on or before December 31, 2001
and represent the right to purchase one share of Class A Common Stock at a
purchase price of $10.00 per share (subject to adjustment in connection with
certain issuances of securities). The remaining warrant is exercisable at any
time on or before January 31, 2006 and represents the right to purchase
334,310 shares of Class A Common Stock at a purchase price of $10.00 per
share (subject to adjustment in connection with certain future issuances of
securities). As of December 31, 1996 none of the Company's warrants had been
exercised.
During 1996, the Board of Directors authorized, subject to regulatory approval,
the issuance of a warrant to purchase 100,000 shares of Class B Common Stock
to its Chairman of the Board. The warrant is exercisable at a price of $10.00
per share at any time on or before January 31, 2007 (subject to adjustment in
connection with certain future issuances of securities). A total of 100,000
shares of the Company's Class B Common Stock has been reserved for issuance
upon exercise of the foregoing warrant. It is expected that this warrant will
be issued in February, 1997.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," which
establishes financial accounting and reporting standards for stock-based
employee compensation plans. As permitted by this Statement, the Company has
elected to continue utilizing the intrinsic value method of accounting
defined in APB Opinion No. 25. Due to the exercise price of the warrants
approximating the market value of the common stock at the date of grant, no
compensation expense has been recognized in the consolidated statement of
operations.
Each warrant entitles the holder to purchase one share of common stock. All
warrants, when issued, were immediately exercisable and the exercise price
and number of shares for all warrants are subject to adjustments in
connection with future issuance of securities. No warrants were exercised or
forfeited during 1996 or 1995.
Due to the adjustable nature of the warrants issued to purchase Class A common
stock, it was not possible to reasonably estimate the fair value of the
warrants, therefore the estimate of compensable cost was based on the current
intrinsic value of the warrants as if the warrants were currently exercised,
which would result in no compensation cost.
F-21
<PAGE>
No dealer, salesman or any other person is authorized to give any information or
to make any representation not contained in this Prospectus. If given or made,
such information or representation must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer of any
securities other than the registered securities to which it relates or an offer
to any person in any jurisdiction where such an offer would be unlawful. Neither
the delivery of this Prospectus, nor any sale made hereunder, shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to its date.
----------------
TABLE OF CONTENTS
Page
----
Available Information 3
Prospectus Summary 4
Investment Considerations and Risk
Factors 8
Determination of Offering Price 11
Use of Proceeds 11
Market for Securities 12
Dividends 12
Dilution
13
Capitalization
14
Selected Financial Data 15
Management's Discussion and
Analysis of Financial Condition
and Results of Operation 16
Business
34
Management 39
Principal Stockholders 45
Description of Securities 46
Supervision and Regulation 49
Exercise Instructions for Warrants 55
Legal Matters 56
Experts
56
Index to Financial Statements F-1
INTERVEST BANCSHARES CORPORATION
Warrants Related to the Issuance of
1,019,110 Shares of Class A Common Stock and 100,000
Shares of Class B Common Stock
and
1,019,110 Shares of Class A Common Stock and 100,000 Shares of Class B
Common Stock issuable upon Exercise of the Warrants
--------------
PROSPECTUS
--------------
___________, 1997
<PAGE>
PART II
Information Not Required In Prospectus
Item 24. Indemnification of Directors and Officers.
- -------- ------------------------------------------
Section 145 of the General Corporation Law of Delaware provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any action, suit or proceeding, by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interest of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. No indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
The Company's bylaws provide that the Company will indemnify the
officers and directors of the Company to the fullest extent permitted under the
laws of the State of Delaware. In that regard, the Company is obligated to
indemnify officers and directors of the Company from and against any and all
judgments, fines, amounts paid in settlement, and reasonable expenses, including
attorneys' fees, actually and necessarily incurred by an officer or director as
a result of any action or proceeding, or any appeal therein, to the extent such
amounts may be indemnified under the laws of Delaware; and to pay any officer or
director of the Company in advance of the final disposition of any civil or
criminal proceeding, the expenses incurred by such officer or director in
defending such action or proceeding. The Company's obligation to indemnify its
officers and directors continues to individuals who have ceased to be officers
or directors of the Company and to the heirs and personal representatives of
former officers and directors of the Company.
Item 25. Other Expenses of Issuance and Distribution.
- -------- --------------------------------------------
The following table sets forth the estimated cost and expenses to be
borne by the company in connection with the offering described in the
Registration Statement, other than underwriting commissions and discounts.
Registration Fee $ 458.18
Printing and Engraving expenses $ 2,000*
Accounting fees and expenses $ 5,000*
Legal fees and expenses $15,000*
Blue Sky fees and expenses $ 7,000*
Transfer Agents and Registrar fees $ 0*
Miscellaneous $10,541.82*
-------
Total $40,000
-------
- -------------------------------------
* Estimated amounts of expenses
Item 26. Recent Sales of Unregistered Securities.
- -------- ----------------------------------------
Unregistered Warrants related to a total of 125,800 shares of Class A
Common Stock were issued to officers, directors and employees of the Company and
II-2
<PAGE>
the Bank in 1996. In addition, in 1996 the Company authorized the issuance of a
warrant to purchase 100,000 shares of Class B Common Stock to an executive
officer of the Company. These warrants were issued without registration under
the Securities Act of 1933, as amended, in reliance upon the exemption afforded
by Section 4(2) thereof. All of the foregoing warrants and the shares of Class A
Common Stock issuable upon their exercise are included in this Registration
Statement.
Item 27. Exhibits.
- -------- ---------
Exhibit Number Description of Exhibit
- -------------- ----------------------
3.1 Restated Certificate of Incorporation of the Company, incorporated by
reference from Registration Statement on Form SB-2 (No. 33-82246)
3.2 Bylaws of the Company, incorporated by reference from Registration
Statement on Form SB-2 (No. 33-82246)
4.1 Form of Certificate for Shares of Class A Common Stock, incorporated
by reference from Pre-Effective Amendment No. 1 to Registration
Statement on Form SB-2 (No. 33- 82246)
4.2 Form of Certificate for Shares of Class B Common Stock, incorporated
by reference from Pre-Effective Amendment No. 1 to Registration
Statement on Form SB-2 (No. 33- 82246)
4.3 Form of Warrant is included as Exhibit A to Exhibit 4.5.
4.4 Form of Warrant Agreement between the Company and the Bank of New
York, incorporated by reference from Pre- Effective Amendment No. 1 to
Registration Statement on Form SB-2 (No. 33-82246)
4.5 Amendment to Warrant Agreement between the Company and The Bank of New
York, incorporated by reference from the Company's Report on Form 10-K
for the year ended December 31, 1995.
4.6 Amendment No. 2 to Warrant Agreement.
4.7 Form of Warrant for Class B Common Stock.
5.1 Opinion of Harris Beach & Wilcox, LLP
10.1 Form of Escrow Agreement between the Company and Manufacturers and
Traders Trust Company, incorporated by reference from Registration
Statement on Form SB-2 (No. 33-82246)
II-3
24.1 Consent of Harris Beach & Wilcox, LLP is included in the Opinion of
Harris Beach & Wilcox, LLP, filed as Exhibit 5.1
24.2 Consent of Hacker, Johnson, Cohen & Grieb
- ----------------------
Item 28. Undertakings.
- -------- -------------
<PAGE>
(a) The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or
sales are being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration statement for the
most recent post-effective amendment thereof, which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
2. That, for purposes of determining liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed a new registration statement relating to the securities offering therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
3. To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned small business issuer will:
1. For determining any liability under the
Securities Act, treat any information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and contained
in a Form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act as part of this Registration Statement as
of the time the Commission declared it effective.
2. For determining any liability under the
Securities Act, treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in the
Registration Statement, and the offering of the securities at that time as the
initial bona fide offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on this form and has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 2nd day of May,
1997.
INTERVEST BANCSHARES CORPORATION
(Registrant)
By: /s/ LOWELL S. DANSKER
-------------------------------
Lowell S. Dansker, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Title Date
----- ----
/s/ LAWRENCE G. BERGMAN Vice President, 5/2/97
- --------------------- Secretary and Director ------
Lawrence G. Bergman
Michael A. Callen Director __________
/s/ JEROME DANSKER Chairman of the Board, 5/2/97
- --------------------- Executive Vice President, Director ------
Jerome Dansker
/s/ LOWELL S. DANSKER President, Treasurer and Director 5/2/97
- --------------------- (Principal Executive, Financial ------
Lowell S. Dansker and Accounting Officer)
Milton F. Gidge Director __________
/s/ WILLIAM F. HOLLY Director 5/2/97
- --------------------- ------
William F. Holly
David J. Willmott Director __________
/s/ WESLEY T. WOOD Director 5/2/97
- --------------------- ------
Wesley T. Wood
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
4.6 Amendment No. 2 to Warrant Agreement
4.7 Form of Warrant
5.1 Opinion of Harris Beach & Wilcox, LLP
24.1 Consent of Harris Beach & Wilcox, LLP is
included in the Opinion of Harris Beach
& Wilcox, LLP, filed as Exhibit 5.1
24.2 Consent of Hacker, Johnson, Cohen & Grieb
AMENDMENT NO. 2 TO WARRANT AGREEMENT
Amendment made as of the ____ day of _________, 1996 to that certain
Warrant Agreement dated as of September 27, 1994 (the "Warrant Agreement")
between Intervest Bancshares Corporation, a Delaware corporation (the "Company")
and The Bank of New York, a New York trust company (the "Warrant Agent").
WHEREAS, the Warrant Agent is acting as warrant agent for the Company
in connection with the issuance, division, transfer and exchange of the
Company's warrants related to its Class A Common Stock, and
WHEREAS, the Company has extended the term of certain of its
outstanding warrants and may, from time to time, further extend the term during
which the warrants may be exercised.
In consideration of the foregoing, the Company and the Warrant Agent
hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Warrant Agreement.
2. Amendment. (a) The Company has heretofore issued certain warrants
pursuant to the Warrant Agreement, consisting of: (i) those certain warrants
which presently expire on January 1, 2000, and which warrants, together with
such other warrants which may hereafter be issued upon the same terms shall be
called the Series 9/27/94 Warrants; and (ii) that certain warrant dated April 4,
1996 related to 300,000 shares of Class A Common Stock, and which warrant shall
be called the 4/4/96 Warrant. The Warrant Agreement is hereby amended so as to
provide that the Company may hereafter, from time to time, by written notice to
the Warrant Agent specifying the revised expiration date, extend the exercise
period for any warrants issued by it, including the Series 9/27/94 Warrants and
the 4/4/96 Warrant. Attached hereto as Exhibit A is the form of legend to be
affixed to or over-stamped on certificates presented by the holders of warrants
when the term of such warrant has been so extended or whenever new certificates
representing such warrants are issued.
(b) The Warrant Agreement is hereby amended to provide that
the Warrant Agent shall also act as agent for the Company in accordance with the
instructions set forth in the Warrant Agreement for any and all warrants related
to its shares of Class B Common Stock, the specific terms of such warrants to be
as set forth in the certificates representing such certificates.
3. Scope of Amendment. Except as expressly amended herein or in any
certificate evidencing warrants hereafter issued, the Warrant Agreement, as
heretofore amended, shall remain in full force and effect in accordance with its
terms and shall apply to any and all warrants related to the purchase of shares
of Class A Common Stock or Class B Common Stock that may be issued by the
Company.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
duly executed, all as of the day and year first above written.
INTERVEST BANCSHARES CORPORATION
By: _________________________________
THE BANK OF NEW YORK
By: _________________________________
<PAGE>
EXHIBIT A
[FORM OF LEGEND]
THE TERM OF THIS WARRANT HAS BEEN EXTENED TO
5:00 P.M. NEW YORK TIME, ___________________.
Dated:
Countersigned:
THE BANK OF NEW YORK
By:
Authorized Officer
<PAGE>
Warrant Certificate No. Warrant to Purchase ____________
________________________________________ Shares of Class B Common Stock
Holder: _________________________________ Exercise Price Per Share: $_____
Expiration Date: ______________
INTERVEST BANCSHARES CORPORATION
Incorporated under the laws of the State of Delaware
Class B Common Stock Purchase Warrant
This certifies that, for value received, the holder identified above,
or registered assigns ("Holder") is entitled, subject to the terms set forth
below, to purchase from Intervest Bancshares Corporation, a Delaware corporation
(the "Company"), that number of shares of Class B Common Stock, $1.00 par value,
of the Company specified above, upon surrender hereof, with the exercise form
attached hereto duly executed, and simultaneous payment therefor in lawful money
of the United States at the Exercise Price Per Share set forth above times the
number of shares to be purchased. The number of shares purchasable upon exercise
of this Warrant and the Exercise Price Per Share shall be subject to adjustment
from time to time as set forth below. This Warrant is issued under and in
accordance with a Warrant Agreement between the Company and the Warrant Agent
named herein dated as of September 27, 1994, as such agreement has been
previously amended and may hereafter be amended, and is subject to the terms and
provisions contained in the Warrant Agreement, to all of which the Holder of
this Warrant by acceptance hereof consents.
1. Term of Warrant. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the date hereof and ending at 5:00 p.m., New York time, on the
expiration date set forth above and shall be void thereafter.
2. Exercise Price Per Share. The exercise price per share of this
Warrant shall be the price per share set forth above, as adjusted from time to
time pursuant to Section 9 hereof (the "Exercise Price Per Share").
3. Exercise of Warrant. The purchase rights represented by this Warrant
are exercisable by the holder in whole or in part, but not for less than one
hundred (100) shares at a time (or such lesser number of shares which may then
constitute the remaining shares purchasable; such number being subject to
adjustment as provided in Section 9 below), at any time, or from time to time,
during the term hereof as described in Section 1 above, by the surrender of this
Warrant and the Notice of Exercise annexed hereto duly completed and executed on
behalf of the holder, at the office or agency of The Bank of New York or its
successor maintained for that purpose in the Borough of Manhattan, City of New
York, upon payment in cash or check of the Exercise Price Per Share times the
number of shares to be purchased.
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<PAGE>
4. Partial Exercise. Upon any partial exercise of this Warrant, there
shall be countersigned and issued to the Holder hereof a new Warrant in respect
of the shares as to which this Warrant shall not have been exercised.
5. Rights of Stockholder. Subject to Section 9 of this Warrant, the
Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Class B Common Stock or any other securities of the Company that may
at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the Holder, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value, or change of stock to no par value, consolidation, merger,
conveyance or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have been
exercised as provided herein.
6. Transfer of Warrant.
(a) Warrant Register. The Company will maintain or cause to be
maintained a register (the "Warrant Register") containing the name and address
of the Holder. Any holder of this Warrant or any portion thereof may change his
address as shown in the Warrant register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown in the Warrant Register and at the address shown on the Warrant
Register or such other address as may thereafter have been furnished to the
Company or its Warrant Agent. Until this Warrant is transferred on the Warrant
Register of the Company, the Company and its agents may treat the Holder as
shown on the Warrant Register as the absolute owner of this Warrant for all
purposes, notwithstanding any notice to the contrary.
(b) Warrant Agent. The Company shall maintain an office or agency
where the Warrant Register will be maintained and where the Warrant may be
presented for exercise, replacement or exchange (the "Warrant Agent"). The
Company has appointed The Bank of New York as its Warrant Agent for the purpose
of maintaining the Warrant Register, issuing the Class B Common Stock or other
securities then issuable upon the exercise of this Warrant, exchanging this
Warrant, replacing this Warrant, or any or all of the foregoing. The Company may
appoint a successor agent, in which case it will furnish notice to the Holder
related to the successor agent. Thereafter, any such registration, issuance,
exchange or replacement, as the case may be, shall be made at the office of such
agent.
(c) Transferability and Non-Negotiability of Warrant. This Warrant
may not be transferred or assigned in whole or in part without compliance with
all applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company). Subject only to the provisions of this Warrant with respect to
compliance with the Securities Act of 1933, as amended (the "Act"), title to
this Warrant may be transferred in whole or in part by endorsement (by the
2
<PAGE>
holder executing the Assignment Form annexed hereto) and delivery in the same
manner as a negotiable instrument transferable by endorsement and delivery.
(d) Exchange of Warrant upon a Transfer. On surrender of this
Warrant for exchange, properly endorsed on the Assignment Form, accompanied by
payment of any applicable transfer taxes, and subject to the provisions of this
Warrant with respect to compliance with the Act and with the limitations on
assignments and transfers contained in this Section 6, the Company at its
expense shall issue and cause to be delivered to or on the order of the Holder a
new Warrant or Warrants of like tenor, in the name of the Holder or in the name
of such other person as the Holder may direct, for the number of shares issuable
upon exercise hereof.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Class B Common Stock to be
issued upon exercise hereof are being acquired solely for the Holder's own
account and not as a nominee for any other party, and for investment, and that
the Holder will not offer, sell or otherwise dispose of this Warrant or any
shares of Class B Common Stock to be issued upon exercise hereof except under
circumstances that will not result in a violation of the Act or any states
securities laws. If such shares have not been registered under the Act, upon
exercise of this Warrant the Holder shall, if requested by the Company, confirm
in writing, in form satisfactory to the Company, that the shares of Class B
Common Stock so purchased are being acquired solely for the Holder's own account
and not as a nominee for any other party, for investment, and not with a view
toward distribution or resale.
(ii) Except insofar as they have been registered under the Act,
all shares of Class B Common Stock issued upon exercise hereof shall either be
stamped or imprinted with a legend specifying that the securities have not been
registered under the Act or shall be subject to a stop transfer order specifying
that the securities have not been registered under the Act.
(iii) The Company shall not be obligated to deliver any
securities hereunder unless a registration statement under the Act with respect
to the securities is effective. The Company covenants and agrees that it will
file a registration statement and will use its best efforts to cause the same to
become effective and keep such registration current while the Warrant is
outstanding. The Warrant shall not be exercisable by Holder in any state where
such exercise would be unlawful.
7. Reservation of Stock. The Company covenants that during the term
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Class B Common Stock a sufficient number of shares to provide for the
issuance of Class B Common Stock upon the exercise of this Warrant (including
additional shares arising out of any adjustments pursuant to Section 9) and,
from time to time, will take all steps necessary to provide sufficient reserves
of shares of Class A Common Stock issuable upon conversion of the shares of
Class B Common issuable upon exercise of this Warrant.
3
<PAGE>
8. Amendments. Any term of this Warrant may be amended with the written
consent of the Company and the Holder. The Company may, without the consent of
the Holder, also amend this Warrant to cure any ambiguity, omission, defect or
inconsistency. No waivers of, or exceptions to, any term, condition or provision
of this Warrant, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
9. Adjustment of Exercise Price and Number of Shares.
(a) Adjustments. The number and kind of securities purchasable upon the
exercise of the Warrant and the Exercise Price Per Share shall be subject to
adjustment from time to time upon the happening of certain events occurring
after the date of this Warrant, as follows:
(i)(A) Subject to the exceptions referred to in subsection 9(c),
in the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Class A Common Stock for a cash consideration per
share less than the then applicable Exercise Price Per Share, then the Exercise
Price Per Share in effect immediately prior to such sale shall be reduced to the
price (rounded to the nearest cent) determined by dividing (i) an amount equal
to the sum of (x) the number of shares of Class A Common Stock outstanding
immediately prior to such sale multiplied by the then applicable Exercise Price
Per Share, plus (y) the cash consideration received by the Company upon such
sale, by (ii) the total number of shares of Class A Common Stock outstanding
immediately after such sale. The cash consideration received by the Company
shall be deemed to be the gross sales price therefor without deducting therefrom
any expense paid or incurred by the Company or any underwriting discounts or
commissions or concessions paid or allowed by the Company in connection
therewith.
(B) Subject to the exceptions referred to in subsection 9(c), in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Class B Common Stock for a cash consideration per
share less than the then applicable Exercise Price Per Share, then the Exercise
Price Per Share in effect immediately prior to such sale shall be reduced to the
price (rounded to the nearest cent) determined by dividing (i) an amount equal
to the sum of (x) the number of shares of Class B Common Stock outstanding
immediately prior to such sale multiplied by the then applicable Exercise Price
Per Share, plus (y) the cash consideration received by the Company upon such
sale, by (ii) the total number of shares of Class B Common Stock outstanding
immediately after such sale. The cash consideration received by the Company
shall be deemed to be the gross sales price therefor without deducting therefrom
any expense paid or incurred by the Company or any underwriting discounts or
commissions or concessions paid or allowed by the Company in connection
therewith.
(ii)(A) In case the Company shall (A) pay a dividend in shares
of Class A Common Stock or make a distribution to all holders of shares of Class
4
<PAGE>
A Common Stock in shares of Class A Common Stock, (B) subdivide its outstanding
shares of Class A Common Stock into a greater number of shares, (C) combine its
outstanding shares of Class A Common Stock into a smaller number of shares of
Class A Common Stock, or (D) issue by reclassification of its shares of Class A
Common Stock any shares of capital stock of the Company, the number of Shares
purchasable upon exercise of the Warrant immediately prior thereto shall be
adjusted so that the Holder of the Warrant shall be entitled to receive (upon
conversion of shares of Class B Common Stock issuable upon exercise of the
Warrant)the kind and number of Shares of the Company that such person would have
owned or have been entitled to receive after the happening of any of the events
described above had such Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. An adjustment
made pursuant to this paragraph (ii)(A) shall be made on the effective date of
any such event and shall become effective immediately after such effective date
retroactive to the record date, if any, for such event. If, as a result of an
adjustment made pursuant to this paragraph (ii)(A), the Holder shall become
entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors (whose determination shall be conclusive) shall
determine the allocation of the adjusted Exercise Price Per Share between or
among shares of such classes of capital stock of the Company.
(B) In case the Company shall (A) pay a dividend in shares of
Class B Common Stock or make a distribution to all holders of shares of Class B
Common Stock in shares of Class B Common Stock, (B) subdivide its outstanding
shares of Class B Common Stock into a greater number of shares, (C) combine its
outstanding shares of Class B Common Stock into a smaller number of shares of
Class B Common Stock, or (D) issue by reclassification of its shares of Class B
Common Stock any shares of capital stock of the Company, the number of Shares
purchasable upon exercise of the Warrant immediately prior thereto shall be
adjusted so that the Holder of the Warrant shall be entitled to receive the kind
and number of Shares of the Company that such person would have owned or have
been entitled to receive after the happening of any of the events described
above had such Warrant been exercised immediately prior to the happening of such
event or any record date with respect thereto. An adjustment made pursuant to
this paragraph (ii)(B) shall be made on the effective date of any such event and
shall become effective immediately after such effective date retroactive to the
record date, if any, for such event. If, as a result of an adjustment made
pursuant to this paragraph (ii)(B), the Holder shall become entitled to receive
shares of two or more classes of capital stock of the Company, the Board of
Directors (whose determination shall be conclusive) shall determine the
allocation of the adjusted Exercise Price Per Share between or among shares of
such classes of capital stock of the Company.
(iii)(A) In case the Company shall fix a record date for the
issuance of rights, convertible securities or warrants to all holders of its
shares of Class A Common Stock entitling them to subscribe for or purchase
shares of Class A Common Stock at a price per share (or having a conversion
price per share) that is lower on the date of issuance thereof than the then
current market price per share of Class A Common Stock (as defined in paragraph
(v) below), the number of Shares thereafter purchasable upon the exercise of
this Warrant shall be determined by multiplying the number of Shares theretofore
5
<PAGE>
purchasable upon exercise of this Warrant by a fraction, of which the numerator
shall be the number of shares of Class A Common Stock outstanding on the date of
issuance of such rights, convertible securities or warrants plus the number of
additional shares of Class A Common Stock offered for subscription or purchase
(or into which the convertible securities so offered are initially convertible),
and of which the denominator shall be the number of shares of Class A Common
Stock outstanding on the date of issuance of such rights or warrants plus the
number of shares that the aggregate offering price of the total number of shares
of Class A Common Stock so offered (or the aggregate initial conversion price of
the convertible securities so offered) would purchase at the current market
price per share of Class A Common Stock (as defined in paragraph (v) below) on
the record date for this issuance of such rights, convertible securities or
warrants. Such adjustment shall be made at time of issuance and shall become
effective immediately after such rights, convertible securities or warrants are
issued, retroactive to the record date for the determination of stockholders to
receive such rights, convertible securities or warrants.
(B) In case the Company shall fix a record date for the issuance
of rights, convertible securities or warrants to all holders of its shares of
Class B Common Stock entitling them to subscribe for or purchase shares of Class
B Common Stock at a price per share (or having a conversion price per share)
that is lower on the date of issuance thereof than the then current market price
per share of Class B Common Stock (as defined in paragraph (v) below), the
number of Shares thereafter purchasable upon the exercise of this Warrant shall
be determined by multiplying the number of Shares theretofore purchasable upon
exercise of this Warrant by a fraction, of which the numerator shall be the
number of shares of Class B Common Stock outstanding on the date of issuance of
such rights, convertible securities or warrants plus the number of additional
shares of Class B Common Stock offered for subscription or purchase (or into
which the convertible securities so offered are initially convertible), and of
which the denominator shall be the number of shares of Class B Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares that the aggregate offering price of the total number of shares of
Class B Common Stock so offered (or the aggregate initial conversion price of
the convertible securities so offered) would purchase at the current market
price per share of Class B Common Stock (as defined in paragraph (v) below) on
the record date for this issuance of such rights, convertible securities or
warrants. Such adjustment shall be made at time of issuance and shall become
effective immediately after such rights, convertible securities or warrants are
issued, retroactive to the record date for the determination of stockholders to
receive such rights, convertible securities or warrants.
(iv)(A) In case the Company shall fix a record date for the
distribution to all holders of its shares of Class A Common Stock of evidences
of its indebtedness or assets (excluding cash dividends) or rights to subscribe,
convertible securities or warrants (excluding those referred to in paragraphs
(iii)(A) or (iii)(B) above), then in each case the Exercise Price Per Share
shall be adjusted to a price determined by multiplying the Exercise Price Per
Share in effect immediately prior to such distribution by a fraction, of which
6
<PAGE>
the numerator shall be the then current market price per share of Class A Common
Stock as of such record date, less the fair value as of such record date (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive) of the portion of the assets of evidences of indebtedness so
distributed or of such subscription rights, convertible securities or warrants
applicable to one share of Class A Common Stock, and of which the denominator
shall be such current market price per share of Class A Common Stock as of such
record date. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of distribution retroactive to the
record date for the determination of stockholders entitled to receive such
distribution.
(B) In case the Company shall fix a record date for the
distribution to all holders of its shares of Class B Common Stock of evidences
of its indebtedness or assets (excluding cash dividends) or rights to subscribe,
convertible securities or warrants (excluding those referred to in paragraphs
(iii)(A) or (iii)(B) above), then in each case the Exercise Price Per Share
shall be adjusted to a price determined by multiplying the Exercise Price Per
Share in effect immediately prior to such distribution by a fraction, of which
the numerator shall be the then current market price per share of Class B Common
Stock as of such record date, less the fair value as of such record date (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive) of the portion of the assets of evidences of indebtedness so
distributed or of such subscription rights, convertible securities or warrants
applicable to one share of Class B Common Stock, and of which the denominator
shall be such current market price per share of Class B Common Stock as of such
record date. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of distribution retroactive to the
record date for the determination of stockholders entitled to receive such
distribution.
(v) For the purpose of any computation under paragraphs (iii) or
(iv) above the current market price per share of Class A Common Stock or Class B
Common Stock at any date shall be deemed to be the average of the daily closing
prices of Class A Common Stock for the thirty consecutive trading days
commencing forty-five trading days before the date in question. The closing
price for each day shall be (i) if the Class A Common Stock is listed or
admitted to trading on a national securities exchange, the closing price on the
NYSE- Consolidated Tape (or any successor composite tape reporting transactions
on national securities exchanges) or, if such a composite tape shall not be in
use or shall not report transactions in the Class A Common Stock, the last
reported sales price regular way on the principal national securities exchange
on which the Class A Common Stock is listed or admitted to trading (which shall
be the national securities exchange on which the greatest number of shares of
the Class A Common Stock has been traded during such 30 consecutive trading
days), or, if there is no transaction on any such day in any such situation, the
mean of the bid and asked prices on such day, or (ii) if the Class A Common
Stock is not listed or admitted to trading on any such exchange, the last
reported sale price, if reported, or, if no sale occurs on such date or the last
reported sale price is not available, the average of the closing bid and asked
7
<PAGE>
prices as reported by the National Association of Securities Dealers Automated
Quotation System (NASDAQ) or a similar source selected from time to time by the
Company for the purpose. If on any such date the Class A Common Stock is not
quoted by any such organization, the fair value of the Class A Common Stock on
such date, as determined in good faith by the Board of Directors of the Company,
shall be used.
(vi) No adjustment in the number of Shares purchasable hereunder
or the Warrant Price shall be required unless such adjustment would require an
increase or decrease of at least five per cent (5%) in the number of Shares
purchasable upon the exercise of this Warrant or the Exercise Price Per Share.
(vii) Whenever the number of Shares purchasable upon the
exercise of this Warrant is adjusted, as herein provided, the Exercise Price Per
Share payable upon exercise of the Warrant shall be adjusted (to the nearest
cent) by multiplying such Exercise Price Per Share immediately prior to such
adjustment by a fraction, of which the numerator shall be the number of Shares
purchasable upon the exercise of the Warrant, immediately prior to such
adjustment, and of which the denominator shall be the number of Shares so
purchasable immediately thereafter.
(viii) Whenever the number of Shares purchasable upon the
exercise of this Warrant or the Exercise Price Per Share is adjusted, as herein
provided, the Company shall cause the Warrant Agent promptly to mail by
first-class mail, postage prepaid, to the Holder notice of such adjustment or
adjustments and shall deliver to the Warrant Agent a certificate setting forth
the number of Shares purchasable upon the exercise of the Warrant and the
Exercise Price Per Share after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made. Such certificate shall be conclusive evidence of
the correctness of such adjustment. The Warrant Agent shall be entitled to rely
on such certificate and shall be under no duty or responsibility with respect to
any such certificate, except to exhibit the same, from time to time, to any
Holder desiring an inspection thereof during reasonable business hours. The
Warrant Agent shall not at any time be under any duty or responsibility to any
Holder to determine whether any facts exist that may require any adjustment of
the Exercise Price Per Share or the number of Warrants or Shares or other stock
or property purchasable or with respect to the nature or extent of any such
adjustment when made, or with respect to the method employed in making such
adjustment.
(ix) In any case in which this subsection 9(a) shall require
that an adjustment become effective retroactively to a record date, the Company
may, at its option, elect to defer (but only until five business days following
the filing by the Company with the Warrant Agent of the certificate described in
paragraph (viii) above) issuing to the holder of any Warrant exercised after
such record date the shares of Common Stock and other capital stock of the
Company issuable upon such exercise over and above the shares of Common Stock
and other capital stock of the Company issuable upon such exercise only on the
basis of the Exercise Price Per Share for the Warrant prior to such adjustment;
8
<PAGE>
and, in lieu of the shares the issuance of which is so deferred, the Company
shall issue or cause its transfer agents to issue due bills or other appropriate
evidence of the right to receive such shares.
(x) In the event that at any time, as a result of an adjustment
made pursuant to paragraphs (ii) through (iv) above, the Holder of the Warrant
shall become entitled to purchase any shares of the Company's capital stock
other than shares of Common Stock, thereafter the number of such other shares so
purchasable upon exercise of each Warrant and the Exercise Price Per Share of
such shares shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Shares contained in this subsection 9(a) and the provisions of subsections 9(b)
through 9(e), inclusive and subsection 10(b), with respect to the Shares shall
apply on like terms to any such other shares.
(xi) Upon the expiration of any rights, options, warrants or
conversion rights referred to in this subsection 9(a), if any thereof shall not
have been exercised, the Exercise Price Per Share and the number of Shares
purchasable upon the exercise of a Warrant shall, upon such expiration, be
readjusted and shall thereafter be such as it would have been had it been
originally adjusted (or had the original adjustment not been required, as the
case may be) assuming the only shares of Common Stock so issued were the shares
of Common Stock, if any, actually issued or sold upon the exercise of such
rights, options, warrants or conversion rights and such shares of Common Stock,
if any, were issued or sold for the consideration actually received by the
Company upon such exercise.
(xii) The Company may make reductions in the Exercise Price Per
Share, in addition to those required by this subsection 9(a), as it considers to
be advisable in order to avoid or diminish any income tax to any holder of its
Common Stock resulting from any dividend or distribution of stock or issuance of
rights or warrants to purchase or subscribe for stock or from any event treated
as such for income tax purposes or for any other reasons.
(xiii) The adjustments provided for in paragraphs (i)(A),
(iii)(A) and (iv)(A) are based upon the assumption that each share of Class B
Common Stock of the Company is convertible into one (1) share of Class A Common
Stock of the Company. In the event that the conversion ratio applicable to the
Company's Class B Common Stock shall, after the date hereof but prior to
expiration of this Warrant, be changed, then the procedures for adjustment set
out in those paragraphs shall be equitably amended to reflect the new conversion
ratio.
(b) No Adjustment for Dividends. Except as provided in subsection 9(a),
no adjustment in respect of any dividends shall be made during the term of this
Warrant or upon the exercise of this Warrant.
(c) No Adjustment in Certain Cases. No adjustments shall be made under
subsection 9(a) or any other Section herein:
9
<PAGE>
(i) In connection with the issuance of Shares upon exercise of the
Warrant.
(ii) In connection with the issuance of shares of Class A Common
Stock issuable pursuant to any stock option or employee benefit plans which have
been or may be adopted by the Company.
(d) Preservation of Purchase Rights Upon Reclassification,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, each Holder of a Warrant shall have the right
thereafter upon payment of the Exercise Price Per Share in effect immediately
prior to such action to purchase upon exercise of each Warrant the kind and
amount of shares and other securities and property that such person would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had such Warrant been exercised
immediately prior to such action and the Company or such successor or purchasing
corporation, as the case may me, shall execute with the Warrant Agent agreements
so providing. The Company shall mail by first-class mail, postage prepaid, to
the Holder of each Warrant, notice of the execution of any such agreement. Such
agreement shall provide for adjustments, which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 9. The
provisions of this subsection 9(d) shall similarly apply to successive
consolidations, mergers, sales or conveyances. The Warrant Agent shall be under
no duty or responsibility to determine the correctness of any provisions
contained in any such agreement relating either to the kind or amount of shares
of stock or other securities or property receivable upon exercise of Warrants or
with respect to the method employed and provided therein for any adjustments.
(e) Statement on Warrants. Irrespective of any adjustments in the
Exercise Price Per Share or the number or kind of shares purchasable upon the
exercise of the Warrant, Warrants theretofore or thereafter issued may continue
to express the same price and number of and kind of shares as are stated in this
Warrant.
10. Fractional Interests.
(a) Fractional Shares. The Company shall not be required to issue
fractional Shares on the exercise of this Warrant. If any fraction of a Share
would be issuable on the exercise of any Warrant (or specified portion thereof),
the Company shall pay an amount equal to the current market price per Share (as
defined in subsection 9(a)(ix) above) on the date of such exercise multiplied by
such fraction.
(b) Fractional Warrants. The Company shall not be required to issue
fractions of Warrants on any distribution of Warrants to holders of Warrant
certificates pursuant to subsection 9(a) hereof or to distribute Warrant
certificates which evidence fractional Warrants. In lieu of such fractional
10
<PAGE>
Warrants, there shall be paid to the registered holders of Warrant certificates
with regard to which such fractional Warrants would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Warrant on the trading day immediately prior to the date on which such
fractional Warrant would have been otherwise issuable. For purposes of this
subsection 10(b), the current market value of a Warrant shall be the closing
price of the Warrant for the trading day immediately prior to the date on which
such fractional Warrant would have been otherwise issuable. The closing price
for any day shall be the last sale price regular way or, in case no such sale
takes place on such day, the average of the closing bid and asked prices regular
way, in either case as quoted on NASDAQ, or, if the Warrants are not quoted on
NASDAQ, on the principal national securities exchange on which the Warrants are
listed or admitted to trading. If on any such date the Warrants are not quoted
by any such organization, the fair value of the Warrants on such date, as
determined in good faith by the Board of Directors of the Company, shall be
used.
11. Descriptive Headings and Governing Law. The descriptive headings of
the several sections of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant. This Warrant shall be deemed a contract
made under the laws of the State of Delaware and for all purposes shall be
construed in accordance with the laws of said State.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers under its corporate seal as of the
date set forth below.
INTERVEST BANCSHARES CORPORATION
By: __________________________________
Its: __________________________________
[Corporate Seal]
Attest:
- -------------------------------
Secretary
Countersigned:
THE BANK OF NEW YORK
By: ________________________
Authorized Officer
11
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Dated: _______________________
12
<PAGE>
ELECTION TO PURCHASE
TO: Intervest Bancshares Corporation
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
_________ shares of the Company's Class B Common Stock provided for thereon and
requests that certificates for such shares be issued in the name of
- --------------------------------------------------------------------------------
(please print name, address, and social security number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
and, if said number of shares shall not be all the shares purchasable
thereunder, that a new Warrant Certificate for the balance remaining of the
shares purchasable under the within Warrant Certificate be registered in the
name of the undersigned Holder or his Assignee as below indicated and delivered
to the address stated below.
Dated: ____________________, _____
Name of Warrantholder
or Assignee
-----------------------------------
(please print)
Address _______________________________________
---------------------------------------
Social Security
Number _______________________________________
Medallion Signature Guaranteed:
Signature _______________________________________
___________________________NOTE: THE ABOVE SIGNATURE MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT
CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER, UNLESS
THIS WARRANT HAS BEEN ASSIGNED
ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers to
- --------------------------------------------------------------------------------
(name, address and social security number
of assignee must be printed or typewritten)
all of the rights of the undersigned under the within Warrant, with respect to
________________ shares of the Company's Class B Common Stock, hereby
irrevocably constituting and appointing
Attorney to transfer said Warrant on the books of the Company with
full power of substitution in the premises and, if said number of shares shall
not be all the shares purchasable hereunder, a new Warrant Certificate for the
balance remaining of the shares purchasable under the within Warrant Certificate
be registered in the name of the undersigned.
Dated: ______________________, _____
-------------------------------------------
Signature of Registered Holder
Medallion Signature Guaranteed: Signature _____________________________________
___________________________NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS IT APPEARS UPON THE
FACE OF THE WITHIN WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER
13
<PAGE>
April 30, 1997
Intervest Bancshares Corporation
10 Rockefeller Plaza, Suite 1015
New York, New York 10020-1903
Re: Intervest Bancshares Corporation
Registration Statement on Form SB-2
Gentlemen:
You have requested our opinion in connection with a Registration
Statement on Form SB-2 (the "Registration Statement") filed by Intervest
Bancshares Corporation (the "Company") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), in
connection with the Company's warrants for the purchase of up to 1,019,110
shares of Class A Common Stock and 100,000 shares of Class B Common Stock (the
"Warrants"), as well as the 1,019,110 shares of Class A Common Stock (the "Class
A Common Stock"), and the 100,000 shares of Class B Common Stock (the "Class B
Common Stock") that may be issued upon exercise of the Warrants. The Class A
Common Stock and the Class B Common Stock are collectively referred to herein as
the Common Stock. Capitalized terms, unless otherwise defined herein, shall have
the meanings set forth in the Registration Statement.
In connection with this opinion, we have examined the Registration
Statement, the Certificate of Incorporation of the Company, the Bylaws of the
Company, Certificates of Public Officials and Officers of the Company and such
other documents and records as we have deemed necessary or appropriate for
purposes of our opinion.
Based on the foregoing, and subject to the qualifications and
assumptions referred to herein, we are of the opinion that:
a. The Company is a corporation validly existing and
in good standing under the laws of the State of Delaware.
b. The Warrants constitute the legal, valid and
binding obligations of the Company.
c. When shares of Common Stock, which are issuable
upon exercise of the Warrants, have been issued and delivered upon exercise of
Warrants in accordance with the terms of the Warrants, such shares of Common
Stock will be duly and validly issued, fully paid and nonassessable.
<PAGE>
We have assumed the authenticity of all documents submitted to us as
originals, the conformity to the original documents of all documents submitted
to us as copies, and the truth of all facts recited in all relevant documents.
The opinions set forth above are limited to the laws of the states of
Delaware and New York and the federal laws of the United States.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the headings "Tax
Consequences - Warrants" and "Legal Matters" in the prospectus included in the
Registration Statement.
Very truly yours,
Harris Beach & Wilcox, LLP
By: /s/ Thomas E. Willett
Thomas E. Willett,
Member of the Firm
Enc.
intbanc.sha\opinion.04
<PAGE>
Accountants' Consent
The Board of Directors
Intervest Bancshares Corporation
New York, New York:
We consent to the use of our report dated January 7, 1997 relating to the
consolidated financial statements as of December 31, 1996 and 1995 and for the
years then ended of Intervest Bancshares Corporation and to the use of our name
under the caption of "Experts", in the Registration Statement on Form SB-2 of
Intervest Bancshares Corporation.
HACKER, JOHNSON, COHEN & GRIEB
Tampa, Florida
April 30, 1997
<PAGE>
