As filed with the Securities and Exchange Commission on September 22, 1997
Registration No. 333-33419
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 1
to
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INTERVEST BANCSHARES CORPORATION
(Name of Small Business Issuer in Its charter)
Delaware 6060 13-3699013
(State or Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification No.)
10 Rockefeller Plaza (Suite 1015), New York, New York 10020-1903, (212)757-7300
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(Address and Telephone Number of Principal Executive Offices)
10 Rockefeller Plaza (Suite 1015), New York, New York 10020-1903
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(Address of Principal Place of Business)
Lawrence G. Bergman, Vice President
Intervest Bancshares Corporation
10 Rockefeller Plaza (Suite 1015)
New York, New York 10020-1903
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(Name, Address and Telephone Number of Agent For Service)
-----------------
with copies to:
Thomas E. Willett, Esq. William M. Kreienberg, Esq.
Harris Beach & Wilcox Harter Secrest & Emery
130 East Main Street 700 Midtown Tower
Rochester, New York 14604 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.
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CALCULATION OF REGISTRATION FEE(1)
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Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Offering Price Per Offering Price Registration Fee
Registered Unit(1) (3)
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Units, each consisting
of one share of Class A
Common Stock, $1.00
par value, and one
Warrant to purchase
one share of Class A
Common Stock 747,500 $10.00 $7,475,000 $2,265.15
- -------------------------------------------------------------------------------------------------
Warrants to purchase
shares of Class A
Common Stock 206,794 $ 0 $ 0 $ 0
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Class A Common
Stock, par value 982,941(2) $10.00 $9,829,410 $2,978.61
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Total $5,243.76
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(1) Estimated solely for purposes of calculating the Registration Fee.
(2) Includes 28,647 shares issuable in an Exchange Offer and shares issuable
upon exercise of the Warrants.
(3) Of the total registration fee, $4,892.69 was previously paid.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date the Commission, acting pursuant to said Section 8(a) may
determine.
<PAGE>
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED SEPTEMBER 22, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
$6,500,000
INTERVEST BANCSHARES CORPORATION
(A Bank Holding Company for Intervest Bank)
650,000 UNITS
Consisting of One Share of Class A Common
Stock, $1.00 par value and One Warrant
--------------------------------------
Intervest Bancshares Corporation (the "Company") is offering 650,000
Units (the "Units") in a public offering (the "Offering"). Each Unit consists of
one share of the Company's Class A Common Stock, par value $1.00 per share (the
"Class A Common Stock"), and a Warrant (the "Warrants") which entitles the
holder thereof to purchase one share of Class A Common Stock at an initial
purchase price of $10.00 per share. The Class A Common Stock and Warrants are
immediately detachable and separately transferable. See "Terms of Offering" and
"Description of Securities." The offering price will be $10.00 per Unit.
Prior to the Offering, there has been no public market for the
securities of the Company, and there can be no assurance that any such market
will develop. As a result, a number of factors were considered by the Company in
determining the offering price of the Units. See "Determination of Offering
Price" for the factors considered in determining the offering price. The Company
has filed an application for the trading of its Class A Common Stock on the
NASDAQ Small Cap Market under the symbol "INTA".
Prospective investors should consider the information discussed under
"Investment Considerations and Risk Factors" on page 10.
-----------------
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.
- --------------------------------------------------------------------------------
Price to Public Underwriting Proceeds to
Discounts and Company(1)(3)
Commissions(1)
- --------------------------------------------------------------------------------
Per Unit $ 10.00 $.90(4) $9.10
- --------------------------------------------------------------------------------
Total (2) $6,500,000 $585,000(4) $5,915,000
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(1) The Units are being offered on a "best efforts" basis by Sage, Rutty &
Co., Inc. (the "Underwriter"), and by other participating
broker/dealers who are members of the National Association of
Securities Dealers, Inc. The Company will pay the Underwriter a
commission of 7% of the purchase price of each Unit which is sold by
the Underwriter or participating broker/dealers. In addition, the
Company will pay the Underwriter a fee equal to 2% of the aggregate
gross amount of Units sold, such fee to be paid upon completion of the
Offering. The Company has also agreed to issue to the Underwriter
Warrants to purchase that number of shares of Class A Common Stock
which is 10% of the number of Units sold in the Offering, and to issue
to the Underwriter and participating broker/dealers Warrants to
purchase that number of shares of Class A Common Stock which is 10% of
the number of Units sold by each of them in the Offering. The Company
has agreed to indemnify the Underwriter and participating
broker/dealers against certain civil liabilities, including certain
liabilities under the Securities Act of 1933, as amended. See "Plan of
Distribution."
(2) If the Units offered hereby are not sold within 90 days after the date
this Registration Statement is declared effective by the Securities and
Exchange Commission (the "Offering Termination Date"), all subscription
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documents and funds (together with any interest earned thereon) will be
promptly refunded to subscribers and the Offering will terminate. Until
the Closing, all funds received from subscribers will be held in escrow
by Manufacturers and Traders Trust Company, for the benefit of
subscribers. The Company has granted the Underwriter an option
exercisable for a perod of 90 days after the Closing, to offer and sell
up to an additional 97,500 Units, solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, and Proceeds to Company will be
$7,475,000, $672,750 and $6,802,250, respectively. See"Plan of
Distribution."
(3) In addition to the underwriting fees and commissions, expenses of the
Offering payable by the Company are estimated to be approximately
$120,000. See "Use of Proceeds."
(4) Includes the payment by the Company of the underwriter's fee of 2% of
the aggregate gross amount of Units sold.
SAGE, RUTTY & CO., INC.
The date of this Prospectus is _________________, 1997
3
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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.
4
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PROSPECTUS SUMMARY
The following, summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this prospectus
All share and per share data have been retroactively adjusted to give effect to
a one and one-half for one stock split related to the Class A and Class B Common
Stock effective September 19, 1997.
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 June 30, 1997, the Company had consolidated assets and deposits
of $117.5 million and $104.9 million, respectively. The Company's stockholders'
equity at June 30, 1997 was $10.1 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
Securities Offered ................650,000 Units, consisting of one share of
Class A Common Stock and one Warrant
entitling the holder to purchase one share of
Class A Common Stock.
Shares of Class A
Common Stock Currently
Outstandiing.......................1,350,000 shares(1)
Shares of Class A Common
Stock Outstanding After
the Offering.......................2,000,000(1)(2)
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 Units should
consider the information discussed under the
heading "Investment Considerations and Risk
Factors."
- --------------------
(1) Does not include: (i) 300,000 shares of Class A Common Stock issuable
upon the conversion of issued and outstanding shares of Class B Common
Stock; (ii) 1,528,665 shares of Class A Common Stock issuable upon
exercise of outstanding Warrants for Class A Common Stock; and (iii)
150,000 shares of Class A Common Stock issuable upon conversion of
shares of Class B Common Stock issuable upon exercise of an outstanding
Warrant for shares of Class B Common Stock.
(2) Assumes the maximum number of Units will be sold. Does not include: (i)
97,500 shares issuable upon exercise of the over-allotment option; (ii)
up to 650,000 shares of Class A Common Stock issuable upon exercise of
the Warrants included in the Units (747,500 if the over-allotment
option is exercised); or (iii) up to 130,000 shares of Class A Common
Stock issuable upon exercise of the Warrants to be issued to the
Underwriter and/or participating broker/dealers (149,500 shares if the
over-allotment option is exercised); (iv) up to 28,647 shares of Class
A Common Stock issuable in connection with the Exchange Offer; or (v)
up to 57,294 shares issuable upon exercise of Warrants that may be
issued in the Exchange Offer. See "Exchange Offer."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share figures)
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As of or for the
---------------------------------------
As of or for the Year Ended Year Ended Year Ended
Six Months Ended June 30 December 31, December 31, December 31,
------------------------ ------------ ------------ -------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
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Income Statement Summary:
Interest income $ 4,304 2,857 6,381 4,190 2,158
Interest expense 2,688 1,628 3,745 2,225 803
Net interest income 1,616 1,229 2,636 1,965 1,355
Provision for loan losses 184 128 250 233 124
Net interest income
after provision
for loan losses 1,432 1,101 2,386 1,732 1,231
Other Income 68 78 106 89 112
Other expense 940 765 1,551 1,415 1,054
Earnings before
income taxes 560 414 941 406 289
Provision for income
taxes 213 172 383 136 108
Net Earnings 347 242 558 270 181
Per Share Data:
Net Earnings .21 .15 .34 .16 .11
Cash dividends -- -- -- -- --
Book value (1) 6.12 5.72 5.91 5.57 5.38
Shares outstanding at
period-end(2) 1,650,000 1,650,000 1,650,000 1,650,000 1,650,000
Period-End Balance Sheet Summary:
Total assets $ 117,537 79,634 105,196 68,942 40,117
Securities 38,296 21,474 34,507 19,630 8,638
Loans (net of unearned
income) 70,539 50,483 60,310 37,058 22,754
Allowance for loan losses 999 752 811 593 369
Deposits 104,862 68,279 93,447 58,601 30,092
Stockholders' equity 10,094 9,431 9,747 9,189 8,884
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6
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- -----------------------
(1) Represents stockholders' equity divided by the number of outstanding
shares of Class A and Class B Common Stock at period-end.
(2) Represents issued and outstanding shares of Class A Common Stock and
Class B Common Stock.
7
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As of or for the
As of or for the -------------------------------------
Six Months Ended Year Ended Year Ended Year Ended
June 30, December 31, December 31, December 31,
-------- ------------ ------------ ------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
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Selected Financial Ratios:
Return on average
assets ......................... .60% .64% .67% .51% .61%
Return on average
equity ......................... 7.12% 5.20% 5.91% 3.01% 3.02%
Dividends declared to
net earnings ................... -- -- -- -- --
Loans (net of unearned
income) to deposits ............ 67.27% 73.93% 64.54% 63.24% 75.61%
Net charge-offs to
loans at period-end ............ -- (.06)% .05% .02% .03%
Ratio of Allowance for loan
losses to loans
at period-end .................. .014 .015 .013 .016 .016
Average stockholders'
equity to average total
assets ......................... 8.49% 12.35% 11.29% 16.89% 20.05%
Ratio of Allowance for Loan losses
to nonperforming loans ......... -- 3.06 -- -- 1.05
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8
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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 June 30, 1997, the Company, on a
consolidated basis, had total assets of $117.5 million, net portfolio loans of
$69.5 million, total deposits of $104.9 million, and stockholders' equity of
$10.1 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 four offices, all of which are located in Clearwater, Florida. A fifth
office in South Pasadena, Florida is being renovated and is expected to be
opened for business by the end of this year.
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 (primarily commercial real estate loans).
The Bank's income is derived principally from interest and fees earned
in connection with its lending activities, interest and dividends on securities,
short-term investments and other services. The Bank's income is also affected by
provisions for loan losses. 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's operations are also significantly affected by local
economic and competitive conditions in its market areas. Changes in market
interest rates, government legislation and policies concerning monetary and
fiscal affairs, and the attendant actions of the regulatory authorities all have
an impact on the Bank's operations.
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 625 Court Street, Clearwater, Florida 34625, and its telephone number
is (813) 442-2551. In addition to its principal office, the Bank has three
branch offices in Clearwater, Florida, located at: (i) 2575 Ulmerton Road; (ii)
2175 Nursery Road; and (iii) 1875 Belcher Road North, Clearwater, and expects to
open a fourth branch in South Pasadena, Florida by the end of this year for a
total of five banking offices.
INVESTMENT CONSIDERATIONS AND RISK FACTORS
A prospective investor should review and consider carefully the
following risk factors, together with the other information contained in this
prospectus in evaluating an investment in the Units. The prospectus contains
9
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certain forward-looking statements and actual results could differ materially
from those projected in the forward- looking statements as a result of numerous
factors, including those set forth below and elsewhere in the prospectus.
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
- -------------------------------------------
None of the proceeds of the Offering have yet been committed to
specific applications. All determinations concerning the use and investment of
the proceeds will be made by management of the Company.
Dividends
- ---------
Since its inception, the Company has not paid any dividends on its
common stock and there is no immediate prospect or contemplation of the payment
of such dividends.
Dividends paid by the Company are subject to the financial conditions
of both the 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.
10
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Securities Not Insured
- ----------------------
The Units offered hereby 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 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.
As of June 30, 1997, the Company had a loan portfolio of approximately
$70.5 million and the allowance for loan losses was $999,000, which represented
1.40% of the total amount of loans. At June 30, 1997, there were no
non-performing assets. 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. Although the
Company believes that it is in compliance in all material respects with
applicable state and federal laws, rules and regulations, there can be no
assurance that more restrictive laws, rules and regulations will not be adopted
in the future which could make compliance more difficult or expensive, or
otherwise affect the ability of the Bank to attract deposits and make loans. See
"Supervision and Regulation."
11
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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 and the Underwriter 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.
While the Underwriter may make a market in the Company's securities and
the Company may consider making application for the listing of its securities on
an exchange or in an inter-dealer quotation systems if it were to meet the
eligibility criteria for any such exchange or system, there can be no assurance
that the Company will meet such criteria, that such application will be made, or
that any of the Company's Securities will be actively traded. 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 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."
12
<PAGE>
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 written
employment agreements with its President, its Vice President and its Cashier.
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
- --------
Purchasers of the Units offered hereby will incur immediate dilution in
that the net tangible book value of their Class A Common Stock after the
Offering will be $6.91, as compared to the offering price of $10.00 per share
(assuming no part of the purchase price is assigned to the Warrants included in
the Units). See "Dilution."
Voting Control
- --------------
As of the date of this Prospectus, the three original shareholders of
the Company own 900,000 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, the Company and the Underwriter considered a
number of factors, including the following: (i) the current financial position
of the Company and the Bank; (ii) the experience of management; (iii) the ratio
of the share price to book value; (iv) the position of the Company in its
industry and its prospects; and (v) the general status of the securities market
and other relevant factors. The initial 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 net proceeds to the Company from the sale of the Units offered
hereby, after deducting commissions and estimated offering expenses, is
estimated to be approximately $5.8 million, ($6.7 million if the over-allotment
option is exercised).
The net proceeds of the Offering will become a part of the Company's
capital funds to be used for general corporate purposes, including, without
limitation, the financing of the expansion of the Company's or the 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. Except with respect to its fourth branch, which is
being renovated, neither the Company nor the Bank currently has any plans,
understandings, arrangements or agreements, written or oral, with respect to the
establishment of any branches or subsidiaries, or with respect to any specific
acquisition prospect, and neither is presently negotiating with any party with
respect thereto.
13
<PAGE>
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. While the Underwriter may make
a market in the Company's securities and the Company may consider making
application for the listing of its securities on an exchange or in an
inter-dealer quotation system if it were to meet the eligibility criteria for
any such exchange or system, there can be no assurance that the Company will
meet such criteria, that such an application will be made, or that any of the
Company's securities will be actively traded. As of the date of this Prospectus,
there were outstanding 1,350,000 shares of Class A Common Stock and 300,000
shares of Class B Common Stock. The 300,000 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.
900,000 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 900,000 shares of the Company's issued and
outstanding shares of Class A Common Stock held of record by the three initial
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,
13,500 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. 900,000 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 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.
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
14
<PAGE>
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.
DILUTION
The net tangible book value of the Company at June 30, 1997, was
approximately $10.1 million or $6.12 per outstanding share of Common Stock.
After giving effect to this Offering and the receipt of approximately $5.8
million net proceeds from the sale of the Units offered hereby (after deduction
of estimated offering expenses) the pro forma net tangible book value as of June
30, 1997 would be approximately $15.9 million or $6.91 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 June 30, 1997(1)............................................... $ 6.12
Increase per share attributable to new investors..................... $ .79
Pro forma net tangible book value per share of Common Stock
after this offering(1).............................................. $ 6.91
------
Dilution per share to new investors(2)............................... $ 3.09
======
___________________________
(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 and commissions are deducted from the net
proceeds in this computation.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1997, and as adjusted at that date after giving effect to the receipt
of the estimated net proceeds from the sale by the Company of the Units offered
hereby.
15
<PAGE>
Actual(1) As Adjusted
------ -----------
(in thousands)
Stockholders' Equity:
Class A Common Stock, $1.00 par
value, 7,500,000 shares authorized,
1,350,000 shares issued and outstanding
(2,000,000 as adjusted)(2)............................. 1,350 2,000
Class B Common Stock, $1.00 par value,
700,000 shares authorized, 300,000
shares issued and outstanding.......................... 300 300
Additional Paid-in Capital............................... 7,105 12,250
Retained Earnings........................................ 1,339 1,339
----- -----
Total Stockholders' Equity................................ $10,094 $15,889
======= =======
____________________________
(1) These numbers have been adjusted to reflect the recapitalization
effective September 19, 1997.
(2) Does not include: (i) 300,000 shares of Class A Common Stock issuable
upon conversion of issued and outstanding shares of Class B Common
Stock; (ii) 150,000 shares of Class A Common Stock issuable upon
conversion of shares of Class B Common Stock issuable upon exercise of
an outstanding warrant; (iii) 1,528,665 shares of Class A Common Stock
issuable upon exercise of outstanding warrants; (iv) 650,000 shares of
Class A Common Stock issuable upon exercise of the Warrants included in
the Units (747,500 shares if the over-allotment option is exercised);
(v) 130,000 shares of Class A Common Stock issuable upon exercise of
warrants to be issued to the Underwriter and participating
broker/dealers (149,500 shares if the over- allotment option is
exercised); and (vi) 85,941 shares of Class A Common Stock issuable in
connection with the Exchange Offer, including shares issued upon
exercise of warrants issued in the Exchange Offer.
16
<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 date for the six
months ended June 30, 1997 and 1996 have been derived from the unaudited
consolidated financial statements of the Company, which include all adjustments,
consisting only of normal, recurring accruals, which the Company considers
necessary for the fair presentation of the financial position and results of
operations for these periods. Operating results for the six-month period ended
June 30, 1997 are not necessarily indicative of the results that may be expected
for the entire fiscal year. The selected financial data should be read in
conjunction with, and are qualified in their entirety by, the Consolidated
Financial Statements and the Notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere
herein.
<TABLE>
<CAPTION>
At or for the
Seven Five
Six Months Ended Years Ended Months Ended Months Ended Year Ended
June 30 December 31, December 31, May 31, December 31,
------- ------------ ------------ ------- ------------
1997 1996 1996 1995 1994 1993(1) 1993(2) 1992(2)
---- ---- ---- ---- ---- ------- ------- -------
(unaudited) (Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets .............. $ 117,537 79,634 105,196 68,942 40,117 29,071 22,557 24,771
Cash and cash equivalents . 3,836 4,472 6,320 8,551 6,088 5,519 2,569 3,155
Net Loans ................. 69,540 49,731 59,499 36,465 22,385 16,224 16,163 16,732
Securities ................. 38,296 21,474 34,507 19,630 8,638 5,231 2,958 3,883
Deposits .................. 104,862 68,279 93,447 58,601 30,092 22,195 20,138 23,192
Borrowed funds ............ -- -- -- -- -- -- --
Retained earnings
(Accumulated deficit) ... 1,339 676 992 434 164 (17) (2,050) (2,067)
Total stockholders' equity 10,094 9,431 9,747 9,189 8,884 5,828 1,275 1,258
Income Statement Data:
Interest income ........... 4,304 2,857 6,381 4,190 2,158 1,007 741 2,078
Interest expense .......... 2,688 1,628 3,745 2,225 803 345 335 998
Net interest income ....... 1,616 1,229 2,636 1,965 1,355 662 406 1,080
Provision for loan losses . (184) (128) (250) (233) (124) -- (90) (279)
Net interest income after
provision for loan losses 1,432 1,101 2,386 1,732 1,231 662 316 801
Other income .............. 68 78 106 89 112 59 102 189
Other expense ............. (940) (765) (1,551) (1,415) (1,054) (738) (401) (1,261)
Earnings (Loss) before
income taxes .............. 560 414 941 406 289 (17) 17 (271)
Provision for income taxes (213) (172) (383) (136) (108) -- -- --
Net earnings (Loss) ....... 347 242 558 270 181 (17) 17 (271)
Per Share Data:
Net earnings (Loss) ......... .21 .15 .34 .16 .11 (.01) .05 (.77)
Book value at period end .... $ 6.12 5.72 5.91 5.57 5.38 3.53 3.64 3.59
---------
</TABLE>
(1) Includes the consolidated financial information of the Company from
June 1, 1993.
(2) Financial information of the Bank only
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 (primarily commercial real estate
loans). 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
loan 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.
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, which warrant was exercised in June, 1997.
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. An additional office in South Pasadena, which is
also in Pinellas County and which neighbors Clearwater, is expected to open
before year end. The "Tampa Bay" area is located on the West Coast of Florida,
midway up the Florida peninsula. The major cities in the area are Tampa
(Hillsborough County) and St. Petersburg and Clearwater (Pinellas County).
The current population of the Tampa Bay area is estimated at
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.
17
<PAGE>
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 and for the six-month periods ended June 30, 1997 and 1996.
This discussion should be read in conjunction with the consolidated financial
statements and related footnotes presented elsewhere herein.
Results Of Operations
Comparison of Six Months Ended June 30, 1997 and 1996.
General
- -------
Net earnings for the six months ended June 30, 1997 were $347,000, or
$.21 per share, compared to net earnings of $242,000 or $.15 per share for the
six months ended June 30, 1996. This increase in the Company's net earnings was
primarily due to an increase in net interest income, partially offset by an
increase in noninterest expenses and an increase in the provision for income
taxes.
Interest Income and Expense
- ---------------------------
Interest income increased by $1,447,000 from $2,857,000 for the six
months ended June 30, 1996 to $4,304,000 for the six months ended June 30, 1997.
Interest income on loans increased by $916,000 due to an increase in the average
loan portfolio balance from $43.5 million at June 30, 1996 to $65.9 million at
June 30, 1997 partially offset by a decrease in the weighted average yield from
9.61% in 1996 to 9.12% in 1997. Interest on securities increased by $559,000 due
to an increase in the average securities portfolio during the six months ended
June 30, 1997 to $40.7 million from $22.7 million during 1996 and an increase in
the weighted average yield from 5.94% in 1996 to 6.06% in 1997. Interest on
other interest-earning assets decreased by $28,000 primarily due to a decrease
from in the average balance of these assets from 1996 to 1997.
Interest expense on deposit accounts increased to $2,688,000 for the six months
ended June 30, 1997 from $1,628,000 for the six months ended June 30, 1996.
Interest expense increased primarily because of an increase in the average
balance of deposits from 1996 to 1997. The average balance of deposits for the
six months ended June 30, 1997 was $100.4 million, compared to $60.6 million
during 1996.
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
provision increased from $128,000 for the six months ended June 30, 1996 to
$184,000 for the six months ended June 30, 1997. The increase was deemed
appropriate by management due to the growth in the loan portfolio in 1997.
18
<PAGE>
Noninterest Expense
- -------------------
Total noninterest expense increased by $175,000 to $940,000 for the six
months ended June 30, 1997 from $765,000 for the six months ended June 30, 1996,
primarily due to an increase in employee compensation and benefits of $87,000,
an increase in advertising and promotion of $39,000 and an increase in other
noninterest expense of $27,000 due to the overall growth of the Company.
Provision for Income Taxes
- --------------------------
The income tax provision for the six months ended June 30, 1997 was
$213,000 (an effective rate of 38.0%) compared to $172,000 (an effective rate of
41.5%) for the comparable 1996 period. In 1996, a greater portion of the
consolidated earnings was generated by the Holding Company which has a higher
state tax rate.
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
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.
19
<PAGE>
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 securities 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 $1,616,000 for the Company for the six months
ended June 30, 1997 compared with $1,229,000 for the six months ended June 30,
1996. This improvement in net interest income is primarily a result of a higher
volume of net interest-earning assets.
20
<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; and (v) net interest margin. Average balances are based on average daily
balances.
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------------------------------
1997 1996
---- ----
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate
------- --------- ---- ------- --------- ----
(Dollars in thousands)
Interest-earning assets:1
<S> <C> <C> <C> <C> <C> <C> <C>
Loans(1) $ 65,853 3,003 9.12 $ 43,454 2,087 9.61%
Securities 40,738 1,234 6.06 22,715 675 5.94%
Other interest-earning assets(2) 2,228 67 6.01 3,505 95 5.42%
-------- ----- -------- -----
Total interest-earning assets 108,819 4,304 7.91 69,674 2,857 8.20%
-------- ----- -------- -----
Noninterest-earning assets 5,922 5,672
----- -----
Total assets $114,741 $ 75,346
======== ========
Interest-bearing liabilities:
Money market and NOW deposits 17,194 379 4.41 7,502 134 3.57%
Savings 7,629 185 4.85 636 7 2.20%
Certificates of deposit 75,580 2,124 5.62 52,436 1,485 5.66%
Other -- -- 70 2 5.71%
-------- ----- -------- -----
Total interest-bearing liabilities 100,403 2,688 5.35 60,644 1,628 5.37%
-------- ----- ---- -----
Noninterest-bearing liabilities 4,592 5,399
Stockholders' equity 9,746 9,303
----- -----
Total liabilities and stockholders' equity $114,741 $ 75,346
======== ========
Net interest/dividend income $ 1,616 $ 1,229
======= =======
Interest rate spread(3) 2.56% 2.83%
==== ====
Net interest margin(4) 2.97% 3.53%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.08 1.15
==== ====
</TABLE>
21
<PAGE>
<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:
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
==== ====
</TABLE>
22
<PAGE>
- ------------------------------------
(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).
Six Months Ended June 30,
1997 vs. 1996
-----------------------------------
Increase (Decrease) Due to
-----------------------------------
Rate/
Rate Volume Volume Total
---- ------ ------ -----
Interest-earning assets: (In thousands)
Loans(1) ....................... $ (105) 1,075 (54) 916
Securities ..................... 14 535 10 559
Other interest-earning assets .. 10 (35) (3) (28)
------ ------ ------ ------
Total .......................... (81) 1,575 (47) 1,447
------ ------ ------ ------
Interest-bearing liabilities:
Money Market and NOW deposits .. 32 172 41 245
Savings ........................ 8 80 90 178
Certificates of Deposit ........ (13) 657 (5) 639
Other .......................... -- (2) -- (2)
------ ------ ------ ------
Total ....................... 27 907 126 1,060
------ ------ ------ ------
Net change in net interest income
before provision for loan losses $ (108) 668 (173) 387
====== ====== ====== ======
23
<PAGE>
Year Ended December 31,
1996 vs. 1995
-----------------------------------
Increase (Decrease) Due to
-----------------------------------
Rate/
Rate Volume Volume Total
---- ------ ------ -----
Interest-earning assets: (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:
Money Market and NOW Deposits 62 74 33 169
Savings 14 17 16 47
Certificates of Deposit (107) 1,488 (78) 1,303
Other -- 1 -- 1
----- ----- ----- -----
Total (31) 1,580 (29) 1,520
----- ----- ----- -----
Net change in net interest income
before provision for loan losses $(314) 1,188 (203) 671
===== ===== ===== =====
Income Taxes
- ------------
At June 30, 1997, the Company had net operating loss carry forwards for
federal income tax purposes available to offset future federal taxable income.
They were in the aggregate amount of $495,000, with specified portions expiring
in each year from 2004 through 2008. The carry forwards 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
- --------------------------
Exposure to interest rate risk is primarily a function of differences
between the maturity and repricing schedules of assets (principally loans and
securities) and liabilities (principally deposits). A principal objective of the
Bank's asset/liability management strategy is to minimize the Bank's exposure to
changes in interest rates by maintaining a balanced interest rate risk position.
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
24
<PAGE>
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.
25
<PAGE>
The following table sets forth certain information relating to the
Company's interest-earning assets and interest-bearing liabilities at June 30,
1997 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)
<S> <C> <C> <C> <C> <C>
Mortgage and commercial loans (1):
Commercial loans $ 2,551 304 398 213 3,466
Commercial real estate loans 4,941 10,202 49,409 79 64,631
Residential mortgage loans 404 577 376 1,358 2,715
Consumer loans 19 15 67 -- 101
-------- -------- -------- -------- --------
Total loans 7,915 11,098 50,250 1,650 70,913
-------- -------- -------- -------- --------
Federal funds sold 1,973 -- -- -- 1,973
Interest-bearing deposits with banks -- -- 99 -- 99
Securities (2)(3) 1,703 4,511 25,744 6,541 38,499
-------- -------- -------- -------- --------
Total rate-sensitive assets 11,591 15,609 76,093 8,191 111,484
======== ======== ======== ======== ========
Deposit accounts (2):
Money market deposits 14,381 -- -- -- 14,381
NOW deposits 3,441 -- -- -- 3,441
Savings deposits 9,176 -- -- -- 9,176
Certificates of deposit 12,353 26,896 35,405 1,005 75,659
-------- -------- -------- -------- --------
Total rate-sensitive liabilities $ 39,351 26,896 35,405 1,005 102,657
======== ======== ======== ======== ========
GAP (repricing differences) $(27,760) (11,287) 40,688 7,186 8,827
-------- -------- -------- -------- --------
Cumulative GAP $(27,760) (39,047) 1,641 8,827
-------- -------- -------- --------
Cumulative GAP/total assets (23.62) (33.32)% 1.40% 7.51%
-------- -------- -------- --------
</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.
26
<PAGE>
Financial Condition
Lending Activities
- ------------------
A significant source of income for the Company is the interest earned
on loans. At June 30, 1997, the Company's total assets were $117.5 million and
its net loans (after allowance for loan losses) were $69.5 million or 59.1% of
total assets as compared to $105.2 million of total assets at December 31, 1996,
and net loans (after allowance for loan losses) of $59.5 million representing
56.6% of the total assets at December 31, 1996.
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.
<TABLE>
<CAPTION>
LOAN PORTFOLIO ANALYSIS
The following table sets forth information concerning the Company's
loan portfolio by type of loan at the dates indicated.
At June 30, 1997 At December 31, 1996 At December 31, 1995
---------------- -------------------- --------------------
% of % of % of
Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial loans $ 3,466 4.9% $ 3,514 5.8%$ 4,391 11.8%
Commercial real estate loans 64,631 91.1 54,198 89.4 29,719 79.7
Residential mortgage loans 2,715 3.8 2,784 4.6 3,046 8.2
Consumer loans 101 .2 157 .2 115 .3
-------- --------- -------- --------- -------- ---------
Total loans 70,913 100.0% 60,653 100.0% 37,271 100.0%
========= ------ ========= ------ =========
Add (Deduct):
Deferred loan fees (374) (343) (186)
Unamortized discount -- -- (27)
--------- -------- ---------
Loans, net $ 70,539 $ 60,310 $ 37,058
========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
The following table reflects the contractual principal repayments by
period of the Company's loan portfolio at December 31, 1996.
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>
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.
27
<PAGE>
The following table sets forth total loans originated and repaid during
the periods indicated.
Six Months Year Ended
Ended June 30, December 31,
-------------- ------------
1997 1996 1996
---- ---- ----
(in thousands)
Originations:
Commercial loans $ 373 273 497
Commercial real estate loans 12,935 15,999 30,802
Consumer loans 40 48 145
-------- -------- --------
Total loans originated 13,348 16,320 31,444
Principal reductions (3,088) (3,556) (8,062)
-------- -------- --------
Increase in total loans $ 10,260 12,764 23,382
======== ======== ========
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 June 30, 1997, approximately 91.1%, and as of December 31,
1996, approximately 89.4% 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 June 30, 1997, no
assets were non-performing, while as of December 31, 1996, non-performing assets
totaled $185,000.
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 June 30, 1997:
Commercial loans 4.9%
----
Commercial Real estate loans 91.1%
-----
Consumer and other loans .2%
---
Residential Mortgage Loans 3.8%
----
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
28
<PAGE>
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 properties acquired through, or in lieu of, loan
foreclosure are to be sold and are initially 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. At June 30, 1997, the Bank had no foreclosed
real estate.
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.
<TABLE>
<CAPTION>
At June 30, At December 31,
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Nonaccrual loans:
<S> <C> <C> <C>
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% --
%
===== ==== =======
</TABLE>
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
29
<PAGE>
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 six months
ended June 30, 1997 or 1996 and years ended December 31, 1996 or 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 during the six months ended June 30,
1997, or 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.
30
<PAGE>
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
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, 1996 was
$811,000, and the Bank increased its allowance for loan losses to $999,000 as of
June 30, 1997, 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:
Six Months Ended Year Ended
---------------- ----------
June 30, June 30, December 31, December 31,
1997 1996 1996 1995
---- ---- ---- ----
(Dollars in thousands)
Average loans outstanding, net $ 65,853 $ 43,454 $ 49,266 $ 28,052
-------- -------- -------- --------
Allowance at beginning of period 811 593 593 369
-------- -------- -------- --------
Charge-offs:
Real estate loans -- -- 62 --
-------- -------- -------- --------
Commercial loans -- -- -- 23
-------- -------- -------- --------
Consumer loans -- -- 3 7
-------- -------- -------- --------
Total loans charged-off -- -- 65 30
-------- -------- -------- --------
Recoveries 4 31 33 21
-------- -------- -------- --------
Net charge-offs (recoveries) (4) (31) 32 9
-------- -------- -------- --------
Provision for loan losses charged
to operating expenses 184 128 250 233
-------- -------- -------- --------
Allowance at end of period $ 999 $ 752 $ 811 $ 593
======== ======== ======== ========
Ratio of net charge-offs to
average loans outstanding -- .001 .001 .001
======== ======== ======== ========
Ratio of allowance for loan losses
to period-end total loans .014 .015 .013 .016
======== ======== ======== ========
Ratio of allowance for loan losses
to nonperforming loans -- 3.06 -- --
======== ======== ======== ========
Period end total loan $ 70,913 $ 50,035 $ 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 June 30, At December 31, At December 31,
1997 1996 1995
-------------- -------------- ------------------
% of % of % of
Loans to Loans to Loans to
Total Total Total
Amount Loans Amount Loans Amount Loans
(Dollars in thousands)
Commercial loans $ 43 4.3% $ 82 10.1% $140 23.6%
Commercial real estate loans 886 88.7 677 83.5 378 63.7
Residential real estate loans 68 6.8 50 6.2 72 12.2
Consumer loans and other 2 .2 2 .2 3 .5
---- ---- ---- ---- ---- ----
Total allowance for
loan losses $999 100.0% $811 100.0% $593 100.0%
The allowance for loan losses represented 1.4% of the total loans
outstanding at June 30, 1997, compared with 1.5% at June 30, 1996.
31
<PAGE>
Securities
- ----------
The following table sets forth the carrying value of the Bank's
held-to-maturity securities portfolio as of the dates indicated:
At June 30, At December 31,
---------------
1997 1996 1995
---- ---- ----
(in thousands)
Securities held to maturity:
U.S. Treasury securities $ 2,992 1,499 2,265
U.S. Government and
agency securities 35,304 33,008 17,365
------- ------ ------
Total $38,296 34,507 19,630
======= ====== ======
32
<PAGE>
The following table sets forth, by maturity distribution, certain
information pertaining to the held-to maturity securities 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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1997:
U.S. Treasury Securities $ 1,500 6.13$ 1,492 6.03 $----- -----% $ 2,992 6.08%
U.S. Government
agency securities 4,511 5.86 24,253 6.15 6,540 6.47 35,304 6.17
----- ---- ------ ---- ----- ---- ------ ----
Total $ 6,011 5.93 $25,745 6.14 $ 6,540 6.47 $38,296 6.16
======= ==== ======= ==== ======= ==== ======= ====
December 31, 1996:
U.S. Treasury Securities 500 6.04 999 6.17% -- ----% 1,499 6.12%
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%
======= ==== ======= ==== ======= ==== ======= ====
</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 June 30,
1997, the Bank met the definition of a "well capitalized" depository
institution.
33
<PAGE>
The following table shows the distribution of, and certain other
information relating to, the Bank's deposit accounts by type:
At June 30, At December 31, At December 31,
1997 1996 1995
----------------- ---------------- ----------------
% of % of % of
Amount Deposits Amount Deposits Amount Deposits
(Dollars in thousands)
Demand deposits $ 2,204 2.1%$ 2,401 2.6%$ 2,729 4.7%
NOW deposits 3,441 3.3 4,536 4.9 2,705 4.6
Money market deposits 14,381 13.7 7,507 8.0 3,518 6.0
Savings deposits 9,177 8.7 4,742 5.0 595 1.0
-------- ----- -------- ----- -------- -----
Subtotal 29,203 27.8 19,186 20.5 9,547 16.3
-------- ----- -------- ----- -------- -----
Certificate of deposits:
3.00%-3.99% -- -- -- 24 --
4.00%-4.99% 188 .2 1,682 1.8 255 .4
5.00%-5.99% 57,442 54.8 53,507 57.3 23,756 40.5
6.00%-6.99% 12,490 11.9 13,307 14.2 14,109 24.2
7.00%-7.99% 5,539 5.3 5,765 6.2 10,910 18.6
------ ----- ------ ------ ------- ----
Total certificates
of deposit (1) 75,659 72.2 74,261 79.5 49,054 83.7
-------- ----- ------ ----- ------ ----
Total deposits $104,862 100.0%$ 93,447 100.0%$ 58,601 100.0%
======== ===== ======== ===== ======== =====
- -------------------------
(1) Includes individual retirement accounts ("IRAs") totaling $6,036,000,
$5,434,000 and $3,464,000 at June 30, 1997, December 31, 1996 and 1995
respectively, all of which are in the form of certificates of deposit.
34
<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.
<TABLE>
<CAPTION>
Six Months Ended Year Ended
------------------------------------- -------------------------------------
June 30, June 30, December 31, December 31,
1997 1996 1996 1995
---- ---- ---- ----
Average Average Average Average Average Average Average Average
Balance Yield Balance Yield Balance Yield Balance Yield
------- ----- ------- ----- ------- ----- ------- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money market & NOW $ 17,194 4.41 $ 7,502 3.57 8,432 3.68 $ 5,515 2.56%
Savings deposits 7,629 4.85 636 2.20 1,470 4.22 681 2.20
Certificates of deposit 75,580 5.62 52,436 5.66 59,437 5.67 34,562 5.98
Other -- -- 70 5.71 34 5.88 17 5.88
-------- ---- ------- ---- -------- ---- -------- ----
Total deposits $100,403 5.35 60,644 5.37 69,373 5.40 $ 40,775 5.46%
======== ==== ======= ==== ======== ==== ======== ====
</TABLE>
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.
35
<PAGE>
<TABLE>
<CAPTION>
The following tables presents by various interest rate categories the
amounts of certificates of deposit at June 30, 1997 and December 31, 1996 which
mature during the periods indicated:
Year Ending June 30,
--------------------------------------------------
1998 1999 2000 2001 2002 Total
---- ---- ---- ---- ---- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
June 30, 1997:
4.00%-4.99% 151 37 -- -- -- 188
5.00%-5.99% 37,344 11,305 777 4,838 3,178 57,442
6.00%-6.99% 1,754 124 1,368 574 8,670 12,490
7.00%-7.99% -- -- 5,296 -- 243 5,539
------- ------- ------- ------- ------- -------
Total certificates of deposit $39,249 11,466 7,441 5,412 12,091 75,659
======= ======= ======= ======= ======= =======
Year Ending December 31,
----------------------------------------------------
1997 1998 1999 2000 2001 Total
---- ---- ---- ---- ---- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996:
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
======= ======= ======= ======= ======= =======
</TABLE>
Jumbo certificates ($100,000 and over) mature as follows:
At June 30, At December 31,
----------- ---------------
1997 1996
---- ----
(in thousands)
Due three months or less $1,163 733
Due over three months to six months 2,821 2,136
Due over six months to one year 512 2,566
Due over one year 2,683 1,826
------ ------
$7,179 7,261
====== ======
The following table sets forth the net deposit flows of the Bank during the
periods indicated:
36
<PAGE>
Six Months Ended Year Ended Year Ended
June 30, December 31, December 31,
-------- ------------ ------------
1997 1996 1996 1995
---- ---- ---- ----
(in thousands)
Net increase before
interest credited $ 7,731 8,052 31,168 26,343
Net interest credited 3,684 1,626 3,678 2,166
------- ------- ------- -------
Net deposit increase $11,415 9,678 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 June 30, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of June 30, 1997, 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.
37
<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 June 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Total capital $9,686 11.90 $6,511 8.00 $8,139 10.00
(to Risk Weighted Assets)
Tier I Capital $8,687 10.60 3,256 4.00 4,884 6.00
(to Risk Weighted Assets)
Tier I Capital $8,687 7.50 4,592 4.00 5,741 5.00
(to Average Assets)
As of December 31, 1996:
Total capital
(to Risk Weighted Assets) 8,051 11.90 5,412 8.00 6,765 10.00
Tier I Capital
(to Risk Weighted Assets) 7,240 10.70 2,706 4.00 4,059 6.00
Tier I Capital
(to Average Assets) 7,240 7.48 3,871 4.00 4,839 5.00
</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 200,000 additional shares at a price of $5.00 per share, which
warrant was exercised in June, 1997.
New Accounting Requirement
- --------------------------
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 after
December 31, 1996. The adoption of SFAS 125 had no effect on the Company's
financial statements during the six month period ended June 30, 1997.
Future Accounting Requirement
- -----------------------------
The FASB has issued Statement of Financial Accounting Standards No. 128
("SFAS 128"). This Statement specifies the computation, presentation and
disclosure requirements for earnings per share (EPS) for entities with
publicly-held common stock. SFAS 128 is effective for both interim and annual
periods ending after December 15, 1997. Management does not expect the adoption
of this Statement to have a material effect on earnings per share.
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.
38
<PAGE>
BUSINESS
General
- -------
The Company is a registered bank holding company incorporated under the
laws of the State of Delaware in 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 has ATM facilities 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
(primarily commercial real estate loans). 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 Bank's income is derived principally from interest and fees earned
in connection with its lending activities, interest and dividends on securities,
short-term invetments and other services. The Bank's income is also affected by
provisions for loan losses. 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's operations are also significantly affected by local
economic and competitive conditionsin its market areas.
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.
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.
39
<PAGE>
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.
Lending Activities
- ------------------
General
- -------
The primary source of income generated by the Bank is from the interest
earned from both the loan and securities 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 June 30, 1997 the Bank's net loan portfolio was $69.5 million,
representing 59.1% of its total assets. As of such date, the loan portfolio
consisted of 4.9% commercial loans, 94.9% 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. As part of its loan portfolio management strategy,
the Company typically limits its loans to 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.
Commercial mortgage lending generally involves greater risk than
residential mortgage lending. Such lending typically involves larger loan
balances to single borrowers and repayment of loans secured by income-producing
properties is typically dependent upon the successful operation of the related
real estate project.
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.
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.
40
<PAGE>
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.
41
<PAGE>
Employees
- ---------
At June 30, 1997, the Company and the Bank together employed 25
full-time employees 1 part-time employee. 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 owned premises consisting
of a two-story building of approximately 22,000 square feet at 625 Court Street,
Clearwater, Florida, which was completely renovated and expanded in 1997. The
Bank occupies the ground floor, which consists of approximately 9,000 square
feet plus drive-through teller facilities, as its principal office and the upper
floor is leased to a single commercial tenant under a long-term lease. In
addition to its principal office, the bank owns two branch offices and leases a
third branch office in Clearwater, Florida and owns a fourth branch location in
South Pasadena, Florida, which is expected to be open by year end. The leased
branch consists of approximately 5,100 square feet at 1875 Belcher Road North
and includes drive-through teller facilities. The operating branches owned by
the Bank are as follows: (i) 2175 Nursery Road, which consists of a facility of
approximately 2,700 square feet and likewise includes drive-through teller
facilities; and (ii) 2575 Ulmerton Road, which consists of approximately 2,500
square feet plus drive-through teller facilities, with space on the upper floors
leased to commercial tenants. The Bank also owns 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 drive-through teller
facilities. The building is being renovated and it is anticipated that it will
open as a branch office before year-end, at which time the Bank will have a
total of five banking offices.
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, 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 and recoveries 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,
New York and New Jersey 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.
42
<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 53, 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 57, 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 68, 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 a director and senior
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.
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.
43
<PAGE>
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 67, 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 55, 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 51, 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 55, 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 53, 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.
Mark W. Maconi, age 47, 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 71, 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 44, 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.
44
<PAGE>
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, Gainsville. 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.
45
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards(2)
---------
Name and Principal Other Annual Number of
Position Year Salary(1) Bonuses Compensation Shares Pay-Outs
- ------------------ ---- --------- -------------------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Keith A. Olsen, 1994 $87,500 $ 6,500 -- 15,000 --
President 1995 $90,000 $10,000 -- 15,000 --
1996 $95,000 $10,000 -- 15,000 --
</TABLE>
(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 an employment agreement with Mr. Keith A. Olsen. The
agreement provides for a base annual salary of not less than $125,000 and
provides for a maximum of two years' severance upon termination of employment.
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 June 30, 1997, 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 June 30, 1997, there were issued and outstanding warrants related to
the purchase of 1,528,665 shares of Class A Common Stock and 150,000 shares of
Class B Common Stock and the Company has reserved a total of 1,528,665 shares of
Class A Common Stock and 150,000 shares of Class B Common Stock for issuance,
from time to time, upon exercise of these warrants. Of these warrants, 1,027,200
are exercisable at any time on or before December 31, 2001 and 501,465 are
exercisable at any time on or before January 31, 2006. Each represents the right
to purchase one share of Class A Common Stock at a purchase price of $6.67 per
share (subject to adjustment in connection with certain issuances of
securities). There is also outstanding a warrant to purchase 150,000 shares of
Class B Common Stock, exercisable at a price of $6.67 per share at any time on
or before January 31, 2007 (subject to adjustment in connection with certain
issuances of securities). As of June 30, 1997 none of the Company's warrants had
been exercised.
46
<PAGE>
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 of the Bank (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 $3.3 million as of June 30,
1997, which represented approximately 32.7% of the Bank's total stockholders'
equity. There are no loans to directors or officers of Intervest Bancshares
Corporation.
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.
47
<PAGE>
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 June 30, 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.
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
-------------------- --------------------
Name and Address of
- -------------------
Beneficial Holder Number of Shares Percent of Class(1) Number of Shares Percent of Class
- ----------------- ---------------- ------------------- ---------------------------------
<S> <C> <C> <C> <C>
Helene D. Bergman 225,000 16.67 75,000 16.67%
201 East 62nd Street
New York, New York 10021
Lawrence G. Bergman 307,500(2) 20.21 75,000 16.67%
201 East 62nd Street
New York, New York 10021
Lowell S. Dansker 532,500(2) 36.17 150,000 33.33%
360 West 55th Street
New York, New York 10019
Michael A. Callen 45,000(3) 2.72 0 0%
Jeddah
Kingdom of Saudia Arabia
Jerome Dansker 553,965(4) 29.10 150,000(4) 33.33%
860 Fifth Avenue
New York, New York 10021
Milton F. Gidge 31,500(5) 1.75 0 0%
43 Salem Ridge Drive
Huntington, New York 11743
William F. Holly 45,000(6) 2.70 0 0%
206 Edgemere Drive
Rochester, New York 14612
David J. Wilmott 94,500(7) 6.21 0 0%
West Way
Southhampton, New York
Wesley T. Wood 97,500(8) 6.42 0 0%
24 Timber Ridge Drive
Oyster Bay, New York 11771
All directors and executive
officers as a group 1,932,465 87.66 450,000 100%
- -----------------------------
(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 82,500 shares of Class A common stock issuable upon the
exercise of warrants.
</TABLE>
48
<PAGE>
(3) Includes 33,750 shares of Class A common stock issuable upon the
exercise of warrants.
(4) The 553,965 shares of Class A common stock are issuable upon the
exercise of outstanding warrants. The 150,000 shares of Class B Common
Stock are issuable upon exercise of a warrant.
(5) Includes 27,000 shares of Class A common stock issuable upon the
exercise of warrants.
(6) Includes 33,750 shares of Class A common stock issuable upon the
exercise of warrants.
(7) Includes 6,000 shares of Class A common stock owned by members of Mr.
Willmott's family, as well as 52,500 shares of Class A common stock
(and 6,000 shares of Class A common stock issuable to family members)
issuable upon the exercise of warrants.
(8) Includes 60,000 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 7,500,000 shares of Class A Common Stock, par
value $1.00 per share, and 700,000 shares of Class B Common Stock, par value
$1.00 per share. In addition, the Company's Articles provide for 300,000 shares
of preferred stock, par value $1.00 per share ("Preferred Stock"). The Company's
Articles of Incorporation authorize the Board of Directors, without shareholder
approval, to fix the preferences, limitations and relative rights of the
Preferred Stock, to establish one or more series or classes of Preferred Stock,
and to determine the variations between each such series or class. No shares of
Preferred Stock are issued or outstanding.
As of the date of this Prospectus, there were issued and outstanding
1,350,000 shares of Class A Common Stock, 900,000 of which are held by the
initial stockholders of the Company and 300,000 shares of Class B Common Stock
held by the same initial stockholders.
Units
- -----
Each Unit offered hereby consists of one share of Class A Common Stock
and a Warrant entitling the holder to purchase one share of Class A Common
Stock. The Class A Common Stock and the Warrants will be separately transferable
immediately after issuance.
Common Stock
Both classes of common stock have equal voting rights as to all
matters, except that, so long as at least 50,000 shares of Class B Common Stock
remain issued and outstanding, the holders of the outstanding shares of Class B
Common Stock are entitled to vote for the election of two-thirds of the
directors (rounded up to the nearest whole number) and the holders of the
outstanding shares of Class A Common Stock are entitled to vote for the
remaining directors of the Company. Under Delaware law, the holders of Class A
and Class B Common Stock would be entitled to vote as separate classes upon
certain matters which would adversely affect or subordinate the rights of a
class.
Subject to preferences that may be applicable to any outstanding shares
of Preferred Stock (none of which are presently outstanding), holders of Class A
Common Stock are entitled to share ratably in dividends when and as declared by
the Company's Board of Directors out of funds legally available therefor. See
"Dividends."
No dividends may be declared or paid with respect to shares of Class B
Common Stock until January 1, 2000, after which time the holders of Class A
Common Stock and Class B Common Stock will share ratably in dividends when and
as declared by the Board of Directors.
The shares of Class B Common Stock are convertible, on a share for
share basis, into Class A Common Stock, at any time and from time to time after
January 1, 2000. Neither Class A nor Class B Common Stock holders have any
preemptive rights as to additional issues of common stock. Shareholders are
49
<PAGE>
subject to no assessments and, upon liquidation, both Class A and Class B common
shareholders would be entitled to participate equally per share in the assets of
the Company available to common shareholders.
Class A Warrants
- ----------------
Each Warrant included in the Units entitles the registered holder
thereof to purchase at any time commencing on the date of issuance and
continuing through December 31, 2002, one share of Class A Common Stock at a
price determined as follows. The price is $10.00 per share through December 31,
1999; $11.50 per share from January 1, 2000 through December 31, 2000; $12.50
per share from January 1, 2001 through December 31, 2001; and $13.50 per share
from January 1, 2002 until the expiration date. The exercise price is subject to
adjustment in accordance with the anti-dilution and other provisions referred to
below. The Warrants may be redeemed by the Company at any time, at $1.00 per
warrant through December 31, 1999; and without consideration after December 31,
1999. In the event of any call for redemption, holders of warrants will have 60
days within which to exercise the warrant.
As of the date of this prospectus, there are also outstanding warrants
related to 1,528,665, shares of the Company's Class A Common Stock. The
outstanding warrants entitled the registered holders thereof to purchase one
share of Class A Common Stock at a price of $6.67 per share. Warrants related to
1,027,220 shares of Class A Common Stock expire on December 31, 2001 and another
warrant related to 501,465 shares of Class A Common Stock expires on January 31,
2006. Except for the exercise price, the expiration dates and the redemption
provisions applicable to warrants included in the Units, the outstanding
warrants related to Class A Shares and the warrants to be included in the Units
are alike in all respects and the following discussion applies to all of the
warrants for Class A Common Stock.
The exercise price is subject to adjustment in accordance with the
anti-dilution and other provisions referred to below. The holder of any Warrant
may exercise such Warrant or any portion thereof by surrendering the certificate
representing the Warrant to the Company's transfer and warrant agent, with the
subscription on the reverse side of such certificate properly completed and
executed, together with payment of the exercise price. The Warrant may be
exercised at any time until expiration of the Warrant. No fractional shares will
be issued upon the exercise of the Warrants. Warrants may not be exercised as to
fewer than 100 shares unless exercised as to all Warrants held by the holder
thereof. The exercise prices of the Warrants have been arbitrarily determined by
the Company and are not necessarily related to the Company's book value, net
worth or other established criteria of value. The exercise price should in no
event be regarded as an indication of any future market price of the securities
offered hereby.
The Warrants are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the shares of common stock issuable
upon exercise of such Warrants and such shares have been registered, qualified
or deemed to be exempt under the securities law of the state of residence of the
holders of such Warrants. Although the Company will use its best efforts to have
all such shares so registered or qualified on or before the exercise date and to
maintain a current prospectus relating thereto until the expiration of such
Warrants, there can be no assurance that it will be able to do so.
The exercise price and the number of shares of Class A Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications on or of the Class A Common Stock or sales by
the Company of shares of its Class A Common Stock at a price below the then
applicable exercise price of the Warrants. Additionally, an adjustment will be
made in the case of a reclassification or exchange of Class A Common Stock,
consolidation or merger of the Company with or into another corporation or sale
of all or substantially all of the assets of the Company in order to enable
warrant holders to acquire the kind and number of shares of stock or other
securities or property receivable in such event by a holder of the number of
shares of Class A Common Stock that might otherwise have been purchased upon the
exercise of the Warrant. In most cases, no adjustment will be made until the
number of shares issued by the Company exceeds 5% of the number of shares
outstanding after the offering and thereafter no adjustments will be made until
the cumulative adjustments and exercise price per share amount to $.05 or more.
No adjustment to the exercise price of the shares subject to the Warrants will
be made for dividends (other than stock dividends), if any paid on the Class A
Common Stock or for securities issued pursuant to a company stock option plan,
if any, or other employee benefit plans of the Company.
50
<PAGE>
The Warrants are fully registered and may be presented to the transfer
and warrant agent for transfer, exchange or exercise at any time at or prior to
the close of business on the expiration date for such Warrant, at which time the
Warrant becomes wholly void and of no value. If a market for the Warrants
develops, the holder may sell the Warrants instead of exercising them. There can
be no assurance, however, that a market for the Warrants will develop or
continue.
The Warrants do not confer upon holders any voting or any other rights
as a shareholder of the Company.
Class B Warrant
- ---------------
There is an outstanding warrant to purchase up to 150,000 shares of
Class B Common Stock, at any time prior to January 31, 2007, at a purchase price
of $6.67 per share. The warrant contains terms and conditions substantially in
conformity with the Warrants related to shares of Class A Common Stock. In
addition, the Warrant provides for an adjustment in the number of shares of
Class B Common Stock purchasable upon the exercise of the Warrant and the
exercise price per share in accordance with anti-dilution and other provisions
which are in substantial conformity with those described above, but which relate
to share issuances and recapitalizations for both Class A and Class B Common
Stock.
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.
Transfer Agent and Warrant Agent
- --------------------------------
The registrar and transfer agent for the Common Stock and the Warrant
Agent for the Warrants is The Bank of New York.
Preferred Stock
- ---------------
The Company's Articles of Incorporation authorize the Board of
Directors, without further shareholder approval, to issue shares of Preferred
Stock in one or more series with powers, preferences, rights, restrictions,
limitations, and other qualifications that could adversely affect the voting and
other rights of the holders of Common Stock.
The Board of Directors has the authority to issue up to 300,000 shares
of the Preferred Stock of the Company in any number of series (to designate the
rights and preferences of such series) which could operate to render more
difficult the accomplishment of mergers or other business combinations. The
Board of Directors of the Company has no present intent to issue any Preferred
Stock at this time. Under certain circumstances and when, in the judgment of the
Board of Directors, the action will be in the best interest of the stockholders
and the Company, such shares could be used to create voting impediments or to
frustrate persons seeking to gain control of the Company. Such shares could
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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."
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
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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
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
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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 June 30, 1997, the
Bank's total capital to risk-weighted assets was 11.90%. Its Tier I capital to
risk-weighted assets was 10.67%. 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 June 30, 1997 the Bank's Tier I capital
(leverage) ratio was 7.57%.
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.
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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
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
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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
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 June 30, 1997, the Bank met the definition of a "Well
Capitalized" institution.
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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
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
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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.
PLAN OF DISTRIBUTION
The Company has entered into an Underwriting Agreement with Sage, Rutty
& Co., Inc., a New York corporation (the "Underwriter"). Mr. William F. Holly,
who is a director of the Company, is the Chairman of the Board and Chief
Executive Officer of the Underwriter. Pursuant to the Underwriting Agreement,
the Underwriter will offer the Units for sale on an all-or-none "best efforts"
basis. Accordingly, the Underwriter will not have any obligation to purchase any
Units from the Company in the event it is unable to effect the sale of part or
all of the Units. Moreover, no Units may be sold unless the Company has received
orders for all of the Units. If, within 90 days after the Registration Statement
is declared effective by the Securities and Exchange Commission (the "Offering
Termination Date"), 650,000 of Units have been sold and subscriptions accepted
by the Company, the Company may close the offer as to those Units (the
"Closing"). The Underwriter may enter into one or more selected dealer
agreements with other broker/dealer firms which are members of the National
Association of Securities Dealers, Inc. (the "NASD"), pursuant to which such
other broker/dealers may offer part of the Units for sale. The Company has also
granted the Underwriter an option, exercisable for a period of 90 days after the
Closing, to offer and sell up to 97,500 additional Units.
The Company has agreed to indemnify the Underwriter and such
broker/dealers participating in the Offering against certain civil liabilities,
including certain liabilities under the Securities Act of 1933, as amended.
The Company will pay to the Underwriter a commission equal to 7% of the
purchase price of Units which are sold by the Underwriter or participating
broker/dealers. In addition, the Company will pay the Underwriter a fee equal to
2% of the aggregate purchase price of Units sold in the Offering, and will pay
the fee of Underwriter's counsel. Pursuant to the selected dealer agreements,
the Underwriter will reallow to each of the other broker/dealers referred to
above a commission equal to 7% of the price of each Unit sold by such
broker/dealer. Except as provided below, no additional discounts or commissions
are to be allowed or paid to such other broker/dealers. Certain officers of the
Company and its subsidiary may also offer the Units for sale and no commissions
or compensation shall be paid to such officers in connection with Units sold by
such officers.
In addition to the commissions referred to above, the Company will
issue to the Underwriter one Warrant for each 10 Units sold in the Offering and
will also issue to the Underwriter and each participating broker/dealer one
Warrant for each 10 Units sold by such Underwriter or broker/dealer. These
Warrants shall be on the same terms and conditions as the Class A Warrants
included in the Units.
Until the Closing, subscription payments for Units should be made
payable to "M&T Bank, as escrow agent for Intervest Bancshares Corporation."
After the Closing, subscription payments for Units should be made payable to the
Company. Payments received by the Underwriter or participating broker/dealers
will be promptly transmitted to M&T Bank, where they will be held for
subscribers in a segregated escrow account until acceptable subscriptions for at
least $6,500,000 of Units have been received. At the Closing, the funds in the
escrow account (including interest earned thereon, but after deducting
commissions due to the Underwriter) will be delivered to the Company. If, on the
Offering Termination Date, $6,500,000 of Units have not been sold and
subscriptions accepted by the Company, subscription documents and funds will be
promptly refunded to subscribers and the offering will terminate. With respect
to interest earned on the escrow account, such interest will, in the event of
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such termination, be distributed to subscribers in proportion to the amount paid
by each subscriber without regard to the date when such subscription funds were
paid by the subscriber. It shall be a condition to the refund of subscription
funds that the subscriber furnish an executed IRS Form W-9, so that any interest
earned and distributed to such subscriber may be properly reported. Once the
escrow agent has received $6,500,000 in subscriptions for Units which have been
accepted by the Company, the Company may close the offering.
EXCHANGE OFFER
The Company presently owns 1,492,714 shares of the common stock of
Intervest Bank. The remaining shares of common stock of the Bank, or 57,293
shares, are owned by 42 shareholders.
The Company is hereby offering each shareholder of the Bank the
opportunity to exchange shares of the Bank for securities of the Company, as
follows. For every two (2) shares of common stock of the Bank surrendered for
exchange, the Company will issue one share of Class A Common Stock of the
Company and Warrants to purchase two (2) shares of Class A Common Stock, which
Warrants shall be identical in all respects to the Warrants included in the
Units. A shareholder who accepts the exchange offer must surrender all of the
shares of the Bank owned by the shareholder. The Company, however, in its sole
discretion, may accept a tender of less than all of the shares owned by any
shareholder. All of the shares surrendered for exchange will be held by the
Company for its own account
No fractional shares of the Company will be issued. With respect to any
portion of a shareholder's holdings which are less than two full shares of Bank
stock, the Company will issue $5.00 plus a warrant to purchase one share of
Class A Common Stock for each remaining share of Bank stock.
The exchange offer is being made by the Company and the Underwriter
will not be involved in any way. No commissions will be paid in connection with
the exchange offer and the Company will accept exchanges regardless of the
number of shareholders who surrender shares or the aggregate number of shares
surrendered. The exchange offer will remain open until 150 days after the
Closing or such earlier date as may be determined by the Company.
The exchange ratio offered hereby was determined by the Company without
reliance upon any appraisal, fairness opinion or other report from any third
party. There is no market for or trading in the securities of either the Company
or the Bank. Accordingly, the consideration offered in exchange for the shares
of the Bank was determined solely by the Company.
The exchange of shares of the Bank for securities of the Company will
be a taxable transaction and Bank shareholders will recognize gain or loss, for
federal income tax purposes, equal to the difference between the value of the
Company securities received and their basis, for federal income tax purposes, in
the shares of Bank stock surrendered in exchange. Shareholders should consult
with their own tax advisor as to the particular tax consequences of the Exchange
Offer to them, including the applicability and effect of any state, local and
foreign tax laws.
LEGAL MATTERS
The validity of the Units offered hereby will be passed upon for the
Company by Harris Beach & Wilcox, LLP, Rochester, New York. Certain legal maters
will be passed upon for the Underwriter by Harter Secrest & Emery, Rochester,
New York.
EXPERTS
The consolidated balance sheet of Intervest Bancshares Corporation and
Subsidiary as of December 31, 1996 and the related consolidated statements of
earnings, stockholders' equity and cash flows for each of the years in the two
year period 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.
59
<PAGE>
<TABLE>
<CAPTION>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Index to Financial Statements
Page
<S> <C>
Independent Auditors' Report.................................................................................F-2
Consolidated Balance Sheets, June 30, 1997 (unaudited) and
December 31, 1996...................................................................................F-3
Consolidated Statements of Earnings for the Six Months
Ended June 30, 1997 and 1996 (unaudited) and
the Years Ended December 31, 1996 and 1995..........................................................F-4
Consolidated Statements of Stockholders' Equity for the
Six Months Ended June 30, 1997 (unaudited) and
the Years Ended December 31, 1996 and 1995..........................................................F-5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and
1996 (unaudited)
and the Years Ended December 31, 1996 and 1995......................................................F-6
Notes to Consolidated Financial Statements...................................................................F-7
All schedules are omitted because of the absence of the conditions under which
they are required or because the required information is included in the
consolidated financial statements and related notes.
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
Intervest Bancshares Corporation
New York, New York:
We have audited the accompanying consolidated balance sheet of Intervest
Bancshares Corporation and Subsidiary (the "Company") as of December 31, 1996
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the years in the two-year period ended December 31, 1996.
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 the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
January 7, 1997, except for Note 18, as to
which the date is September 1, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
($ in thousands, except per share amounts)
June 30, December 31,
-------- ------------
Assets 1997 1996
---- ----
(unaudited)
<S> <C> <C>
Cash and due from banks .................................. $ 1,863 2,868
Federal funds sold ....................................... 1,973 3,452
-------- --------
Total cash and cash equivalents ................... 3,836 6,320
Interest-bearing deposits with banks ..................... 99 99
Securities held to maturity .............................. 38,296 34,507
Loans receivable, net of allowance for loan losses of $999
in 1997 and $811 in 1996 .............................. 69,540 59,499
Accrued interest receivable .............................. 997 842
Premises and equipment, net .............................. 3,967 2,940
Restricted securities, Federal Reserve Bank stock, at cost 203 203
Foreclosed real estate ................................... -- 185
Deferred income tax asset ................................ 495 526
Other assets ............................................. 104 75
-------- --------
$117,537 105,196
======== ========
Liabilities and Stockholders' Equity
Liabilities:
Demand deposits ....................................... 2,204 2,401
Savings and NOW deposits .............................. 12,618 9,278
Money-market deposits ................................. 14,381 7,507
Time deposits ......................................... 75,659 74,261
-------- --------
Total deposits .................................... 104,862 93,447
Other liabilities ..................................... 2,249 1,676
-------- --------
Total liabilities ................................. 107,111 95,123
-------- --------
Minority interest ........................................ 332 326
-------- --------
Commitments (Notes 4 and 7)
Stockholders' Equity:
Class A common stock - $1 par value, 4,000,000 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 ..................................... 1,339 992
-------- --------
Total stockholders' equity ........................ 10,094 9,747
-------- --------
$ 117,537 105,196
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
($ in thousands except per share amounts)
Six Months Ended Year Ended
June 30, December 31,
------------------ -------------------
1997 1996 1996 1995
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable ................ $ 3,003 2,087 4,624 2,878
Securities held to maturity ..... 1,234 675 1,514 1,080
Other interest earning assets ... 67 95 243 232
---------- ---------- ---------- ----------
Total interest income ...... 4,304 2,857 6,381 4,190
---------- ---------- ---------- ----------
Interest expense:
Deposits ........................ 2,688 1,628 3,745 2,225
---------- ---------- ---------- ----------
Net interest income ........ 1,616 1,229 2,636 1,965
Provision for loan losses .......... 184 128 250 233
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,432 1,101 2,386 1,732
---------- ---------- ---------- ----------
Noninterest income:
Customer service charges ........ 56 61 89 82
Other ........................... 12 17 17 7
---------- ---------- ---------- ----------
Total noninterest income ... 68 78 106 89
---------- ---------- ---------- ----------
Noninterest expenses:
Salaries and employee benefits .. 438 351 739 577
Occupancy and equipment ......... 191 179 342 379
Advertising and promotion ....... 42 3 9 12
Professional fees ............... 64 58 88 81
Deposit insurance premiums ...... 5 1 2 38
General insurance ............... 15 15 31 29
Stationery, printing and supplies 55 34 51 45
Other ........................... 124 115 270 243
Minority interest in subsidiary . 6 9 19 11
---------- ---------- ---------- ----------
Total noninterest expenses . 940 765 1,551 1,415
---------- ---------- ---------- ----------
Earnings before income taxes ....... 560 414 941 406
Income taxes ............... 213 172 383 136
---------- ---------- ---------- ----------
Net earnings ....................... $ 347 242 558 270
========== ========== ========== ==========
Earnings per share ................. $ .21 .15 .34 .16
========== ========== ========== ==========
Weighted-average number of shares
outstanding ..................... 1,650,000 1,650,000 1,650,000 1,650,000
========== ========== ========== ==========
</TABLE>
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 at 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 at December 31,
1995............................. 900 200 7,655 434 - 9,189
Net earnings........................ - - - 558 - 558
---- ---- ------ ----- ---- ------
Balance at December 31,
1996............................. 900 200 7,655 992 - 9,747
Net earnings for the six
months ended June 30,
1997 (unaudited)................. - - - 347 - 347
---- ---- ------- ------ ---- ------
Balance at June 30, 1997
(unaudited)...................... $ 900 200 7,655 1,339 - 10,094
=== === ===== ===== ==== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
<TABLE>
<CAPTION>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended Year Ended
June 30, December 31,
------------------ ------------------
1997 1996 1996 1995
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings .......................................... $ 347 242 558 270
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation .................................... 108 121 176 170
Provision for deferred income taxes ............. 31 166 67 127
(Increase) decrease in other assets ............. (29) 1 35 35
Increase in other liabilities ................... 579 766 850 11
Increase in accrued interest receivable ......... (155) (17) (199) (387)
Net amortization of fees, premiums and discounts 12 107 271 (36)
Write-down on foreclosed real estate ............ 8 -- -- --
Net gain on sale of foreclosed real estate ...... (7) -- -- --
Provision for loan losses ....................... 184 128 250 233
-------- -------- -------- --------
Net cash provided by operating activities ..... 1,078 1,514 2,008 423
-------- -------- -------- --------
Cash flows from investing activities:
Purchase of Federal Reserve Bank stock ................ -- -- -- (30)
Purchase of securities held to maturity ............... (15,128) (9,937) (30,025) (22,703)
Maturities of securities held to maturity ............. 11,358 8,000 15,050 11,900
Net purchases of premises and equipment ............... (1,135) (107) (667) (1,286)
Net increase in loans ................................. (10,256) (13,426) (23,642) (14,436)
Proceeds from sale of foreclosed real estate .......... 184 -- -- --
Purchase of interest-bearing deposits ................. -- -- -- (298)
Maturity of interest-bearing deposits ................. -- 199 199 397
-------- -------- -------- --------
Net cash used in investing activities ........... (14,977) (15,271) (39,085) (26,456)
-------- -------- -------- --------
Cash flows from financing activities:
Net increase in demand, savings, NOW and
money market deposits ............................... 10,017 350 9,639 1,894
Net increase in time deposits ......................... 1,398 9,328 25,207 26,615
Stock issuance costs .................................. -- -- -- (13)
-------- -------- -------- --------
Net cash provided by financing activities ....... 11,415 9,678 34,846 28,496
-------- -------- -------- --------
Net (decrease) increase in cash and
cash equivalents ............................... (2,484) (4,079) (2,231) 2,463
Cash and cash equivalents at beginning of period ........ 6,320 8,551 8,551 6,088
-------- -------- -------- --------
Cash and cash equivalents at end of period .............. $ 3,836 4,472 6,320 8,551
======== ======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ........................................ $ 2,684 1,627 3,678 2,166
======== ======== ======== ========
Income taxes .................................... $ 397 23 17 --
======== ======== ======== ========
Noncash transactions:
Reclassification of loans to
foreclosed real estate .......................... $ -- -- 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
======== ======== ======== ========
</TABLE>
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 and
Unaudited for the Six Months Ended June 30, 1997 and 1996
(1) Description of Business and Summary of Significant Accounting Policies The
accompanying consolidated financial statements as of June 30, 1997 and for the
six-month periods ended June 30, 1997 and 1996 are unaudited; however, in the
opinion of management, all adjustments necessary for the fair presentation of
the consolidated financial statements have been included. All such adjustments
are of a normal recurring nature. The results for the six months ended June
30, 1997 are not necessarily indicative of the results which may be expected
for the entire year.
General. Intervest Bancshares Corporation (the "Holding Company") was
incorporated on February 5, 1993. The Holding Company owned 96.30% (unaudited)
and 95.76% at June 30, 1997 and December 31, 1996, respectively 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.
(continued)
F-7
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Unaudited for the Six Months Ended June 30, 1997 and 1996
(1) Description of Business and Summary of Significant Accounting Policies,
Continued Loans Receivable, Continued. Loan origination fees and certain
direct origination costs are capitalized and recognized as an adjustment of
the yield of the related loan.
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.
F-8
(continued)
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Unaudited for the Six Months Ended June 30, 1997 and 1996
(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 (see Note 18).
New Accounting Requirement. 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 after December 31, 1996. The adoption of SFAS 125 had no
effect on the Company's financial statements during the six-month period ended
June 30, 1997 (unaudited).
Future Accounting Requirement. The FASB has issued Statement of Financial
Accounting Standards No. 128 ("SFAS 128"). This Statement specifies the
computation, presentation and disclosure requirements for earnings per share
(EPS) for entities with publicly-held common stock. SFAS 128 is effective for
both interim and annual periods ending after December 15, 1997. Management
does not expect the adoption of this Statement to have a material effect on
earnings per share.
(continued)
F-9
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Unaudited for the Six Months Ended June 30, 1997 and 1996
(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>
June 30, 1997 (unaudited):
U.S. Treasury securities ......................................... $ 2,992 6 - 2,998
U.S. Government and
agency securities ............................................ 35,304 26 119 35,211
------- ------- ------- -------
Total ........................................................ $38,296 32 119 38,209
======= ======= ======= =======
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
======= ======= ======= =======
</TABLE>
There were no sales of securities during the six months ended June 30, 1997
(unaudited) or the years ended December 31, 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 are summarized as
follows (in thousands):
Amortized Fair
Cost Value
At June 30, 1997 (unaudited):
Due in one year or less .............. $ 6,011 6,017
Due after one year through five years 25,745 25,712
Due after five years through ten years 6,540 6,480
------- -------
Total ............................ $38,296 38,209
======= =======
At December 31, 1996:
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>
<TABLE>
<CAPTION>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Unaudited for the Six Months Ended June 30, 1997 and 1996
(3) Loans Receivable
The components of loans in the consolidated balance sheets are summarized
as follows (in thousands):
At June 30, At December 31,
----------- ---------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Commercial loans........................................................ $ 3,466 3,514
Commercial real estate.................................................. 64,631 54,198
Residential real estate................................................. 2,715 2,784
Consumer loans.......................................................... 101 157
------ ------
70,913 60,653
Deferred loan fees...................................................... (374) (343)
Allowance for loan losses............................................... (999) (811)
------ ------
$ 69,540 59,499
====== ======
</TABLE>
An analysis of the change in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
Six Months Ended Year Ended
---------------- -----------------
June 30, December 31,
1997 1996 1996 1995
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of period............................ $ 811 593 593 369
--- --- --- ---
Loans charged-off......................................... - - (65) (30)
Recoveries................................................ 4 31 33 21
---- ---- --- ---
Net loan recoveries (charge-offs).................... 4 31 (32) (9)
---- ---- --- ----
Provision for loan losses................................. 184 128 250 233
--- --- --- ---
Balance at end of period.................................. $ 999 752 811 593
=== === === ===
</TABLE>
The Company had no impaired loans during the six months ended June 30, 1997
(unaudited), or at December 31, 1996 or 1995. The average recorded
investment in impaired loans during the six months ended June 30, 1996
(unaudited) and the years ended December 31, 1996 and 1995 was $41,000,
$31,000 and $5,000, respectively. No interest income was recognized on
impaired loans during these periods.
(continued)
F-11
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Unaudited for the Six Months Ended June 30, 1997 and 1996
(4) Premises and Equipment
Premises and equipment is summarized as follows (in thousands):
<TABLE>
<CAPTION>
At June 30, At December 31,
----------- ---------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Land ................................................................ $ 914 729
Bank buildings ...................................................... 2,764 1,926
Leasehold improvements .............................................. 63 61
Furniture and fixtures and equipment ................................ 675 565
------- -------
Total, at cost .................................................... 4,416 3,281
Less accumulated depreciation and amortization ...................... (449) (341)
------- -------
Net book value .................................................... $ 3,967 2,940
======= =======
</TABLE>
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 by the end of 1997. At June 30,
1997 (unaudited), the Bank had remaining purchase commitments outstanding of
$251,000 to complete the renovation.
TheBank completed its renovations, and in June, 1997, moved its main office to
625 Court Street, Clearwater, Florida. At December 31, 1996, the Bank had
purchase commitments of $523,000 to complete the renovations.
In May, 1997 (unaudited), the Bank purchased a building and a vacant lot
adjacent to the Court Street office to provide additional parking and office
space for future expansion of this facility.
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
Unaudited for the Six Months Ended June 30, 1997 and 1996
(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 $78,000, $86,000, $163,000 and
$167,000 for the six months ended June 30, 1997 and 1996 (unaudited) and the
years ended December 31, 1996 and 1995, respectively. Approximate future
minimum annual rental payments under these noncancellable leases are as
follows (in thousands):
<TABLE>
<CAPTION>
At At
June 30, December 31,
Year Ending -------- Year Ending ------------
June 30, 1997 December 31, 1996
------------ ---- ------------ ----
(unaudited)
<S> <C> <C> <C>
1998............................ $ 93 1997................. $ 133
1999............................ 96 1998................. 92
2000............................ 99 1999................. 95
2001............................ 102 2000................. 98
2002............................ 105 2001................. 101
Thereafter...................... 462 Thereafter........... 671
--- -----
Total........................... $ 957 Total................ $ 1,190
=== =====
</TABLE>
The Company leases a portion of their office space in the branch office
located on Ulmerton Road, Largo, Florida; through 1996, its branch office
located on Belcher Road, Clearwater, Florida and beginning in September,
1997, office space at the new main office an Court Street, Clearwater,
Florida to other companies. Such leases begin to expire in 1998. Rental
income during the six months ended June 30, 1997 and 1996 (unaudited) and the
years ended December 31, 1996 and 1995 totaled approximately $80,000,
$80,000, $159,000 and $35,000, respectively. Approximate future minimum lease
income under these leases is as follows (in thousands):
<TABLE>
<CAPTION>
At At
June 30, December 31,
Year Ending -------- Year Ending ------------
June 30, 1997 December 31, 1996
------------ ---- ------------ ----
(unaudited)
<S> <C> <C>
1998............................ $ 284 1997................. $ 191
1999............................ 289 1998................. 128
2000............................ 274 1999................. 59
2001............................ 239 2000................. 58
2002............................ 213 2001................. 2
---
Thereafter...................... 875
------
Total........................... $ 2,174 Total................ $ 438
===== ===
</TABLE>
(continued)
F-13
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Unaudited for the Six Months Ended June 30, 1997 and 1996
(5) Deposits
The aggregate amount of short-term certificates of deposit with a minimum
denomination of $100,000, was approximately $7,179,000 and $7,261,000 at June
30, 1997 (unaudited) and December 31, 1996, respectively.
Scheduled maturities of certificates of deposit are as follows (in
thousands):
<TABLE>
<CAPTION>
At At
June 30, December 31,
Year Ending -------- Year Ending ------------
June 30, 1997 December 31, 1996
------------ ---- ------------ ----
(unaudited)
<S> <C> <C> <C>
1998.......................... $ 39,249 1997........................... $ 42,845
1999.......................... 11,466 1998........................... 10,989
2000.......................... 7,441 1999........................... 3,254
2001.......................... 5,412 2000........................... 7,837
2002 and thereafter........... 12,091 2001 and thereafter............ 9,336
------ ------
Total......................... $ 75,659 Total.......................... $ 74,261
====== ======
</TABLE>
(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 June 30, 1997 (unaudited) or December 31, 1996.
(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.
(continued)
F-14
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Unaudited for the Six Months Ended June 30, 1997 and 1996
(7) Financial Instruments, Continued
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.
<TABLE>
<CAPTION>
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
At June 30, 1997 At December 31, 1996
---------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(unaudited)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents............................... $ 3,836 3,836 6,320 6,320
Securities held to maturity............................. 38,296 38,209 34,507 34,453
Loans receivable, net................................... 69,540 69,519 59,499 59,692
Accrued interest receivable............................. 997 997 842 842
Federal Reserve Bank stock.............................. 203 203 203 203
Interest-bearing deposits with bank..................... 99 99 99 99
Financial liabilities-
Deposit liabilities..................................... 104,862 104,830 93,447 93,713
</TABLE>
A summary of the notional amounts of the Company's financial instruments,
which approximate fair value, with off balance sheet risk follows (in
thousands):
<TABLE>
<CAPTION>
At At
June 30, December 31,
-------- ------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Unfunded loan commitments at variable rates........................ $ 1,030 2,100
===== =====
Available lines of credit.......................................... $ 719 909
====== =====
Standby letters of credit.......................................... $ 100 100
====== =====
</TABLE>
(continued)
F-15
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Unaudited for the Six Months Ended June 30, 1997 and 1996
(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 June 30,
1997 (unaudited) and December 31, 1996, the Company's loan portfolio
contained a concentration of credit risk in retail shopping centers,
apartment buildings and office buildings totaling $50,684,000 and
$41,585,000, respectively.
(9) Income Taxes
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (unaudited): Current Deferred Total
------------------------------------------- ------- -------- -----
<S> <C> <C> <C>
Federal....................................................... $ 148 26 174
State......................................................... 34 5 39
--- --- ---
Total..................................................... $ 182 31 213
=== === ===
Six Months Ended June 30, 1996 (unaudited):
-------------------------------------------
Federal....................................................... (7) 142 135
State......................................................... 13 24 37
--- --- ---
Total..................................................... $ 6 166 172
=== === ===
Year Ended December 31, 1996:
-----------------------------
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
=== === ===
</TABLE>
(continued)
F-16
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Unaudited for the Six Months Ended June 30, 1997 and 1996
(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:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
------------------ -------------------
June 30, December 31,
1997 1996 1996 1995
(unaudited)
<S> <C> <C> <C> <C>
Tax provision at statutory rate...................... 34.0% 34.0% 34.0% 34.0%
Increase (decrease) in taxes resulting from:
State taxes...................................... 7.4 9.9 8.1 3.2
Other............................................ (3.4) (2.4) (1.4) (3.7)
---- ---- ---- ----
Income tax provision ................................ 38.0% 41.5% 40.7% 33.5%
==== ==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets relate to the following (in thousands):
<TABLE>
<CAPTION>
At At
June 30, December 31,
-------- ------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Net deferred tax assets:
Allowance for loan losses............................................. $ 279 185
Depreciation.......................................................... 10 (20)
Deferred loan fees.................................................... 13 19
Net operating loss carryforward....................................... 186 311
Other................................................................. 7 31
---- ---
Net deferred tax assets........................................... $ 495 526
=== ===
</TABLE>
(continued)
F-17
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Unaudited for the Six Months Ended June 30, 1997 and 1996
(9) Income Taxes, Continued
At June 30, 1997 (unaudited) and 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):
At At
June 30, December 31,
-------- ------------
Expiration 1997 1996
---------- ---- ----
(unaudited)
2004 $-- 149
2005 -- 18
2006 194 358
2007 298 298
2008 3 3
---- ----
$495 826
==== ====
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.
(10) Related Parties
The Bank has entered into loan transactions with certain of its directors
and their related entities. The activity is as follows (in thousands):
Six Months
Ended Year Ended
June 30, December 31,
-------- ------------
1997 1996
---- ----
(unaudited)
Balance at beginning of period .......... $ 2,941 1,484
Additions ............................... 375 1,570
Repayments .............................. (28) (113)
------- -------
Balance at end of period ................ $ 3,288 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 six months ended June 30, 1997
(unaudited) and the years ended December 31, 1996 and 1995.
(continued)
F-18
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Unaudited for the Six Months Ended June 30, 1997 and 1996
(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 $10,074,
$3,647 and $12,181 for the six months ended June 30, 1997 and 1996
(unaudited) and the year ended December 31, 1996. The Bank did not
contribute to the profit sharing plan during the year ended December 31,
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 per share and received warrants to purchase an
additional 200,000 shares of common stock at $5 par value. In June, 1997,
Intervest Bancshares Corporation exercised the warrants and purchased
200,000 shares of the Bank's common stock.
(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.
(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 June 30, 1997
(unaudited) and December 31, 1996, that the Bank meets all capital adequacy
requirements to which it is subject.
(continued)
F-19
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Unaudited for the Six Months Ended June 30, 1997 and 1996
(15) Regulatory Matters, Continued
As of June 30, 1997 (unaudited) and 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
------ ----- ------ ----- ------ -----
As of June 30, 1997 (unaudited):
Total capital (to Risk
<S> <C> <C> <C> <C> <C> <C>
Weighted Assets).................... $ 9,686 11.90% $ 6,511 8.00% $ 8,139 10.00%
Tier I Capital (to Risk
Weighted Assets).................... 8,687 10.67 3,256 4.00 4,884 6.00
Tier I Capital
(to Average Assets)................. 8,687 7.57 4,592 4.00 5,741 5.00
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
</TABLE>
(continued)
F-20
<PAGE>
<TABLE>
<CAPTION>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Unaudited for the Six Months Ended June 30, 1997 and 1996
(16) Holding Company Financial Information
The Holding Company's financial information is as follows (in thousands):
Condensed Balance Sheets
At June 30, At December 31,
----------- ---------------
1997 1996
---- ----
Assets (unaudited)
<S> <C> <C>
Cash..................................................................... $ 250 90
Short-term securities.................................................... - 1,158
-------- -----
Cash and cash equivalents............................................ 250 1,248
Loans receivable......................................................... 1,190 1,230
Investment in subsidiary................................................. 8,651 7,340
Organizational costs, net................................................ 17 32
Other assets............................................................. 20 17
------ -----
Total assets......................................................... $ 10,128 9,867
====== =====
Liabilities and Stockholders' Equity
Liabilities.............................................................. 34 120
Stockholders' equity..................................................... 10,094 9,747
------ -----
Total liabilities and stockholders' equity........................... $ 10,128 9,867
====== =====
Condensed Statements of Earnings
Six Months Ended For the Year Ended
June 30, December 31,
---------------- -----------------
1997 1996 1996 1995
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Revenues..................................................... $ 110 183 325 169
Expenses..................................................... 75 138 224 107
---- --- --- -----
Earnings before earnings of subsidiary.................. 35 45 101 62
Earnings of subsidiary.................................. 312 197 457 208
--- --- --- -----
Net earnings............................................ $ 347 242 558 270
=== === === =====
(continued)
</TABLE>
F-21
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Unaudited for the Six Months Ended June 30, 1997 and 1996
(16) Holding Company Financial Information, Continued
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Six Months Ended Year Ended
June 30, December 31,
----------------- -----------------
1997 1996 1996 1995
---- ---- ---- ----
(unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net earnings .................................... $ 347 242 558 270
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Equity in undistributed earnings of
subsidiary .............................. (312) (197) (457) (208)
Net decrease in organizational costs ........ 15 17 29 30
Other ....................................... (82) (8) 53 90
(Increase) decrease in minority interest .... (6) 19 19 --
------- ------- ------- -------
Net cash provided by operating
activities ............................ (38) 73 202 182
------- ------- ------- -------
Cash flows used in investing activities -
Net decrease (increase) in loans ................ 40 (687) (62) (1,168)
------- ------- ------- -------
Cash flows from financing activities-
Purchase of common stock of subsidiary .......... (1,000) -- (40) (1,000)
------- ------- ------- -------
Net (decrease) increase in cash and cash
equivalents ..................................... (998) (614) 100 (1,986)
Cash and cash equivalents at beginning of
the period ...................................... 1,248 1,148 1,148 3,134
------- ------- ------- -------
Cash and cash equivalents at end of period ........... $ 250 534 1,248 1,148
======= ======= ======= =======
</TABLE>
(17) Common Stock Recapitalization and Stock Warrants
On July 19, 1994, the Holding 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. In June,
1997 (unaudited) the Company again amended its charter to increase the
authorized number of shares of Class A common stock to 4,000,000.
(continued)
F-22
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Unaudited for the Six Months Ended June 30, 1997 and 1996
(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 June 30, 1997 (unaudited) and December 31, 1996, there were issued and
outstanding warrants related to the purchase of 1,528,665 shares of Class A
Common Stock, and the Company has reserved a total of 1,528,665 shares of
its Class A Common Stock for issuance, from time to time, upon exercise of
these warrants. Of these warrants, 1,027,200 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 $6.67 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 501,465 shares of Class A Common Stock
at a purchase price of $6.67 per share (subject to adjustment in connection
with certain future issuances of securities). As of June 30, 1997
(unaudited) and 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 150,000 shares of Class B
Common Stock to its Chairman of the Board. The warrant is exercisable at a
price of $6.67 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 150,000 shares of the Company's Class B Common Stock has been
reserved for issuance upon exercise of the foregoing warrant. This warrant
was issued during the six months ended June 30, 1997.
All Class A and Class B common stock warrants and exercise prices have been
restated to reflect the 1.5 for 1 Class A and Class B common stock splits
approved by the Board of Directors of the Holding Company on September 18,
1997 (see Note 18).
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 earnings.
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 the six months ended June 30, 1997 (unaudited) or the years
ended December 31, 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.
(18) Subsequent Event
On September 18, 1997, the Board of Directors of the Holding company
declared a 1.5 for 1 Class A and Class B common stock split payable on
September 19, 1997 to sockholders of record on September 19, 1997. All per
share amounts have been restated to reflect the effect of these stock
splits. In addition, the stockholders approved increases in the authorized
number of Class A and Class B common stock to 7,500,000 shares and 700,000
shares respectively.
F-23
<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 ............ 5
Prospectus Summary ............... 6
Investment Considerations and Risk
Factors ........................ 10
Determination of Offering Price .. 13
Use of Proceeds .................. 13
Market for Securities ............ 13
Dividends ........................ 14
Dilution
15
Capitalization
16
Selected Financial Data .......... 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operation ....... 18
Business
40
Management ....................... 44
Principal Stockholders ........... 44
Description of Securities ........ 50
Supervision and Regulation ....... 53
Plan of Distribution ............. 59
Exchange Offer ................... 60
Legal Matters .................... 61
Experts
61
Index to Financial Statements .... F-1
INTERVEST BANCSHARES CORPORATION
Up to 650,000 Units
Each consisting of one Share of
Class A Common Stock and one
Warrant for the Purchase of one
share of Class A Common Stock
Offering Price
$10.00 per Unit
--------------
PROSPECTUS
--------------
Sage, Rutty & Co., Inc.
___________, 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. All
amounts except the registration fee are estimates.
Registration Fee $ 4,892
Printing and Engraving expenses $25,000
Accounting fees and expenses $15,000
Legal fees and expenses $40,000
Blue Sky fees and expenses $15,000
Transfer Agents and Registrar fees $ 5,000
Miscellaneous $15,108
-------
Total $120,000
- ------------------------------------
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
- -------- ----------------------------------------
Unregistered Warrants related to a total of 188,700 shares of Class A
Common Stock were issued to officers, directors and employees of the Company and
the Bank in 1996. In addition, in 1996 the
Company authorized the issuance of a warrant to purchase 150,000 shares of Class
B Common Stock to an executive officer of the Company. These warrants were
issued without registration under the Securities Act of 1933, as amended, in
reliance upon the exemption afforded by Section 4(2) thereof. All of the
foregoing warrants and the shares of Class A Common Stock issuable upon their
exercise are included in this Registration Statement.
Item 27. Exhibits.
- -------- ---------
Exhibit Number Description of Exhibit
- -------------- ----------------------
1.1 Form of Underwriting Agreement between the Company and the
Underwriter.
1.2 Form of Selected Dealer Agreement
3.1 Restated Certificate of Incorporation of the Company
3.2 Bylaws of the Company.
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 for Class A Common Stock.
4.4 Form of Warrant Agreement between the Company and the Bank of
New York.*
5.1 Opinion of Harris Beach & Wilcox, LLP
10.1 Form of Escrow Agreement between the Company and Manufacturers
and Traders Trust Company.
24.1 Consent of Harris Beach & Wilcox, LLP is included in the
Opinion of Harris Beach & Wilcox, LLP, filed as Exhibit 5.1
II-2
<PAGE>
24.2 Consent of Hacker, Johnson, Cohen & Grieb
99.1 Transmittal letter - Exchange Offer
- ----------------------
* Previously filed
Item 28. Undertakings.
- -------- -------------
(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.
II-3
<PAGE>
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 or Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on the 19th day of
September, 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 or Amendment has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Title Date
----- ----
<S> <C> <C>
/s/ Vice President, 9/19/97
Lawrence G. Bergman Secretary and Director
/s/ Director 9/19/97
Michael A. Callen
/s/ Chairman of the Board, 9/19/97
Jerome Dansker Executive Vice President, Director
/s/ President, Treasurer and Director 9/19/97
Lowell S. Dansker (Principal Executive, Financial
and Accounting Officer)
/s/ Director 9/19/97
Milton F. Gidge
/s/ Director 9/19/97
William F. Holly
/s/ Director 9/19/97
David J. Willmott
/s/ Director 9/19/97
Wesley T. Wood
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- ------- -----------------------------
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealer Agreement
3.1 Restated Certificate of Incorporation
3.2 Bylaws
4.3 Form of Warrant
5.1 Opinion of Harris Beach & Wilcox, LLP
10.1 Form of Escrow Agreement
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
99.1 Transmittal Letter - Exchange Offer
<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, except for note 18,
as to which the date is September 19, 1997, relating to the consolidated balance
sheet as of December 31, 1996 and the related consolidated statements of
earnings, stockholders' equity and cash flows for each of the years in the
two-year period ended December 31, 1996 of Intervest Bancshares Corporation and
to the use of our name under the caption of "Experts", in Amendment No. 1 to the
Registration Statement on Form SB-2 of Intervest Bancshares Corporation.
HACKER, JOHNSON, COHEN & GRIEB
Tampa, Florida
September 19, 1997
<PAGE>
SAGE, RUTTY & CO., INC.
183 East Main Street
4th Floor
Rochester, New York 14604
Date: ________, 1997
SELECTED DEALER AGREEMENT
-------------------------
Dear Sirs:
Sage, Rutty & Co., Inc., the underwriter (the "Underwriter") named in
the Prospectus (as hereinafter defined) has agreed, subject to the terms and
conditions of that certain underwriting agreement (the "Underwriting Agreement")
dated ______________, 1997, between the Underwriter and Intervest Bancshares
Corporation (the "Issuer"), to act as exclusive agent for the Issuer and to use
its best efforts to sell 650,000 Units (the "Units"), each Unit consisting of
one share of Class A Common Stock of the Issuer and one Warrant to purchase one
share of Class A Common Stock of the Issuer. The Units are more particularly
described in the enclosed prospectus (the "Prospectus"), additional copies of
which will be supplied in reasonable quantities upon request.
The Underwriter is offering a part of the Units for sale by selected
dealers (the "Selected Dealers"), including yourself, who are registered with
the Securities and Exchange Commission (the "SEC") as broker-dealers under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and who are
members in good standing of the National Association of Securities Dealers, Inc.
(the "NASD"), on a "best efforts" basis.
The offering is subject to the delivery of the Units, and the
acceptance of the offering by the Underwriter, the approval of all legal matters
by counsel, and the terms and conditions herein set forth.
Subject to the foregoing, the Underwriter confirms its agreement with
you (sometimes herein called the "Dealer"') as follows:
1. Non-Exclusive Right to Offer and Sell. Underwriter hereby grants to
you the non-exclusive right to offer and sell the Units upon such terms as the
Underwriter shall from time to time determine and as set forth in the then
effective Prospectus relating to such Units. The amount of Units which the
Underwriter has initially determined to permit you to offer and sell is set
forth at the end of this letter, although the Underwriter reserves the right to
change such allotment. You agree (a) upon our request, to advise us of the
number of Units allotted to you which remain unsold; and (b) at our request, to
stop offering any such Units remaining unsold.
2. Compliance with Laws. A registration statement on Form SB-2 (the
"Registration Statement") with respect to the Units has been filed with the SEC
and has become effective. You agree to comply with the applicable requirements
of the Securities Act of 1933, as amended (the "1933 Act"), the 1934 Act and any
applicable rules and regulations issued under said Acts. No person is authorized
by the Issuer or by the Underwriter to give any information or to make any
representation other than those contained in the Prospectus in connection with
the sale of the Units.
3. Dealer Representations. Dealer represents that it is a member in
good standing of the NASD and agrees to abide by all of the NASD rules and
regulations, and any interpretations thereof, including, without limitation, the
NASD interpretation with respect to Free-Riding and Withholding and Rules 2420,
2730, 2740 and 2750 of the NASD Conduct Rules. Dealer also agrees to comply with
the requirements of all applicable Federal and State Laws and all rules and
regulations thereunder, and interpretations thereof, promulgated by any
regulatory agency having jurisdiction.
In the event that a domestic or foreign Dealer should sell or offer for
sale the Units in any jurisdiction outside the United States, Dealer also agrees
to comply with the laws, rules and regulations of any governmental or regulatory
body applicable within such foreign jurisdiction.
<PAGE>
4. State Registrations. You will be informed by the Underwriter as to
the states in which we have been advised by counsel that the Units have been
qualified or registered for sale or are exempt under the respective securities
or "blue sky" laws of such states, but we have not assumed and will not assume
any obligation or responsibility as to the accuracy of such information or as to
the eligibility or right of any Selected Dealer to offer or sell the Units in
any state.
5. Underwriter Authority and Liability. The Underwriter shall have full
authority to take such action as it may deem advisable in respect of all matters
pertaining to the offering or arising thereunder. The Underwriter shall not be
under any liability to you with respect to any matter, except such as may be
incurred under the 1933 Act and the rules and regulations thereunder, except for
lack of good faith and except for obligations assumed by us in this Agreement,
and no obligation on our part shall be implied or inferred herefrom.
6. Payment and Procedures. All subscriptions for investments shall be
confirmed on forms of a type acceptable under the rules and regulations of the
NASD and in accordance with Rule 15c2-8 of the 1934 Act. If at least $6,500,000
in collected funds (as defined in the Escrow Agreement) have been received and
such subscriptions accepted by the Issuer by ____________, 1997, the Issuer may
close the Offering as to those subscribers (the "First Closing Date"). Until the
First Closing Date, you shall promptly, upon receipt of any and all checks,
drafts, and money orders received from prospective purchasers of the Units,
transmit, in accordance with Rule 15c2-4(b) of the 1934 Act, such items to
Manufacturers and Traders Trust Company, as Escrow Agent, for deposit into an
account entitled "Intervest Bancshares Corporation Escrow Account", but in any
event such transmittal to the Escrow Agent shall be made by noon of the next
business day after your receipt of such funds. Units may continue to be offered
and sold for up to 90 days after the First Closing Date. After the First Closing
Date, you shall promptly transmit any and all checks, drafts, and money orders
received from prospective purchasers of the Units to the Underwriter by noon of
the next business day after you receive such funds. At the same time you deliver
funds received to the Escrow Agent, or directly to the Underwriter, you shall
also deliver to Underwriter, a written account of each purchaser which sets
forth, among other things, the name, address and tax identification number of
the purchaser, the number of Units purchased, and the amount paid therefor which
shall be accompanied by a copy of the check and any transmittal letter to the
Escrow Agent.
You agree to be bound by the terms of the Escrow Agreement executed by
Underwriter and the Issuer and acknowledge that you have received a copy of such
Escrow Agreement.
Until the First Closing Date, checks shall be made payable to "M&T
Bank, as Escrow Agent for Intervest Bancshares Corporation". After the First
Closing Date, checks shall be made payable to "Intervest Bancshares
Corporation", the Issuer. Until the First Closing Date, any checks received by
the Escrow Agent which are made payable to any party other than the Escrow
Agent, shall be returned by the Escrow Agent to the purchaser who submitted the
check and shall not be accepted.
All Units shall be registered and issued as designated by Dealer after
the Closing Dates specified in the Prospectus.
The Issuer reserves the right to reject any subscription, and in such
case, the Issuer will instruct the Escrow Agent or Underwriter, as may be the
case, to return, in full, any payment made in connection therewith.
If at least $6,500,000 in collected funds (as defined in the Escrow
Agreement) have not been received and such subscriptions accepted by the Issuer
by ___________, 1997, subscription documents and funds shall be promptly
returned to subscribers. Interest earned on funds in the Escrow Account shall be
applied to pay escrow expenses, with the balance of interest, if any, to be paid
to subscribers in proportion to the amount of funds paid by each such subscriber
without regard to the date when such subscription funds were paid. It shall be a
condition of making any such refund to a subscriber, however, that there be
delivered to the Escrow Agent a Form W-9 executed by such subscriber.
2
<PAGE>
7. Delivery of Prospectus. You shall solicit subscriptions for the
Units only in accordance with the then current Prospectus, shall deliver a
current Prospectus to each prospective investor, shall utilize as solicitation
material only the Prospectus and such supplemental sales literature as shall be
identified as such and furnished or authorized in writing by the Issuer, and
shall make no representations other than those contained in such Prospectus and
supplemental literature. You shall also be responsible for the servicing of
investors, including responding to inquiries by, and maintaining periodic
contacts with, the investor.
8. Restrictions on Sales and Purchases of Units. During the term of
this Agreement, you will not, directly or indirectly, buy, sell, or induce
others to buy or sell, the Units except (a) pursuant to this Agreement, (b) as
expressly authorized by the Underwriter in writing, or (c) in the ordinary
course of business as broker or agent for a customer pursuant to an unsolicited
order. You represent that you have not participated in any transaction
prohibited by the preceding sentence and that you have at all times complied
with the provisions of Regulation M of the 1934 Act applicable to this offering.
You will take such steps as you deem necessary to assure that purchasers of the
Units meet the suitability standards set forth in the Prospectus or otherwise
imposed by the Issuer and will maintain for a period of at least four (4) years
a record of the information obtained to indicate that such standards have been
met.
9. Commissions; Warrants. (a) You will be entitled to receive
commissions in the amount of 7% on each Unit sold by you under this Agreement,
provided, however, that the offering will be terminated and no commissions will
be payable unless an aggregate of at least $6,500,000 of the Units are sold by
_____________, 1997. (b) In the event that an aggregate of at last $6,500,000 of
the Units are sold by , you will also be entitled to receive Warrants to
purchase shares of the Class A Common Stock of the Company, such Warrants to be
for the purchase of one share of Class A Common Stock for each ten (10) units
sold by you under this Agreement. The Warrants issued hereunder shall be on the
same terms as those included in the Units (except as may otherwise be required
by applicable law, regulations or directives) and Dealer represents that it will
not, for a period of twelve (12) months from the effective date of the
Registration Statement, sell or transfer any of the Warrants or underlying
securities, except to its officers, directors or employees. The Warrants will be
issued after the final closing contemplated hereunder.
10. Dealer Responsibility for Training and Representatives. You
undertake full responsibility for adequate training of your salesmen in all
features of the Units offered, with special emphasis on the responsibilities of
such salesmen for full disclosure to prospective investors and the necessity of
delivering a Prospectus to each investor. You will accept subscriptions only
from persons whose investment objectives, to the best of your knowledge and
belief, are consistent with those of the Units offered.
11. Sales in Discretionary Accounts. You agree that, without the
written approval of the customer and the Underwriter prior to the execution of
any order, you will not sell to any account over which you exercise
discretionary authority any of the Units which you have been allotted and which
are subject to the terms of this Agreement.
12. Advertisements. It is expected that public advertisement of this
issue will be made on or about the effective date of the Registration Statement.
After the date of appearance of such advertisement, but not before, you are free
to advertise over your own name and at your own expense and risk, subject,
however, to our prior review and approval of any advertisement.
13. Termination of Agreement. This Agreement may be terminated by
either party at any time by written or telegraphic notice to the other, but the
Agreement shall not be valid for more than six (6) months from the date of
execution or beyond completion of the offering, whichever is earlier, except
when extended by the Underwriter to complete the offering of the Units. Such
termination shall not affect your obligation to comply with this Agreement nor
your right to commissions, as set forth in Paragraph 9 of this Agreement on
subscriptions confirmed by the Issuer by the time of such termination.
3
<PAGE>
14. Relationship of Parties. Nothing in this Agreement shall be
construed to constitute Dealer a partner, employee or agent of the Underwriter
or Issuer, and neither Underwriter, Issuer or Dealer shall be liable for any
obligation, act or omission of the other to third parties. However, in the event
such a claim is made, you agree to bear your share of any liability arising out
of such claim.
15. Dealer Expenses. All expenses incurred by Dealer in connection with
its activities under this Agreement shall be borne by Dealer, except that
Underwriter will furnish, without charge, a reasonable quantity of Prospectuses
and supplemental literature as issued.
16. Miscellaneous. This Agreement supersedes all previous agreements,
whether oral or written, between Underwriter and Dealer relating to the Units
and may not be modified except in writing. All previous agreements, if any,
whether oral or written, between Underwriter and dealer are hereby canceled.
Neither party hereto assumes any liability or obligation toward the other under
this or any previous agreement, except as may be specifically set forth in this
Agreement, nor is any such liability or obligation to be inferred or implied
hereunder.
All communications from you shall be addressed to the Underwriter at
the address set forth above. All communications from the Underwriter to you
shall be directed to the address to which this letter is mailed.
This Agreement shall be construed in accordance with the laws of the
State of New York.
Please confirm that the foregoing sets forth the Agreement between you
and the Underwriter by signing and returning to us the enclosed copy of this
letter.
Very truly yours,
SAGE, RUTTY & CO., INC.
By: __________________________________
---------------------------------------
(Title)
WE HEREBY CONFIRM AS OF THE DATE HEREOF
THAT THE ABOVE LETTER SETS FORTH THE
AGREEMENT BETWEEN THE UNDERWRITER AND
THE UNDERSIGNED
AMOUNT OF UNITS TO BE
OFFERED FOR SALE BY DEALER
- -------------------------------------
(Dealer)
------------------------------------
By: ______________________________
- -------------------------------------
(Title)
4
<PAGE>
INTERVEST BANCSHARES CORPORATION
10 Rockefeller Plaza
Suite 1015
New York, New York 10020-1903
________, 1997
Sage, Rutty & Co., Inc.
183 East Main Street, 4th Floor
Rochester, New York 14604
Dear Sirs:
Intervest Bancshares Corporation, a Delaware corporation (the
"Company"), hereby confirms its agreement with you (sometimes herein called the
"Underwriter") as follows:
1. Introductory
The Company proposes to issue and offer, through the Underwriter acting
as agent for the Company, 650,000 Units, each unit consisting of one share of
Class A Common Stock of the Company and one Warrant to purchase one share of
Class A Common Stock of the Company (the "Units"). If the Units are not sold
within 90 days after the date the Registration Statement (as defined below) is
declared effective by the Securities and Exchange Commission, all subscription
documents and funds (together with any net interest thereon) will be returned to
subscribers and the offering will terminate. The Units will be sold at a
purchase price of $10.00 per Unit and are more fully described in the Prospectus
referred to below. The Company hereby appoints the Underwriter as its exclusive
agent to sell the Units, subject to the terms and provisions of this Agreement,
on a "best efforts" basis with the Units required to be sold within 90 days
after the date the Registration Statement (as defined below) is declared
effective by the Securities and Exchange Commission (the "Termination Date").
The Underwriter acknowledges that, simultaneously with the offering of Units,
the Company will be making an exchange offer to certain shareholders of the
Company's subsidiary and the Underwriter understands and agrees that it is not
being retained to render services in connection with that discrete offering and
will receive no compensation in connection therewith.
2. Representations and Warranties of the Company
The Company hereby represents and warrants to, and agrees with, the
Underwriter as follows:
(a) A registration statement on Form SB-2 (File No. 333-33419)
(the "Registration Statement") with respect to the Units, including the related
Prospectus (the "Prospectus"), and any amendments thereto, copies of which have
heretofore been delivered by the Company to you, has been prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act") and the published rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Act, and has been filed with the Commission under the Act. The Company may
file on or prior to the Effective Date (as defined in Section 3(a)) additional
amendments to said Registration Statement, including the final Prospectus.
<PAGE>
(b) The Registration Statement and the Prospectus (other than
the financial statements and other financial data and schedules which are or
should be contained therein) conform as to form in all material respects to the
requirements of the Act and the Rules and Regulations and do not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and no event has
occurred which should have been set forth in the Registration Statement or the
Prospectus which has not been so set forth therein; provided, however, the
Company makes no representation or warranty as to statements or omissions made
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriter expressly for use in the Registration
Statement, the Prospectus, or any amendment or supplement thereto.
(c) Neither the Commission nor the "blue sky" or state
securities authority of any jurisdiction has issued an order (a "Stop Order")
suspending the effectiveness of the Registration Statement, preventing or
suspending the use of the Prospectus, the Registration Statement or any
amendment or supplement thereto, refusing to permit the effectiveness of the
Registration Statement or suspending the registration of the Units, nor have any
of such authorities instituted or threatened to institute any proceedings with
respect to a Stop Order.
(d) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
Intervest Bank (the "Subsidiary") is a state-chartered bank duly organized,
validly existing and in good standing under the laws of the State of Florida.
Each has full power and authority to conduct its own business and own or lease
its properties as described in the Prospectus, and is duly qualified and in good
standing as a foreign corporation in each jurisdiction where the conduct of its
business or its ownership or leasing of property requires it to be qualified,
except where the failure so to qualify would not have a material adverse effect
on the Company or the Subsidiary.
(e) The authorized capital stock of the Company is set forth
in the Prospectus under the caption "Capitalization." All of the outstanding
shares of Class A and Class B Common Stock of the Company have been duly
authorized and are validly issued, fully paid and nonassessable. The Company
owns approximately 96% of the outstanding shares of the Subsidiary, free and
clear of any liens or encumbrances and all such shares are duly authorized,
validly issued, fully paid and nonassessable.
(f) The financial statements of the Company together with
related schedules and notes as set forth in the Registration Statement and the
Prospectus fairly present the financial condition of the Company and the results
of its operations and the changes in its financial position as of the dates and
for the periods therein specified and such financial statements have been
prepared in conformity with generally accepted accounting principles
consistently applied throughout the periods involved.
(g) Except as reflected in or contemplated by the Registration
Statement or the Prospectus, since the date as of which information is given in
the Registration Statement or the Prospectus, there has not been any material
adverse change in the condition, financial or otherwise, of the Company or the
Subsidiary. Since the date as of which information is given in the Registration
Statement or the Prospectus, neither the Company nor the Subsidiary have entered
into any transaction, other than transactions in the ordinary course of
business.
(h) There are no actions, suits or proceedings pending, or to
the knowledge of the Company threatened, against or with respect to the Company
or its business or assets, or the Subsidiary, or its business or assets, at law
or in equity, or before or by any federal or state commission, regulatory body
or administrative agency or other governmental body, domestic or foreign, in
which an adverse decision might have a material adverse effect on the business
or assets of the Company or the business or assets of the Subsidiary.
2
<PAGE>
(i) The Company and the Subsidiary have good title to all
properties and assets which the Prospectus indicates are owned by them, free and
clear of all liens, security interests, pledges, charges, encumbrances and
mortgages (except as may be described in the Prospectus or such as in the
aggregate will not have a material adverse effect upon the business or assets of
the Company or the Subsidiary).
(j) The Company and the Subsidiary are not in default in any
material respect under, and no event has occurred which, with the passage of
time or the giving of notice, or both, would constitute a material default
under, any contract, agreement, instrument, lease or license to which the
Company or the Subsidiary is a party or by which any of them are bound, except
as may be properly described in the Prospectus or such as in the aggregate will
not have a material adverse effect on the business or assets of the Company or
on the business or assets of the Subsidiary. The Company and the Subsidiary are
not in violation of their certificates of incorporation or bylaws.
(k) The Company has all requisite power and authority to
execute, deliver and carry out the terms and provisions of this Agreement and to
issue, sell and deliver the Units in accordance with and upon the terms and
conditions set forth in this Agreement. All necessary corporate proceedings of
the Company have been duly taken to authorize the execution, delivery and
performance by the Company of this Agreement and the issuance, sale and delivery
of the Units. This Agreement has been duly authorized, executed and delivered by
the Company, is the legal, valid and binding obligation of the Company, and is
enforceable as to the Company in accordance with its terms, except as rights to
indemnity and contribution hereunder may be limited by federal or state
securities laws, court decisions or public policy. The Units have been duly
authorized by the Company and, when sold and delivered against payment therefor
in accordance with this Agreement, will be validly issued, fully-paid and
nonassessable. The enforceability of this Agreement is subject to (i) applicable
bankruptcy, moratorium, insolvency, reorganization and similar laws relating to
or affecting creditors' rights generally and (ii) general principles of equity
(regardless of whether such principles are considered in a proceeding in equity
or at law).
(l) No consent, authorization, approval, order, license,
certificate or permit of or from, or declaration or filing with, any federal,
state, local or other governmental authority or any court or other tribunal is
required for the execution, delivery or performance by the Company of this
Agreement or the issuance, sale or delivery of the Units (except (i)
registration under the Act and (ii) registration or qualification under "blue
sky" or state securities laws).
(m) No consent of any party to any contract, agreement,
instrument, lease or license to which the Company or its Subsidiary is a party,
or to which any of the Company's or its Subsidiary's properties or assets are
subject, is required for the execution, delivery or performance of this
Agreement, or the issuance, sale and delivery of the Units; and the execution,
delivery and performance of this Agreement and the issuance, sale and delivery
of the Units, will not violate, result in a material breach of, conflict with or
(with or without o the giving of notice or the passage of time or both) result
in a default under any such contract, agreement, instrument, lease or license,
or violate the certificate of incorporation or bylaws of the Company or the
Subsidiary, or violate or conflict with any law, rule, regulation, order,
judgment or decree binding on the Company or its Subsidiary or to which any of
the Company's or the Subsidiary's properties or assets are subject or result in
the creation or imposition of any lien, charge or encumbrance upon any assets of
the Company or its Subsidiary pursuant to the terms of any contract, agreement,
instrument, lease or license to which the Company or its Subsidiary is a party
or to which any of their properties or assets are subject.
(n) The Company knows of no outstanding claims for services in
the nature of a finder's fee or origination fee with respect to the sale of the
Units hereunder resulting from its acts for which the Underwriter may be
responsible.
(o) The Company and the Subsidiary have filed all federal and
state tax returns which were required to be filed by them and have paid all
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taxes shown on such returns and all assessments received by them, to the extent
such taxes or returns have become due (after giving effect to applicable grace
periods or extensions, if any).
3. Employment of Underwriter
(a) Subject to the terms and conditions herein set forth, the
effective date of this Agreement commences on the effective date under the Act
of the Registration Statement (the "Effective Date"), and the Company hereby
appoints the Underwriter as its exclusive agent as of the Effective Date, for
the purpose of offering the Units as provided in this Agreement on a "best
efforts" basis with the Units required to be sold within 90 days after the
Effective Date if any Units are sold. The Underwriter agrees to use its best
efforts to sell the Units as agent for the Company. It is understood and agreed
that there is no firm commitment on the part of the Underwriter to purchase any
of the Units.
(b) The Company hereby grants an option to the Underwriter to
offer and sell up to 97,500 additional Units, on the same terms and conditions
as the other Units to be offered hereunder. The option is exercisable at any
time and from time to time before the expiration of 90 days after the First
Closing Date, by written notice to the Company specifying the number of Units as
to which the option is being exercised.
(c) The Underwriter will offer the Units hereunder at a price
of $10.00 per Unit. The Underwriter will be entitled to a commission of seven
percent (7%) of the purchase price on each Unit sold in the offering by the
Underwriter or any of its selected dealers. In addition, the Company will pay
the Underwriter a fee in an amount equal to two percent (2%) of the aggregate
gross amount of Units sold in the offering, such fee to be paid upon completion
of the offering. The Underwriter shall have the right to associate with other
dealers selected by the Underwriter who are members of the National Association
of Securities Dealers, Inc., pursuant to a written Selected Dealer Agreement,
and to offer a part of the Units to such selected dealers for sale by them at
the offering price. In no event shall sales be made to accounts over which the
Underwriter or any dealer may exercise discretionary authority without the
written approval of the customer and the Underwriter prior to the execution of
any order, and the Selected Dealer Agreement will include provisions so as to
assure compliance with this restriction. The Selected Dealer Agreement will
provide that if a Unit is sold through any such selected dealer, the Underwriter
will allow to such selected dealer the entire commission paid by the Company for
such Unit. If a Unit is sold directly by the Underwriter, the Underwriter will
retain the entire commission paid by the Company for such Unit. The Underwriter
shall take such steps as it deems appropriate to assure that purchasers of Units
meet the suitability standards set forth in the Prospectus or otherwise imposed
by the Company and will maintain for a period of at least four (4) years a
record of the information obtained to indicate that such standards have been
met.
(d) The Company will issue to the Underwriter one Warrant for
the purchase of one share of Class A Common Stock of the Company for each ten
(10) Units sold in the Offering and will issue to the Underwriter or each
selected dealer one Warrant for the purchase of one share of Class A Common
Stock of the Company for each ten (10) Units sold by the Underwriter or selected
dealer. The Warrants issued hereunder shall be on the same terms as those
included in the Units (except as may otherwise by required by applicable law,
regulation or directives) and the Underwriter and/or selected dealer receiving
Warrants agree that it will not, for a period of twelve (12) months from the
effective date of the Registration Statement, sell or transfer any of these
Warrants or underlying securities, except to its officers, directors or
employees. All of the Warrants issuable hereunder shall be issued pursuant to
the directions of the Underwriter after the final closing contemplated
hereunder. The Underwriter represents and warrants that any directions delivered
to the Company with respect to the registration and delivery of these Warrants
shall comply, in all respect, with all applicable laws and regulations.
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(e) The obligation of the Underwriter to offer the Units is
subject to receipt by the Underwriter of a copy of written advice from the
Commission that the Registration Statement is effective. It is also subject to
the Units being qualified for offering under applicable state securities laws.
(f) (i) A special interest-bearing account (the "Escrow Account"') will
be opened and maintained at Manufacturers and Traders Trust Company (the "Bank")
in Rochester, New York, for the purpose of holding subscription funds in escrow
until the First Closing Date (as hereinafter defined). The title of the Escrow
Account will be "Intervest Bancshares Corporation Escrow Account". All
subscription funds shall be in the form of wire transfers of immediately
available funds, or checks, and all checks should be made payable to "M&T Bank,
as Escrow Agent for Intervest Bancshares Corporation." After the First Closing
Date all checks for subscriptions of Units shall be made payable to "Intervest
Bancshares Corporation", the Company. The Company, the Underwriter and the Bank
will, prior to the beginning of the offering of the Units, enter into an escrow
agreement with respect to the Escrow Account in form satisfactory to the
parties. The parties hereto agree to faithfully perform their obligations under
such escrow agreement. Except to the extent that interest earned on the funds in
the Escrow Account may be applied to pay escrow expenses in the event the
offering is terminated prior to the First Closing Date, all costs, expenses, and
charges incurred in connection with the Escrow Account shall be paid by the
Company.
(ii) Until the First Closing Date all funds received
from subscribers by any selected dealer shall be promptly transmitted to the
Bank (for deposit in the Escrow Account), but in any event such funds shall be
so transmitted by noon of the next business day following the day such funds are
received from the subscriber by the selected dealer. The Underwriter shall
promptly transmit to the Bank all funds received by it from subscribers for
deposit in the Escrow Account in accordance with Rule 15c2-4 under the
Securities Exchange Act of 1934, as amended, but in any event such funds shall
be so transmitted for deposit by noon of the next business day following the day
such funds are received. After the First Closing Date all funds received from
subscribers by any selected dealer shall be promptly transmitted to the
Underwriter for distribution to the Company, but in any event such funds shall
be transmitted by noon of the next business day following the day such funds are
received by the selected dealer.
(iii) The first closing of the offering will take
place at the offices of counsel to the Company on a date (the "First Closing
Date") which is within ten business days after the date on which acceptable
subscriptions have been received in cleared, collected funds for at least
$6,500,000 of Units.
(iv) On the Closing Date the Underwriter will cause
the Bank to distribute the funds on deposit in the Escrow Account to the
Company, selected dealers and the Underwriter, as their interests may appear.
The Underwriter will be entitled to cause the Bank to distribute to the
Underwriter from the Escrow Account an amount sufficient to pay all of the
commissions on the Units sold to which the Underwriter and selected dealers are
entitled under the provisions of Section 3(c) hereof. Units may continue to be
offered and sold for up to 90 days after the First Closing Date. After the First
Closing Date, the Underwriter will distribute the checks for subscriptions of
Units directly to the Company within one business day of receipt by the
Underwriter. The Company shall, not less frequently than twice in each calendar
month, remit to the Underwriter commissions on the Units sold to which the
Underwriter and selected dealers are entitled under the provisions of Section
3(c) hereof.
(v) In the event the offering pursuant to the
Prospectus is terminated prior to the First Closing Date for any reason
whatsoever, the Underwriter shall promptly cause the Bank to refund to the
subscribers of the Units all funds which have been received from them by the
Underwriter. Interest earned on funds in the Escrow Account shall be applied to
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pay escrow expenses, with the balance of interest, if any, to be paid to
subscribers in proportion to the amount of funds paid by each subscriber on
subscription and without regard to the date when such subscription funds were
paid by the subscriber.
(g) In the event the offering is terminated prior to the First
Closing Date, this Agreement shall terminate, and upon the payments and refunds
to subscribers being made as provided in Section 3(f)(v), neither party hereto
shall have any further liability to the other hereunder.In such event, the
Underwriter shall not be entitled to any fees or commissions hereunder and none
of the Warrants described in Section 3(d) will be delivered or deliverable.
(h) The Company shall pay all costs and expenses incident to
the performance of the obligations of the Company hereunder, including the fees
and expenses of the Company's counsel and accountants, registration fees, the
costs and expenses incident to the preparation, printing and shipping of the
Registration Statement, each preliminary prospectus, if any, the final
Prospectus and all amendments and supplements thereto and this Agreement and
related documents, filing fees required to be paid to the National Association
of Securities Dealers, Inc., the costs incurred in connection with the
qualification of the Units under applicable state securities laws and the fee of
Underwriter's legal counsel. The Underwriter shall pay all other costs incurred
or to be incurred by it, or by its personnel, in connection with the offering of
the Units.
4. Covenants of the Company
(a) The Company will furnish to the Underwriter, without
charge, as soon as the Registration Statement or any amendment thereto becomes
effective or a supplement is filed, two signed copies of the Registration
Statement and each amendment thereto, including all financial statements and
exhibits, and two copies of any supplement thereto. The Company will also
furnish to the Underwriter such number of conformed copies of the Registration
Statement and of each amendment thereto, including all financial statements but
excluding exhibits, and of each supplement thereto, as the Underwriter may
reasonably request.
(b) The Company will furnish to the Underwriter as soon as
possible after the Effective Date and thereafter during the period required by
law for the Prospectus to be delivered in connection with sales of the Units, as
many copies of the Prospectus (and of any amended or supplemented Prospectus) as
the Underwriter may reasonably request. If during such period any event occurs
as a result of which the Registration Statement or the Prospectus, as then
amended or supplemented, would include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made, in
the light of the circumstances in which they were made, not misleading, or it
shall be necessary to amend or supplement the Registration Statement or the
Prospectus to comply with the Act or the Rules and Regulations, the Company will
forthwith notify the Underwriter thereof and prepare and furnish to the
Underwriter and dealers selected by the Underwriter, in such quantity as the
Underwriter and such dealers may reasonably request, an amendment or supplement
which will correct such statement or omission or cause the Registration
Statement and the Prospectus to comply with the Act and the Rules and
Regulations. The Company will not at any time prior to the expiration of such
period, whether before or after the Effective Date, file any amendment to the
Registration Statement of which the Underwriter will not have been advised and
furnished with a copy, or which is not in compliance with the Act and the Rules
and Regulations.
(c) The Company will use its best efforts to cause the
Registration Statement to become effective and will promptly advise the
Underwriter and will confirm such advice in writing, of the following: (i) when
the Registration Statement or any post-effective amendment thereto shall have
become effective, and when any amendment of or supplement to the Prospectus is
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filed with the Commission; (i i) when the Commission shall make a request or
suggestion for any amendment to the Registration Statement or the Prospectus or
for additional information and the nature and substance thereof; and (iii) the
issuance by the Commission of a stop order suspending the effectiveness of the
Registration Statement or the suspension of the qualification of the Units for
sale in any jurisdiction, or of the initiation of any proceeding for that
purpose. After the last closing contemplated hereunder, the Company shall only
be obligated to furnish to the Underwriter such number of copies of any final
prospectus included in any post-effective amendment to the Registration
Statement (or a Registration Statement which also serves as a post-effective
amendment to the Registration Statement) as the Underwriter may reasonably
request in connection with the exercise of Warrants included in the Units.
(d) The Company will take all action necessary to permit the
offering of the Units as contemplated hereby under the "blue sky" or securities
laws of the states in which it determines that Units shall be sold; provided,
however, that the Company shall not be required to qualify as a foreign
corporation or to file a consent to service of process in any state in any
action other than one arising out of the offering or sale of the Units. The
Company shall furnish the Underwriter with written notice as to the states in
which the Units are to be offered, together with such reasonable documentation
as may be requested by the Underwriter to establish that the Units have been
duly registered for offer and sale in those states or are exempt from the
registration requirements of such states, including, among other things, "blue
sky" memoranda or surveys prepared by the Company's counsel with respect to
those states in which the Company has determined that the Units are to be
offered. Notwithstanding the foregoing, nothing in this agreement shall be
construed as obligating the Underwriter or any selected dealers engaged in the
offering of the Units to offer Units in any states in which the Underwriter or
selected dealer, as the case may be, is not registered as a broker-dealer.
(e) The Company will make generally available (within the
meaning of Section 11(a) of the Act and the Rules and Regulations) to its
security holders, within 120 days of the first day of the fiscal year of the
Company, an earnings statement of the Company (which will be in reasonable
detail and will comply with the requirements of Section 11 (a) of the Act, but
need not be audited) covering the prior fiscal year of the Company, commencing
with the fiscal year of the Company during which this Agreement is executed.
(f) For a period of five years after the termination of the
Offering, the Company will furnish the Underwriter without charge, within 90
days after the end of each fiscal year, a copy of its financial statements
certified by independent certified public accountants.
(g) The Company will apply the net proceeds received by it
from the offering in the manner set forth under "Use of Proceeds" in the
Prospectus.
(h) The Company will furnish to the Underwriter as early as
practicable prior to the First Closing Date, but no less than two full business
days prior thereto, a copy of the latest available unaudited interim financial
statements of the Company which have been read by the Company's independent
certified public accountants, as stated in their letters to be furnished
pursuant to Section 5(f).
(i) The Company will comply with all registration, filing, and
reporting requirements of the Securities Exchange Act of 1934, which may from
time to time be applicable to the Company, and, for a period of three years
after the termination of the Offering, the Company will furnish the Underwriter,
without charge, with copies of all filings made with the Commission pursuant to
the Securities Exchange Act of 1934.
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(j) The Company will comply with all provisions of all
undertakings contained in the Registration Statement.
(k) Offers and sales of Units by the Company shall only be
made by persons who meet the safe harbor provisions of Rule 3a4-1 under the
Securities Exchange Act of 1934.
5. Conditions of Underwriter's Obligations
The obligations of the Underwriter as provided herein shall be subject
to the continuing accuracy of the representations and warranties of the Company
herein contained as of the date hereof and through and including the date of
termination of the offering, to the performance by the Company of its
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) The Registration Statement shall have become effective at
the time of any sale of Debentures hereunder, no Stop Order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission or be pending.
(b) The Company shall not have sustained after the date hereof
any material loss or interference with its business from any calamity, whether
or not covered by insurance, which in your reasonable judgment makes it
impracticable or inadvisable to sell the Units as contemplated hereby.
(c) All corporate proceedings and related matters in
connection with the organization of the Company and the Subsidiary, and the
registration, authorization, issuance, sale and delivery of the Units, and in
connection with this Agreement, shall be reasonably satisfactory to you and you
shall have been furnished with such papers and information as you may reasonably
have requested in this connection.
(d) Between the date hereof and the First Closing Date, there
shall have been no litigation instituted or threatened against the Company or
the Subsidiary and there shall have been no proceeding instituted or threatened
against the Company or the Subsidiary before or by any federal or state
commission, regulatory body or administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, operations or financial condition or
income of the Company or the Subsidiary.
(e) At the time of the execution of this Agreement, and at the
First Closing Date, counsel for the Company shall provide to the Underwriter its
written opinion, in form and substance satisfactory to counsel for the
Underwriter, with respect to the following matters:
(i) The matters set forth in Paragraph 2(d).
(ii) The matters set forth in Paragraph 2(e).
(iii) The matters set forth in Paragraph 2(k).
(iv) To the best of counsel's knowledge, the matters
set forth in Paragraphs 2(l) and (m).
(v) To the best of counsel's knowledge, the matters
set forth in paragraph 2(h).
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(vi) That the Registration Statement has become
effective and to the best of counsel's knowledge, the matters set forth
in Paragraph 2(c).
(vii) The matters set forth in paragraph 2(b).
(viii) To the best of counsel's knowledge, there are
no contracts, agreements, or other understandings required to be
described in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement which are not so described or
filed.
(f) At the First Closing Date, Hacker, Johnson, Cohen & Grieb
shall have furnished a letter addressed to you and dated as of the date it is
required to be delivered in form and substance reasonably satisfactory to you,
to the effect that: (i) with respect to the Company they are, and during the
period covered by their reports included in the Registration Statement and the
Prospectus they were, independent public accountants within the meaning of the
Act and the Rules and Regulations, and the response to Item 509 of Regulation
S-K as reflected by the Registration Statement is correct insofar as it relates
to them; (ii) in their opinion, the financial statements of the Company examined
by them at all dates and for all periods referred to in their opinion and
included in the Registration Statement and Prospectus, comply in all material
respects with the applicable accounting requirements of the Act and Rules and
Regulations; (iii) on the basis of certain indicated procedures (but not an
examination in accordance with generally accepted accounting principles),
including, but not limited to, a reading of the latest available interim
unaudited financial statements of the Company, whether or not appearing in the
Prospectus, inquiries of the officers of the Company or other persons
responsible for its financial and accounting matters and a reading of the minute
book of the Company, nothing has come to their attention which would cause them
to believe that (A) there has been any change in the capital stock or other
securities of the Company or any payment or declaration of any dividend or other
distribution in respect thereof or exchange therefor from that shown on its
audited balance sheets or a change in the debt of the Company from that shown or
contemplated under "Capitalization" in the Registration Statement other than as
set forth in or contemplated by the Registration Statement, (B) there has been
any material adverse change in the financial condition of the Company except as
set forth in or contemplated by the Registration Statement, or (C) the unaudited
financial statements and schedules of the Company included in the Registration
Statement and Prospectus do not comply in form in all material respects with the
applicable accounting requirements of the Act and Rules and Regulations, or are
not fairly presented in conformity with generally accepted accounting principles
applied on a consistent basis; and (iv) they have compared specific numerical
data and financial information pertaining to the Company set forth in the
Registration Statement and Prospectus, which have been specified by the
Underwriter prior to the date of this Agreement, to the extent that such data
and information may be derived from the general accounting records of the
Company, and found them to be in agreement.
(g) The Company shall have furnished or caused to be furnished
to you a certificate by the President of the Company, dated as of the First
Closing Date and at the termination of the offering, to the effect that (i) the
representations and warranties of the Company herein are true and correct as of
each such date, and the Company has complied with all the agreements and has
satisfied all the conditions on its part to be performed or satisfied at or
prior to each such date; (ii) the Registration Statement has become effective
and no order suspending the effectiveness of the Registration Statement has been
issued and to the best knowledge of the signer, no proceeding for that purpose
has been initiated or threatened by the Commission; and (iii) except as set
forth in the Registration Statement and Prospectus, since the respective dates
as of which and the periods for which information is given in the Registration
Statement and Prospectus and prior to the date of such certificate (A) there has
not been any substantial adverse change, financial or otherwise, in the affairs
or condition of the Company or the Subsidiary and (B) neither the Company nor
the Subsidiary have incurred any liabilities, direct or contingent, or entered
into any transactions, otherwise than in the ordinary course of business.
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6. Indemnification
(a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless you and each person, if any, who controls
you within the meaning of Section 15 of the Act, against any and all loss,
liability, claim, damage and expense whatsoever (including, but not limited to,
any and all expense and counsel fees reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever), and any and all amounts paid in settlement of any claim or
litigation, arising out of, based upon or in connection with (i) any untrue or
alleged untrue statement of a material fact contained in (A) any preliminary
prospectus, the Registration Statement or the Prospectus (as from time to time
amended and supplemented) or (B) any application or other document (in this
Section 6(a) called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify the Units under the "blue sky" or
securities laws thereof; (ii) the omission or alleged omission from any
preliminary prospectus, the Registration Statement, the Prospectus (as from time
to time amended and supplemented) or any application of a material fact required
to be stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company with respect to you by or on
behalf of you expressly for use in any preliminary prospectus, the Registration
Statement or Prospectus or any amendment or supplement thereof or in any
application, as the case may be; or (iii) any breach of any representation,
warranty, covenant, or agreement of the Company contained in this Agreement.
This indemnity shall not apply to amounts paid in settlement of any such
litigation if such settlement is effected without the consent of the Company.
If any action is brought against you or any of your officers,
directors, partners, employees, agents or counsel, or any controlling persons of
you (an "indemnified party") in respect of which indemnity may be sought against
the Company pursuant to the foregoing paragraph, such indemnified party or
parties shall promptly notify the Company in writing of the institution of such
action (but the failure so to notify shall not relieve the Company from any
liability it may have other than pursuant to this Section 6(a)) and the Company
shall promptly assume the defense of such action, including the employment of
counsel (reasonably satisfactory to such indemnified party or parties) and
payment of expenses. Such indemnified party or parties shall have the right to
employ its or their own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party or parties unless
the employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action or the Company shall not
have promptly employed counsel reasonably satisfactory to such indemnified party
or parties to have charge of the defense of such action, in either of which
events such fees and expenses shall be borne by the Company and the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties. Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent. The Company agrees
promptly to notify you of the commencement of any litigation or proceedings
against the Company or any of its officers or directors in connection with the
sale of the Units, any preliminary prospectus, the Registration Statement, the
Prospectus, any amendment or supplement thereto or any application. With respect
to any untrue statement or alleged untrue statement made in, or omission or
alleged omission from, any preliminary prospectus or the Prospectus, the
indemnity agreement contained in this Section 6(a) with respect to such
preliminary prospectus or Prospectus, to the extent it is based on the claim of
a person who purchased Units directly from you, shall not inure to your benefit
(or, to the benefit of any of your officers, directors, partners, employees,
agents or counsel, or any person controlling you), if the Prospectus (or the
Prospectus as amended or supplemented if the Company shall have filed with the
Commission any amendment or supplement thereto) which shall have been furnished
to you prior to the time you sent written confirmation of such sale to such
person does not contain such statement, alleged statement, omission or alleged
omission and a copy of the Prospectus (or the Prospectus as amended or
supplemented if the Company shall have filed with the Commission any amendment
10
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or supplement thereto) shall not have been sent or given to such person and such
person shall not otherwise have received a copy thereof at or prior to the time
of the written confirmation of such sale to such person.
(b) You agree to indemnify and hold harmless the Company and
each of the officers and directors of the Company and each other person, if any,
who controls the Company within the meaning of Section 15 of the Act against any
and all such losses, liabilities, claims, damages and expenses as are
indemnified by the Company under Section 6(a) above, provided, however, that
such indemnification by you hereunder shall only be with respect to statements
or omissions, if any, made in any preliminary prospectus, the Registration
Statement, the Prospectus, any amendment or supplement thereof or any
application, in reliance upon, and in conformity with, written information
furnished by or on behalf of you expressly for use in any preliminary
prospectus, the Registration Statement, the Prospectus, any amendment or
supplement thereof or in any of said applications. In case any action shall be
brought against the Company or any other person so indemnified based on any
preliminary prospectus, the Registration Statement, the Prospectus, any
amendment or supplement thereof or any such application and in respect of which
indemnity may be sought against you, you shall have the rights and duties given
to the Company, and the Company and each other person so indemnified shall have
the rights and duties given to you by the provisions of Section 6(a) above.
7. Underwriter's Representations and Warranties
(a) The Underwriter represents and warrants to and agrees with
the Company that: (i) the Underwriter is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York; (ii) it
is duly authorized to execute this Agreement and to perform its duties
hereunder, and the execution and delivery by it of this Agreement and the
consummation of the transactions herein contemplated will not result in any
violation of, be in conflict with or constitute a default under, any agreement
or instrument to which the Underwriter is a party or by which it is bound, or
any judgment, decree, order, or, to its knowledge, any statute, rule or
regulation applicable to it; (iii) the Underwriter is registered as a
broker/dealer with the Commission and is registered as a broker/dealer in all
states in which it conducts business and is a member in good standing of the
National Association of Securities Dealers, Inc.; and (iv) there is not now
pending or threatened against the Underwriter any action or proceeding of which
it has been advised, in any court of competent jurisdiction or before the
Commission or any state securities commission concerning its activities as a
broker/dealer, which would materially impair the Underwriter's ability to act as
such pursuant to this Agreement.
(b) The Underwriter will deliver a certificate dated as of the
First Closing Date and at the termination of the offering, and signed by the
president of the Underwriter stating that the representations of the Underwriter
set forth herein are true and correct in all material respects as of each such
date.
(c) The Underwriter covenants that promptly after the First
Closing Date, and until such time as the earlier of: $7,475,000 in Units are
sold or the offerwing is terminated pursuant to Section 8 hereof, it will supply
the Company with such information as the Company may reasonably request to be
supplied to the securities commissions of such states in which the Debentures
have been qualified for sale.
8. Effectiveness and Termination
(a) This Agreement shall become effective at 9:00 A.M. on the
first full business day after the Effective Date unless prior to such time you
shall have received notice from the Company that it elects that this Agreement
shall not become effective.
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(b) This Agreement may be terminated by you by written notice
to the Company in the event that the Company shall have failed or been unable to
comply with any of the terms, conditions or provisions of this Agreement on the
part of the Company to be performed, complied with or fulfilled within the
respective times herein provided for, unless compliance therewith or performance
or satisfaction thereof shall have been expressly waived by you in writing.
(c) This Agreement may be terminated by you by written notice
to the Company if you believe in your reasonable judgment that a material
adverse change has occurred in the management of the Company, that a material
adverse change has occurred in the financial condition or obligations of the
Company, or if the Company shall have sustained a loss by strike, fire, flood,
accident or other calamity of such a character as, in your reasonable judgment,
may interfere materially with the conduct of the Company's business and
operations regardless of whether or not such loss shall have been insured.
(d) This Agreement may be terminated by you by written notice
to the Company at any time if, in your reasonable judgment, the payment for and
delivery of the Units is rendered impracticable or inadvisable because (i)
additional material governmental restrictions not in force and effect on the
date hereof shall have been imposed upon the registration and/or sale of
securities generally, or (ii) there shall be a material outbreak of hostilities
or a material escalation of existing hostilities between the United States and
any foreign power or a formal declaration of war by the United States shall have
occurred, or (iii) substantial and material changes in the condition of the
market (either generally or with reference to the sale of the Units to be
offered hereby) beyond normal fluctuations are such that it would be
undesirable, impracticable or inadvisable in your reasonable judgment to proceed
with this Agreement or with the offering of the Units.
(e) This Agreement may be terminated by either party by
written notice to the other at any time before it becomes effective as
hereinabove provided.
(f) In the event, at any time prior to the First Closing Date,
any action or proceeding shall be instituted or threatened against you in any
court of competent jurisdiction, before the Commission or any state securities
commission or in any court pursuant to any federal, state, local or municipal
statute, concerning your activities as a broker or dealer that would materially
impair your ability to act as Underwriter pursuant to this Agreement, or a
petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of your assets is filed or if you make a
assignment for the benefit of creditors, the Company shall have the right on
three days' written notice to you to terminate this Agreement without any
liability to you of any kind.
(g) This Agreement shall terminate if at least $6,500,000 of
the Units are not sold within 90 days after the date the Registration Statement
is declared effective by the Commission.
(h) Any termination of this Agreement pursuant to this Section
8 shall be without liability (including, but not limited to, loss of anticipated
profits or consequential damages) on the part of any party hereto, except that
the Company shall nevertheless be obligated to pay to the Underwriter its
accountable out-of-pocket expenses pursuant to Paragraph 3(f), unless the
Agreement is terminated pursuant to Section 8(f), and further provided that
Paragraph 9(b) shall survive the termination of this Agreement.
9. Miscellaneous
(a) Whenever notice is required by the provisions of this
Agreement to be given to the parties hereto, such notice shall be in writing and
shall be sent by certified or registered mail, return receipt requested, postage
prepaid, and shall be deemed delivered two days after mailing, and shall be
12
<PAGE>
addressed to the party to whom such notice is directed at the address set forth
above or at such other address as a party has designated by like notice.
(b) The respective indemnities, agreements, representations,
warranties and other statements of you and the Company hereunder, as set forth
in this Agreement or made pursuant to this Agreement, shall remain in full force
and effect, regardless of any investigation made by or on behalf of you, the
Company, or any officers, directors or controlling person of you or the Company,
and shall survive delivery ofo and payment for the Units.
(c) This Agreement shall be binding upon and inure solely to
the benefit of you and the Company and, to the extent provided in Section 6
hereof, the officers and directors of the Company and any person who controls
you, the Company and their respective successors and assigns, and no other
person shall acquire or have any right under or by virtue of this Agreement. No
purchaser of any of the Units shall be construed a successor or assign by reason
merely of such purchase.
(d) This Agreement shall be construed and governed by the laws
of the State of New York. This Agreement cannot be changed or terminated orally.
(e) This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
Please confirm that the foregoing sets forth the Agreement between you
and the Company by signing and returning to us the enclosed copy of this letter.
Very truly yours,
INTERVEST BANCSHARES CORPORATION
By: ______________________________________
Name:
Title:
WE HEREBY CONFIRM AS OF THE DATE HEREOF
THAT THE ABOVE LETTER SETS FORTH THE
AGREEMENT BETWEEN THE COMPANY AND
UNDERSIGNED.
SAGE, RUTTY & CO., INC.
By: ___________________________________
Name:
Title:
13
<PAGE>
Exhibit A
CERTIFICATE OF INCORPORATION
OF
INTERVEST BANCSHARES CORPORATION
1. The name of the corporation is Intervest Bancshares Corporation.
2. The address of the registered office of the Corporation in the State of
Delaware is 9 East Loockerman Street, City of Dover, County of Kent, State of
Delaware 19901. The name of its registered agent at such address is Colby
Attorneys Service Co., Inc.
3. The purpose for which it is formed is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
4. (a)The Corporation is authorized to issue three classes of shares to be
designated, respectively, Preferred Stock ("Preferred Stock"), Class A Common
Stock ("Class A Common Stock") and Class B Common Stock ("Class B Common
Stock"). The total number of shares of capital stock that the Corporation is
authorized to issue is Eight Million Five Hundred Thousand (8,500,000). The
total number shares of Preferred Stock this Corporation shall have authority to
issue is Three Hundred Thousand (300,000). The total number of shares of Class A
Common Stock this Corporation shall have authority to issue is Seven Million
Five Hundred Thousand (7,500,000). The total number of shares of Class B Common
Stock this Corporation shall have authority to issue is Seven Hundred Thousand
(700,000). All of the shares of capital stock shall have a par value of $1.00
per share.
(b) The Board of Directors of the Corporation (the "Board of
Directors") is authorized, subject to limitations prescribed by law, to provide
for the issuance of the shares of Preferred Stock from time to time in one or
more series. The Board of Directors is expressly authorized to provide for the
issue of all or any of the shares of Preferred Stock in one or more series, and
to fix the number of shares and to determine or alter for each such series, such
voting powers, full or limited, or no voting powers, and such designations,
preferences, and relative, participating, optional, or other rights and such
qualifications, limitations, or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issue of such shares and as may be permitted by the General
Corporation Law of the State of Delaware. The Board of Directors is also
expressly authorized to increase or decrease (but not below the number of shares
of such series then outstanding) the number of shares of any series subsequent
to the issue of shares of that series. In case the number of shares of any such
series shall be so decreased, the shares constituting such decrease shall resume
the status that they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
(c) The powers, preferences, rights, restrictions and other matters
relating to the Class A Common Stock and the Class B Common Stock are as
follows:
<PAGE>
(i) Dividends. Subject to preferences that may be applicable
to any outstanding shares of Preferred Stock, the holders of shares of Class A
Common Stock shall be entitled to receive cash dividends when and as declared by
the Board of Directors out of funds legally available therefore. The holders of
the shares of Class B Common Stock shall not be entitled to receive any cash
dividends other than liquidating dividends until January 1, 2000, after which
time the holders of Class A Common Stock and Class B Common Stock will share
ratably, without distinction as to class, in dividends when and as declared by
the Board of Directors.
(ii) Voting. So long as at least 50,000 shares of the Class B
Common Stock remain issued and outstanding, the holders of the outstanding
shares of Class B Common Stock, voting separately and as a class, shall have the
sole right to vote for the election of that number of directors which equal
two-thirds of the number of directors then constituting the entire Board of
Directors (rounded up to the next whole number), but shall not otherwise be
entitled to vote for the election of directors of the Corporation. The holders
of the outstanding shares of Class A Common Stock, voting separately and as a
class, shall have the sole right to vote for the remaining directors
constituting the entire Board of Directors. At such time as there shall be less
than 50,000 shares of the Class B Common Stock issued and outstanding, then the
entire Board of Directors shall be elected by vote of the holders of the Class A
Common Stock and Class B Common Stock, voting together and without distinction
as to class. Subject to the foregoing limitation, and except as otherwise
expressly required by law, in all other matters as to which the vote or consent
of stockholders of the Corporation shall be required or be taken, the holders of
the shares of Class A Common Stock and Class B Common Stock, voting together and
without distinction as to class, shall each be entitled to one vote for each
share of such stock held by them, respectively. In the case of any subdivision,
split up, combination, stock dividend or change of the shares of Class B Common
Stock into a different number of shares of the same or any other class or
classes of stock, then the 50,000 share threshold described above shall be
equitably adjusted to reflect such event.
(iii) Liquidation. Subject to any preferences that may be
applicable to any outstanding shares of Preferred Stock, in the event of
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary, the holders of the shares of Class A Common Stock and Class B
Common Stock shall be entitled to share ratably, without distinction as to
class, in all of the assets of the Corporation available for distribution to its
stockholders.
(iv) Conversion. The shares of Class B Common Stock shall be
convertible, at any time and from time to time after January 1, 2000, at the
option of the holder thereof, into shares of Class A Common Stock at the rate of
one share Class A Common Stock for one share of Class B Common Stock. In order
to exercise the conversion privilege, the holder of any shares of Class B Common
Stock shall surrender the certificate or certificates for such shares of Class B
Common Stock accompanied by proper instruments of surrender to the Corporation
at its principal office. The certificate or certificates for such shares shall
also be accompanied by a written notice to the effect that the holder elects to
convert such shares and stating the name or names in which the certificate or
certificates for Class A Common Stock which shall be issuable on such conversion
shall be issued. Such conversion shall be deemed to have been effected on the
date on which such notice shall have been received by the Corporation and such
Class B Common Stock shall have been surrendered as hereinabove provided. The
<PAGE>
shares of Class B Common Stock so converted shall not be reissued and shall be
retired and canceled as provided by law. In the case of the issuance of any
shares of stock as a dividend upon the shares of Class A Common Stock or the
shares of Class B Common Stock or in the case of any subdivision, split up,
combination, or change of the shares of Class A Common Stock or shares of Class
B Common Stock into a different number of shares of the same or any other class
or classes of stock, or in the case of any consolidation or merger of the
Corporation with or into another corporation, or in case of any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the conversion rate as hereinabove
provided shall be appropriately adjusted so that the rights of the holders of
Class A Common Stock and of Class B Common Stock will not be diluted as result
of such stock dividend, subdivision, split up, combination, change,
consolidation, merger, sale or conveyance. Adjustments in the rate of
conversions shall be calculated to the nearest one-tenth of a share. The
Corporation shall not be required to issue fractions of shares of Class A Common
Stock upon conversion of Class B Common Stock. If any fractional interest in a
share of Class A Common Stock shall be deliverable, the Corporation shall
purchase such fractional interest for an amount equal to the current market
value of such fractional interest. So long as any shares of Class B Common Stock
are outstanding, the Corporation shall reserve and keep available out of its
duly authorized but unissued stock, for the purpose of effecting the conversion
of the Class B Common Stock as hereinabove provided, such number of its duly
authorized shares of Class A Common Stock and other securities as shall from
time to time be sufficient to effect the conversion of all outstanding shares of
Class B Common Stock.
5. The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal bylaws of this Corporation, but the stockholders may make
additional bylaws and may alter or repeal any bylaw whether adopted by them or
otherwise.
6. Election of directors need not be by written ballot except and to the extent
provided in the bylaws of the Corporation.
7. To the fullest extent permitted by the General Corporation Law of the State
of Delaware as the same now exist or may hereafter be amended in a manner more
favorable to directors, the directors of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
<PAGE>
BY-LAWS
- OF -
INTERVEST BANCSHARES CORPORATION
<PAGE>
ARTICLE I
---------
MEETINGS OF SHAREHOLDERS
------------------------
SECTION 1. Annual Meeting. An annual meeting of the Shareholders shall be held
for the election of directors at such date, time and place, either within or
without the State of Delaware, as may be designated by resolution of the Board
of Directors from time to time. Any other proper business may be transacted at
the annual meeting.
SECTION 2. Special Meetings. Special Meetings of the Shareholders of the
Corporation may be held at any time in the interval between Annual Meetings.
Special Meetings may be called by the chairman, the president, or the Board of
Directors, or by a Committee of the Board of Directors which has been duly
designated by the Board of Directors and whose powers and authority include the
power to call such meetings. The request for a Special Meeting shall state the
purpose or purposes of the Meeting and matters proposed to be acted upon
thereat.
SECTION 3. Place of Meetings. Annual and Special Meetings of the Shareholders of
the Corporation shall be held at the principal office of the Corporation or at
such other place within or without the State of Delaware as the Board of
Directors may from time to time determine.
SECTION 4. Notice of Meetings. Written or printed notice of the date, time and
place of all meetings of the Shareholders shall be given personally, or by first
class mail, not less than ten (10) days nor more than sixty (60) days before the
day fixed for the meeting, to each Shareholder entitled to vote at said meeting,
and, unless the meeting is an annual meeting, such notice must also state the
purpose or purposes for which the meeting is called and must indicate that it is
being issued by or at the direction of the person or persons calling the
meeting. Such notice must also be given to any Shareholder who, by reason of any
action proposed at such meeting, would be entitled to have his stock appraised,
if such action were taken, and such notice must specify the proposed action and
state the fact that if the action is taken, the dissenting Shareholder shall
have appraisal rights. Such notice shall be given to the Shareholder by leaving
the same with him at his residence or usual place of business or by mailing it,
postage prepaid and addressed to him at his address as it appears on the books
of the Corporation, unless he shall have filed with the Secretary of the
Corporation a written request that notices intended for him be mailed to some
other address, in which event it shall be mailed to the address designated in
such request. The notices, as provided for in this Section, are not required to
be given to any Shareholder who submits a signed waiver of notice, in person or
by proxy, whether before or after the meeting. The attendance of any Shareholder
at a meeting, in person or by proxy, without protesting prior to the conclusion
of the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by him. No notice of an adjourned meeting of Shareholders need be given,
unless the Board of Directors fixes a new record date for the adjourned meeting.
SECTION 5. Record Dates. For the purposes of determining the Shareholders
entitled to notice of or to vote at a Shareholders' meeting or any adjournment
thereof, the Board of Directors may fix a date of record which shall not be more
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<PAGE>
than sixty (60) days nor less than ten (10) days before said meeting date. For
the purpose of determining Shareholders entitled to express consent to or
dissent from any proposal without a meeting, or for determining Shareholders
entitled to receive payment of a dividend or the allotment of any rights, or for
any other action, the Board of Directors may fix a date of record which shall
not be more than sixty (60) days prior to such action.
SECTION 6. Quorum. At all meetings of Shareholders, except as otherwise provided
by law, a quorum shall exist if there is present in person or represented by
proxy, Shareholders owning a majority in number of the shares of the Corporation
issued and outstanding and entitled to vote thereat, in order to constitute a
quorum; but if there be no quorum, the holders of such shares so present or
represented may by majority vote adjourn the meeting from time to time, but not
for a period of over thirty (30) days at any one time, without notice other than
by announcement at the meeting, until a quorum shall attend. At any such
adjournment of the meeting, which a quorum shall attend, any business may be
transacted which might have been transacted at the meeting as originally called.
When a quorum is once present, it is not broken by the subsequent withdrawal of
any Shareholder.
SECTION 7. Voting. At all meetings of the Shareholders, each Shareholder
entitled to vote thereat may vote in person or by proxy, and shall have one vote
for each share standing in his name on the books of the Corporation as of the
Record Date fixed for the meeting, unless otherwise provided in the Certificate
of Incorporation or any amendments thereto. Upon demand of the Shareholders
holding a majority in interest of the shares, present in person or by proxy and
entitled to vote, voting shall be by ballot. A plurality of votes cast shall be
sufficient to elect Directors, and a majority of votes cast shall be sufficient
to take any other corporate action, except as otherwise provided by law or these
By-Laws.
SECTION 8. Proxies. Every proxy shall be in writing, subscribed by the
Shareholder or his duly authorized attorney and dated. No proxy which is dated
more than three (3) years before the meeting at which it is offered shall be
accepted, unless such proxy shall, on its face, name a longer period for which
it is to remain in force.
SECTION 9. Conduct of Meetings. Meetings of the Shareholders shall be presided
over by the Chairman of the Board of Directors, if any, or, in his absence, by
the President of the Corporation or, in his absence, by a Vice President, if
any, or, in the absence of all such officers, by a Chairman to be chosen at the
Meeting. The officer presiding shall appoint a secretary.
SECTION 10. Action Without a Meeting. Whenever Shareholders are required or
permitted to take any action by vote, such action may be taken without a
meeting, without prior notice and without a vote, on written consent, setting
forth the action so taken, signed by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of action without a meeting
by less than unanimous written consent shall be given to those shareholders who
have not consented in writing.
3
<PAGE>
SECTION 11. Notice of Business. No business may be transacted at an annual
meeting of stockholders, other than business that is either (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors (or any duly authorized committee thereof), (b) otherwise
properly brought before the annual meeting by or at the direction of the Board
of Directors (or any duly authorized committee thereof) or (c) otherwise
properly brought before the annual meeting by any stockholder of the Corporation
(i) who is a stockholder of record on the date of the giving of the notice
provided for in this Section 11 of this Article I and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (ii)
who complies with the notice procedures set forth in this Section 11.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
not less than 90 days nor more than 120 days in advance of the date of the
Corporation's proxy statement and notice released to stockholders in connection
with the immediately preceding annual meeting of stockholders; provided,
however, that in the event that the annual meeting is called for a date that is
not within 30 days before or the date contemplated by that notice, notice by the
stockholder in order to be timely must be so received not later than the close
of the business on the tenth day following the day on which such notice of the
date of the annual meeting was mailed or public disclosure of the date of the
annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business proposed to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 11 of this Article I; provided, however,
that, once business has been properly brought before the annual meeting in
accordance with such procedures, nothing in this Section 11 of this Article I
shall be deemed to preclude discussion by any stockholder of any such business.
If the Chairman of an annual meeting determines that business was not properly
brought before the annual meeting in accordance with the foregoing procedures,
the Chairman shall declare to the meeting that the business was not properly
brought before the meeting and such business shall not be transacted or
discussed.
4
<PAGE>
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
SECTION 1. Election and Powers. The Board of Directors shall have the management
and control of the affairs and business of the Corporation. The Directors shall
be elected by the Shareholders at each annual meeting of Shareholders and each
Director shall serve until his successor is elected or appointed and qualified,
unless his directorship be theretofore vacated by resignation, death, removal or
otherwise.
SECTION 2. Number. The number of Directors constituting the entire Board of
Directors shall be such number, not less than three (3), as shall be designated
by resolution of the Board of Directors adopted prior to the election of
Directors at the Annual Meeting of Shareholders. In the absence of such
resolution the number of Directors to be elected at such Annual Meeting shall be
the number last fixed by the Board of Directors. Any Board action designating a
change in the number of directors shall require a vote of a majority of the
entire Board. The "entire Board", as used in this Article, shall mean the total
number of Directors which the Corporation would have if there were no vacancies.
Notwithstanding the provisions of this Section, where all of the shares are
owned beneficially and of record by less than three Shareholders, the number of
Directors may be less than three, but not less than the number of Shareholders.
SECTION 3. Vacancies. Vacancies in the Board of Directors (including any
resulting from an increase in the number of Directors) created for any reason
may be filled by vote of the Board of Directors. If, however, the number of
Directors then in office is less than a quorum, vacancies may be filled by a
vote of a majority of the Directors then in office. A Director elected by the
Board of Directors to fill a vacancy under this Section shall hold office until
the next meeting of shareholders at which the election of directors is in the
regular order of business, and until his successor has been duly elected or
appointed and qualified.
SECTION 4. Nomination of Directors. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors of the
Corporation, except as may be otherwise provided in the Certificate of
Incorporation. Nominations of persons for election to the Board of Directors may
be made at any annual meeting of stockholders or at any special meeting of
stockholders called for the purpose of electing directors, (a) by or at the
direction of the Board of Directors or Nominating Committee thereof or (b) by
any stockholder of the Corporation (i) who is a stockholder of record on the
date of the giving of the notice provided for in this Section 4 of this Article
II and on the record date for the determination of stockholders entitled to vote
at such meeting and (ii) who complies with the notice procedures set forth in
this Section 4 of this Article II.
In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation.
5
<PAGE>
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
(a) in the case of an annual meeting, not less than 90 days nor more than 120
days in advance of the date of the Corporation's proxy statement and notice
released to stockholders in connection with the immediately preceding annual
meeting of stockholders; provided, however, that in the event that the annual
meeting is called for a date that is not within 30 days before or the date
contemplated by that notice, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the annual meeting was
mailed or public disclosure of the date of the annual meeting was made,
whichever first occurs; and (b) in the case of a special meeting of stockholders
called for the purpose of electing directors, not later than the close of
business on the tenth day following the day on which public disclosure of the
date of the special meeting was made.
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
Subject to Section 3 of this Article II, no person shall be eligible
for election as a director of the Corporation unless nominated in accordance
with the procedures set forth in this Section 4 of this Article II. If the
Chairman of the meeting determines that a nomination was not made in accordance
with the foregoing procedures, the Chairman shall declare to the meeting that
the nomination was defective and such defective nomination shall be disregarded.
SECTION 5. Removal. At any meeting of the Shareholders duly called, any Director
may, by vote of the holders of a majority of the shares of the class who elected
that Director, be removed from office, with or without cause. Any Director may
also be removed, with or without cause, by action of the Board of Directors.
6
<PAGE>
SECTION 6. Meetings. Regular Meetings of the Board of Directors shall be held at
such times as the Directors may from time to time determine. Special Meetings of
the Board of Directors shall be held at any time, upon call from the Chairman of
the Board, the President, any Vice President, the Secretary, or by any member of
the Board of Directors.
SECTION 7. Place of Meetings. Regular and Special Meetings of the Board of
Directors shall be held at the principal office of the Corporation or at such
other place, within or without the State of Delaware, as the Board of Directors
may from time to time determine.
SECTION 8. Notice of Meeting. Notice of the place, day and hour of every regular
and special meeting shall be given to each Director by delivering the same to
him personally or sending the same to him by telegraph or leaving the same at
his residence or usual place of business, at least one (1) day before the
meeting, or shall be mailed to each Director, postage prepaid and addressed to
him at the last known Post Office address according to the records of the
Corporation, at least three (3) days before the meeting. No notice of any
adjourned meeting of the Board of Directors need to be given other than by
announcement at the meeting, subject to the provisions of Section 10 of this
Article.
SECTION 9. Waiver of Notice. Notice of a meeting need not be given to any
Director who submits a signed written waiver thereof, whether before, during or
after the meeting, nor to any Director who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to him.
SECTION 10. Quorum. A majority of the entire Board shall be necessary to
constitute a quorum for the transaction of business at each meeting of the Board
of Directors; but if at any meeting there be less than a quorum present, a
majority of those present may adjourn the meeting from time to time without
notice other than by announcement at the meeting, until a quorum shall attend.
At any such adjournment, at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally called.
SECTION 11. Action Without a Meeting. Any action required or permitted to be
taken by the Board of Directors or any committee thereof at a duly held meeting
may be taken without a meeting if all members of the Board of Directors or the
committee consent in writing to the adoption of a resolution authorizing the
action. Such resolution and the written consents thereto by the members of the
Board of Directors or committee shall be filed with the minutes of the
proceedings of the Board of Directors or the committee.
SECTION 12. Personal Attendance by Conference Communication Equipment. Any one
or more members of the Board of Directors or any committee thereof may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at the meeting.
SECTION 13. Executive Committee and Other Committees. The Board of Directors
may, in its discretion, by an affirmative vote of a majority of the entire
7
<PAGE>
Board, appoint an Executive Committee, or any other committee, to consist of
three (3) or more Directors as the Board of Directors may from time to time
determine. The Executive Committee shall have, and may exercise between meetings
of the Board of Directors, all the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and other committees
shall have those powers conferred upon them by the Board of Directors, except
that no committee shall have power:
(a) To submit to Shareholders any action requiring Shareholder
approval;
(b) To fill vacancies in the Board of Directors or in any
committee thereof;
(c) To fix compensation of Directors for service on the Board of
Directors or any committee thereof;
(d) To repeal, amend or adopt by-laws;
(e) To amend or repeal any Board resolution which is not, by its
terms, amendable or repealable by such committee;
In the absence of any member of the Executive Committee or of any other
committee, the members thereof present at any meeting may appoint a member of
the Board of Directors previously designated by the Board of Directors as a
committee alternate to act in place of such absent member. The Board of
Directors shall have the power at any time to change the membership of any
committee, to fill vacancies in it, or dissolve it. The Executive Committee and
any other committee may make rules for the conduct of its business, and may
appoint such committees and assistants as may from time to time be necessary,
unless the Board of Directors shall provide otherwise. A majority of the members
of the Executive Committee and of any other committee shall constitute a quorum.
ARTICLE III
-----------
OFFICERS
--------
SECTION 1. Election of Officers. The Board of Directors (or the Executive
Committee), at any duly held meeting thereof, shall elect a Chairman, a
President, a Secretary and a Treasurer of the Corporation, and may elect one or
more Vice Presidents and any other officers. Each such officer shall serve at
the pleasure of the Board of Directors or until his successor shall have been
duly elected or appointed and qualifies, or until he shall have resigned, shall
have deceased or shall have been removed in the manner provided in Section 3 of
this Article. Any two offices may be held by the same person, except that no
person shall hold the office of President and Secretary concurrently.
Notwithstanding the foregoing, if all of the stock of the Corporation shall ever
be owned by one person, such person may hold all or any combination of offices.
Any vacancies in the above offices shall be filled by the Board.
8
<PAGE>
SECTION 2. Assistant and Subordinate Officers. The Board of Directors (or the
Executive Committee) may elect one or more Assistant Treasurers, one or more
Assistant Secretaries and such other subordinate officers or agents as it may
deem proper from time to time, who shall hold office at the pleasure of the
Board of Directors (or the Executive Committee). The Board of Directors may from
time to time authorize the President to appoint and remove such assistant and
subordinate officers and agents and prescribe the powers and duties thereof.
SECTION 3. Removal. Any officers of the Corporation may be removed with or
without cause by a vote of the majority of the entire Board of Directors of the
Corporation then in office at a meeting called for that purpose (or, except in
the case of an officer elected by the Board of Directors, by the Executive
Committee) whenever in its judgment the best interests of the Corporation may be
served thereby.
SECTION 4. Compensation. The Board of Directors shall fix the compensation of
all officers of the Corporation who are elected or appointed by the Board of
Directors. The Board of Directors or the Executive Committee shall fix the
compensation of all other officers of the Corporation, except that the Board of
Directors may authorize the President to fix the compensation of such assistant
and subordinate officers and agents as he is authorized to appoint and remove.
SECTION 5. Chairman of the Board. The Chairman of the Board, if there be one,
shall preside at all meetings of the Board of Directors and shall perform such
other duties as the Board of Directors may direct. There may be more than one
person holding the office of Chairman, in which case they shall act as
Co-Chairmen and shall share the duties of such office.
SECTION 6. President. The President shall be the Chief Executive Officer of the
Corporation and shall, subject to the direction of the Board of Directors (or
the Executive Committee), have the general management of the affairs of the
Corporation. The President shall preside at all meetings of the Shareholders. If
there be no Chairman of the Board, or in his absence or inability to act, the
President shall perform all duties of the Chairman of the Board, subject,
however, to the control of the Board of Directors (or the Executive Committee).
SECTION 7. Vice Presidents. Any one or more of the Vice Presidents may be
designated by the Board of Directors (or the Executive Committee) as an
Executive Vice President. At the request of the President, or in his absence or
during his disability, the Executive Vice President shall perform the duties and
exercise the functions of the President. If there be no Executive Vice
President, or if there be more than one (1), the Board of Directors (or the
Executive Committee) may determine which one or more of the Vice Presidents
shall perform any of such duties or exercise any of such functions; if such
determination is not made by the Board of Directors (or the Executive
Committee), the President may make such determination; otherwise, any of the
Vice Presidents may perform any of such duties or exercise any of such
functions. Each Vice President shall have such other powers and duties as may be
properly designated by the Board of Directors (or the Executive Committee) and
the President.
9
<PAGE>
SECTION 8. Secretary. The Secretary shall keep full minutes of all meetings of
the Shareholders and of the Board of Directors in books provided for that
purpose. He shall see that all notices are duly given in accordance with the
provisions of these By-Laws or as required by law. He shall be the custodian of
the records and of the Seal or Seals of the Corporation. He shall affix the
Corporate Seal to all documents, the execution of which on behalf of the
Corporation, under the Seal, is duly authorized by the Board of Directors (or
Executive Committee), and when so affixed may attest the same. He shall have
such other powers and duties as may be properly designated by the Board of
Directors (or the Executive Committee) and the President.
SECTION 9. Treasurer. The Treasurer shall keep correct and complete books and
records of account for the Corporation. Subject to the control and supervision
of the Board of Directors (or the Executive Committee) and the President, or
such other officer as the President may designate, the Treasurer shall establish
and execute programs for the provision of the capital required by the
Corporation, including negotiating the procurement of capital and maintaining
adequate sources for the Corporation's current borrowing from lending
institutions. He shall maintain banking arrangements to receive, have custody of
and disburse the Corporation's moneys and securities. He shall invest the
Corporation's funds as required, establish and coordinate policies for
investment in pension and other similar trusts, and provide insurance coverage
as required. He shall direct the granting of credit and the collection of
accounts due the Corporation, including the supervision of special arrangements
for financing sales, such as time payments and leasing plans. He shall have such
other powers and duties as may be properly designated by the Board of Directors
(or the Executive Committee) and the President.
ARTICLE IV
----------
SHARE CERTIFICATES
------------------
SECTION 1. Form and Signatures. The interest of each Shareholder of the
Corporation shall be evidenced by certificates for shares in such form not
inconsistent with the law or the Certificate of Incorporation, and any
amendments thereof, as the Board of Directors may from time to time prescribe.
The share certificates shall be signed by the President or a Vice President and
by the Secretary or an Assistant Secretary, and may be sealed with the seal of
the Corporation. Where any share certificate is countersigned by a transfer
agent or registered by a registrar, other than the Corporation itself or its
employee, or if the shares are listed on a registered national security
exchange, the signatures of any such President, Vice President, Secretary, or
Assistant Secretary, may be facsimiles engraved or printed. In case any officer
who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before the share certificate is
issued, such certificate may be issued by the Corporation with the same effect
as if such person had not ceased to be such officer.
SECTION 2. Transfer of Shares. The shares of the Corporation shall be
transferred on the books of the Corporation by the Registered holder thereof, in
person or by his attorney, upon surrender for cancellation of certificates for
the same number of shares, with a proper assignment and powers of transfer
endorsed thereon or attached thereto, duly signed by the person appearing by the
certificate to be the owner of the shares represented thereby, with such proof
10
<PAGE>
of the authenticity of the signature as the Corporation, or its agents, may
reasonably require. Such certificate shall have affixed thereto all stock
transfer stamps required by law. The Board of Directors shall have power and
authority to make all such other rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
the Corporation.
SECTION 3. Mutilated, Lost, Stolen or Destroyed Certificates. The holder of any
certificates representing shares of the Corporation shall immediately notify the
Corporation of any mutilation, loss, theft or destruction thereof, and the Board
of Directors may, in its discretion, cause one or more new certificates, for the
same number of shares in aggregate, to be issued to such holder upon the
surrender of the mutilated certificate, or, in case of an alleged loss, theft or
destruction of the certificate, upon satisfactory proof of such loss, theft or
destruction and the deposit of indemnity, by way of bond or otherwise, in such
form and amount and with such sureties as the Board of Directors may require, to
indemnify the Corporation and transfer agent and registrar, if any, against loss
or liability by reason of the issuance of such new certificates; but the Board
of Directors may, in its discretion, refuse to issue such new certificates save
upon the order of some court having jurisdiction in such matters.
SECTION 4. Stock Ledgers. The Stock Ledgers of the Corporation containing the
names and addresses of the Shareholders and the number of shares held by them
respectively shall be maintained at the principal office of the Corporation, or
if there be a transfer agent, at the office of such transfer agent, as the Board
of Directors shall determine.
SECTION 5. Transfer Agents and Registrars. The Corporation may have one or more
transfer agents and one or more registrars of its stock or of any class or
classes of its shares whose respective duties the Board of Directors may from
time to time determine.
ARTICLE V
---------
INDEMNIFICATION
---------------
The Corporation shall indemnify (a) any person made or threatened to be made a
party to any action or proceeding by reason of the fact that he, his testator or
intestate, is or was a director or officer of the Corporation, and (b) any
director or officer of the Corporation who served any other company in any
capacity at the request of the Corporation, in the manner and to the maximum
extent permitted by the General Corporation Law of Delaware, as the same now
exists or may hereafter be amended in a manner more favorable to persons
entitled to indemnification; and the Corporation may, in the discretion of the
Board of Directors, indemnify all other corporate personnel to the extent
permitted by law. The right to indemnification conferred herein shall include
the right to be paid by the Corporation the expenses (including attorneys' fees)
incurred in defending any such proceeding in advance of its final disposition.
11
<PAGE>
ARTICLE VI
----------
FINANCES
--------
SECTION 1. Dividends. Subject to law and to the provisions of the Certificate of
Incorporation, and any amendments thereof, the Board of Directors may declare
dividends on the stock of the Corporation, payable upon such dates as the Board
of Directors may designate.
SECTION 2. Reserves. Before payment of any dividends, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums, as the
Board of Directors from time to time, in its absolute discretion, deems proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the Board of Directors shall deem conducive to the interest of the
Corporation, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created.
12
<PAGE>
SECTION 3. Bills, Notes, Etc. All checks or demands for money and notes or other
instruments evidencing indebtedness or obligations of the Corporation shall be
made in the name of the Corporation and shall be signed by such officer or
officers or such other person or persons as the Board of Directors may from time
to time designate.
ARTICLE VII
-----------
AMENDMENTS
----------
The Board of Directors shall have the power to adopt, amend or repeal
the By-Laws of the Corporation by a majority vote of the entire Board at any
meeting, provided that the Shareholders may make additional By-Laws and may
alter and repeal any By-Laws whether adopted by them or otherwise.
13
<PAGE>
Number W( ) --
WARRANT TO PURCHASE SHARES OF CLASS A COMMON STOCK
VOID AFTER 5:00 P.M., NEW YORK TIME, ON DECEMBER 31, 2002
CUSIP No._______
INTERVEST BANCSHARES CORPORATION
Series __/__/97 Class A Common Stock Purchase Warrant
_______________ Warrants
This certifies that, for value received, the registered holder hereof
or registered assigns (the "Holder"), is entitled to purchase from Intervest
Bancshares Corporation, a Delaware corporation (the "Company"), at any time or
from time to time until 5:00 P.M., New York time, December 31, 2002, _________
shares of Class A Common Stock, $1.00 par value, of the Company. The exercise
price at which this Warrant may be exercised (the "Warrant Price") shall be as
follows: $10.00 per share through December 31, 1999; $11.50 per share from
January 1, 2000 to December 31, 2000; $12.50 per share from January 1, 2001 to
December 31, 2001; and $13.50 per share after December 31, 2001. The number of
Warrants, the number of shares purchasable upon exercise of this Warrant and the
Warrant Price per share shall be subject to adjustment from time to time as set
forth in the Warrant Agreement referred to below.
This Warrant may be exercised in whole or in part by presentation of
this Warrant with the Purchase Form on the reverse side hereof duly executed
(with a signature guarantee as provided in the Warrant Agreement) and
simultaneous payment of the Warrant Price (subject to adjustment) at the office
or agency of The Bank of New York or its successor (the "Warrant Agent")
maintained for that purpose in the Borough of Manhattan, City of New York.
Payment of such price shall be made by certified or cashiers' check. This
Warrant may not be exercised for fewer than one hundred (100) shares unless
exercised as to all shares covered hereby.
This Warrant is issued under and in accordance with a Warrant Agreement
dated ___________, 1997 between the Company and the Warrant Agent (as the same
may be hereafter 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. A copy of the Warrant Agreement may be obtained for
inspection by the Holder hereof upon written request to the Warrant Agent.
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. This Warrant may be exchanged
at the office of the Warrant Agent by surrender of this Warrant properly
endorsed (with a signature guarantee as provided in the Warrant Agreement)
either separately or in combination with one or more other Warrants for one or
more new Warrants of the same aggregate number of shares as here evidenced by
the Warrant or Warrants exchanged. No fractional shares will be issued upon the
exercise of rights to purchase hereunder, but the Company shall pay the cash
value of any fraction upon the exercise of one or more Warrants, all as provided
<PAGE>
in the Warrant Agreement. This Warrant is transferable at the office of the
Warrant Agent in the manner and subject to the limitations set forth in the
Warrant Agreement.
The Company may call this Warrant at any time, provided that it must
pay the Holder hereof the sum of $1.00 per share of Class A Common Stock
purchasable hereunder if the Warrant is called before January 1, 2000. No
consideration is payable in connection with a redemption on or after January 1,
2000. The Company shall give notice of its election to call this Warrant by
mailing a copy of the notice not less than 60 days prior to the date designated
as the date of call, in the manner set forth in the Warrant Agreement.
The Company shall not be obligated to deliver any securities hereunder
unless a registration statement under the Securities Act of 1933, as amended,
with respect to such securities is effective. The Company has covenanted and
agreed that it will file a registration statement and will use its best efforts
to cause the same to become effective and to keep such registration statement
current while any of the Warrants are outstanding. This Warrant shall not be
exercisable by a Holder in any state where such exercise would be unlawful.
The Holder hereof may be treated by the Company, the Warrant Agent, and
all other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby, or
to the transfer hereof on the books of the Company any notice to the contrary
notwithstanding, and until such transfer on such books, the Company may treat
the Holder hereof as the owner for all purposes.
This Warrant does not entitle any Holder hereof to any of the rights of
a stockholder of the Company.
This Warrant shall not be valid or obligatory for any purpose until it
shall have been countersigned by the Warrant Agent.
Dated: _____________________________ Intervest Bancshares Corporation
By: _______________________________
President
ATTEST:
_______________________________
Secretary
(seal)
Countersigned:
THE BANK OF NEW YORK
By: ______________________________
Authorized Officer
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
INTERVEST BANCSHARES CORPORATION
Series __/__/97 Class A Common Stock Purchase Warrant
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 A 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: ____________________, 19___
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)
- --------------------------------------------------------------------------------
the within Warrant hereby irrevocably constituting and appointing Attorney to
transfer said Warrant on the books of the Company with full power of
substitution in the premises.
Dated: ______________________, 19___
___________________________________
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
August 6, 1997
Intervest Bancshares Corporation
10Rockefeller 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 issuatance and sale of up to 460,000 Units (the
"Units"), each Unit consisting of one share of Class A Common Stock (the
"Warrants"). 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.
Base 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 shares of Class A Common Stock included in the Units, when
issued against payment for the Units, will be duly and validly
issued, fully paid and nonassessable.
c. When shares of Class A 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 Class A Common Stock will be duly and
validly issued, fully paid and nonassessable.
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 federal laws of the Untied 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: Thomas E. Willett,
Member of the Firm
INTERVEST BANCSHARES CORPORATION
ESCROW AGREEMENT
THIS ESCROW AGREEMENT made as of this _____ day of _______, 1997, by
and among Intervest Bancshares Corporation, a Delaware corporation with its
principal offices at 10 Rockefeller Plaza, Suite 1015, New York, New York
10020-1903 ("Corporation"); Sage, Rutty & Co., Inc., a New York corporation with
its principal offices at 183 East Main Street, 4th Floor, Rochester, New York
14604 ("Underwriter"); and Manufacturers and Traders Trust Company, a New York
banking corporation with offices at 255 East Avenue, Rochester, New York
("Escrow Agent").
R E C I T A L S:
WHEREAS, the Corporation has filed a Form SB-2 Registration Statement
under the Securities Act of 1933 with the Securities and Exchange Commission
("Registration Statement") covering a proposed offering of a $6,500,000 of its
Units, each unit consisting of one share of Class A Common Stock and one warrant
to purchase one share of Class A Common Stock (the "Units"); and
WHEREAS, the Underwriter intends to sell the Units as the Corporation's
agent on a best efforts basis; and
WHEREAS, certain officers of the Corporation may also sell Units; and
WHEREAS, under the terms of the offering, subscription funds received
on the sale of Units will be deposited in an escrow account until certain terms
and conditions have been met; and
WHEREAS, the Corporation desires that the subscription funds be held in
escrow by the Escrow Agent on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. Establishment and Custody of Escrow Fund.
(a) On or prior to the date of the commencement of the
offering of the Units, the parties shall establish an interest-bearing escrow
account with the Escrow Agent. The Corporation will notify the Escrow Agent in
writing of the effective date of the Registration Statement. The escrow account
shall be entitled "Intervest Bancshares Corporation Escrow Account." The
Corporation shall, prior to the establishment of such account, furnish to the
Escrow Agent a completed IRS Form W-9.
(b) On the next Business Day following receipt by the
Corporation or the Underwriter from an investor desiring to purchase Units
("Subscriber(s)") or from any participating selected dealer, of any subscription
documents and payment of the subscription price for Units to be purchased, it
will promptly transmit to the Escrow Agent the following:
(i) Checks, bank drafts or money orders payable to
"M&T Bank, as Escrow Agent for Intervest Bancshares Corporation" or wire
transfers to the escrow account (such sums as held by Escrow Agent in collected
funds, as increased or decreased by any investments, reinvestments or
distributions made in respect thereof and any interest thereon as held from time
to time by the Escrow Agent pursuant to the terms of this Escrow Agreement,
being hereafter collectively referred to as the "Escrow Fund"). Such funds shall
be delivered to M&T Bank, P.O. Box 22900, Rochester, New York 14629, Attn: Lynn
M. Carleton for deposit in accordance with Section 2; and
(ii) With each deposit to the Escrow Fund, a
statement containing the name, address and tax identification number of each
Subscriber.
(c) Checks or other forms of payment not made payable to the
Escrow Agent shall be returned by the Escrow Agent to the purchaser who
submitted the check.
<PAGE>
(d) For purposes of this Escrow Agreement, a "Business Day" is
a day upon which the Escrow Agent is open for the conduct of business.
(e) The Escrow Agent will acknowledge receipt of the Escrow
Fund and will hold the Escrow Funds subject to the terms and conditions of this
Escrow Agreement.
(f) The Escrow Agent shall notify the Corporation when the
total amount of subscription funds in the Escrow Fund, less the amount of any
such checks returned for insufficient funds, equals at least $6,500,000 (the
"Minimum Funds"). No investment profits or losses and no interest earned on any
investment of the Escrow Fund shall be considered for purposes of this
calculation.
(g) During the term of this Escrow Agreement, the Corporation
understands that it is not entitled to any funds received into escrow and no
amounts deposited shall become the property of the Corporation or any other
entity, or be subject to the debts of the Corporation or any other entity.
2. Investment of Escrow Fund. Moneys held in the Escrow Fund shall be
invested and reinvested by the Escrow Agent in its money market account. Moneys
held in the Escrow Fund will, in any event, be invested only in investments
permissible under Rule 15c2-4 under the Securities Exchange Act of 1934.
3. Duties of Escrow Agent. Acceptance by the Escrow Agent of its duties
under this Escrow Agreement is subject to the following terms and conditions,
which all parties to this Escrow Agreement agree shall govern and control with
respect to the rights, duties, liabilities and immunities of the Escrow Agent.
(a) The duties and responsibilities of the Escrow Agent shall
be limited to those expressly set forth in this Escrow Agreement and the Escrow
Agent shall not be subject to, nor obligated to recognize, any other agreements
between the Corporation, Underwriter and any Subscriber.
(b) The duties of the Escrow Agent are only such as are herein
specifically provided and such duties are purely ministerial in nature. The
Escrow Agent's primary duty shall be to keep custody of and safeguard the Escrow
Fund during the period of the escrow, to invest monies held in the Escrow Fund
in accordance with Section 2 hereof and to make disbursements from the Escrow
Fund in accordance with Section 4 hereof.
(c) The Escrow Agent shall be under no obligations in respect
of the Escrow Fund other than to faithfully follow the instructions herein
contained or delivered to the Escrow Agent in accordance with this Escrow
Agreement. The Escrow Agent may rely and act upon any written notice,
instruction, direction, request, waiver, consent, receipt or other paper or
document which it in good faith believes to be genuine and what it purports to
be and the Escrow Agent shall be subject to no liability with respect to the
form, execution or validity thereof. If, in the opinion of the Escrow Agent, the
instructions it receives are ambiguous, uncertain or in conflict with any
previous instructions or this Escrow Agreement, then the Escrow Agent is
authorized to hold and preserve intact the Escrow Fund pending the settlement of
any such controversy by final adjudication of a court or courts of proper
jurisdiction.
(d) The Escrow Agent shall not be liable for any error of
judgment or for any act done or step taken or omitted by it, in good faith, or
for any mistake of fact or law, or for anything which it may in good faith do or
refrain from doing in connection herewith, unless caused by its willful
misconduct or gross negligence. The Corporation shall indemnify and hold the
Escrow Agent harmless from and against any and all claims, losses, damages,
liabilities and expenses, including reasonable attorneys' fees, which may be
imposed upon the Escrow Agent or incurred by the Escrow Agent in connection with
its acceptance of the appointment as Escrow Agent hereunder or the performance
of its duties hereunder, unless the Escrow Agent is determined to have committed
an intentional wrongful act or to have been grossly negligent with respect to
its duties under this Escrow Agreement.
(e) The Escrow Agent shall return to the Corporation any sums
delivered to the Escrow Agent pursuant to this Escrow Agreement for which the
Escrow Agent has not received release instructions pursuant to Section 4 hereof,
and as to which four years have passed since delivery.
2
<PAGE>
(f) The Escrow Agent may consult with, and obtain advice from,
legal counsel (which may not be counsel to the Corporation) in the event of any
dispute or questions as to the construction of any of the provisions hereof or
its duties hereunder, and it shall incur no liability in acting in good faith in
accordance with the written opinion and instructions of such counsel. The fees
for consultation with such counsel shall be paid by the Corporation.
(g) Reference in this Escrow Agreement to the Registration
Statement is for identification purposes only, and its terms and conditions are
not thereby incorporated herein.
4. Distribution and Release of Funds.
(a) For purposes of this Escrow Agreement, the term
"Termination Date" shall mean the earlier of:
(i) _____________, 1997, or such later date set forth
in a written notice purportedly executed by the Corporation and delivered to the
Escrow Agent at least five (5) Business Days prior to ________________, 1997.
(ii) The date, if any, upon which the Escrow Agent
receives a written notice purportedly executed by the Corporation stating that
the offering has been terminated, or such later date set forth in such notice as
the effective date of such termination; or
(iii) Any date specified by the Corporation in
writing, after the date the Escrow Agent has confirmed that it has received in
the Escrow Fund at least the Minimum Funds in good, collected funds.
(b) On the Termination Date, the Escrow Agent shall certify to
the Corporation in writing the total amount of collected funds in the Escrow
Fund.
(c) The Escrow Agent shall return the funds deposited with it
to the Subscribers if, on the Termination Date, the Escrow Fund does not consist
of collected funds totaling at least the Minimum Funds. The Escrow Agent shall
have fully discharged this obligation to return Subscribers' funds if it has
mailed to each Subscriber, at the address furnished to it by the Corporation,
the Underwriter or any selected dealer, by registered or certified mail, return
receipt requested, a bank check made payable to each Subscriber for the amount
originally deposited by that Subscriber, plus the Subscriber's pro rata share of
net interest (defined below) earned without regard to the date the Subscriber's
funds were deposited. For purposes of this Escrow Agreement, "net interest"
shall mean the interest earned on the Escrow Fund, less any fees or expenses of
the Escrow Agent paid from the Escrow Fund pursuant to Section 5.
(d) At such time as (i) the total amount of collected funds in
the Escrow Fund equals at least the Minimum Funds, and (ii) the Escrow Agent has
received, on or before the Termination Date, written instructions executed by
the Underwriter and the Corporation, the Escrow Agent shall distribute the
entire Escrow Fund, less commissions, fees and expense reimbursement due to the
Underwriter and any selected dealers, pursuant to such instructions. The
commissions, fees and expense reimbursement due to the Underwriter and selected
broker-dealers shall be set forth in the written instructions, and the Escrow
Agent shall distribute the commissions, fees and expense reimbursement due to
the Underwriter and selected dealers directly to the Underwriter. Subject to the
foregoing, distributions may be made to third parties at the direction of the
Corporation. Net interest earned on the Escrow Fund shall be paid to the
Corporation.
(e) If the Corporation rejects a subscription for which the
Escrow Agent has already collected funds, the Escrow Agent shall promptly issue
a refund check to the rejected Subscriber. Otherwise, the Escrow Agent shall
promptly remit the rejected Subscriber's check directly to the Subscriber. Any
check returned unpaid to the Escrow Agent will be returned to the Underwriter or
3
<PAGE>
selected dealer that submitted the check. Any check or other form of payment
received by the Escrow Agent not payable to "M&T Bank, as Escrow Agent for
Intervest Bancshares Corporation" shall be returned to the Subscriber by the
Escrow Agent.
(f) For purposes hereof, "collected funds" shall mean all
funds received by the Escrow Agent which have cleared normal banking channels
and are in the form of cash. Furthermore, a check which is not (i) a certified
check or (ii) a bank draft or a cashiers check drawn on a bank reasonably
acceptable to the Escrow Agent, shall constitute "collected funds" only if it
has not been returned for insufficient funds within ten (10) Business Days after
its receipt by the Escrow Agent. No investment profits or losses and no interest
earned on any investments of the Escrow Fund shall be considered for purposes of
the above calculation.
(g) It shall be a condition to the return of funds to any
subscriber hereunder that such subscriber shall have delivered to the Escrow
Agent a completed IRS Form W-9. The Corporation shall include in the Prospectus
which is part of the Registration Statement and/or in the subscription forms to
be executed by subscribers, notice of the requirement for delivery of such IRS
Form W-9 as a condition to the return of funds deposited in the Escrow Account.
(h) This Escrow Agreement shall terminate on the final
distribution of the Escrow Fund, at which time the Escrow Agent shall be forever
and irrevocably released and discharged from any and all further responsibility
or liability with respect to the Escrow Fund.
5. Compensation. The Corporation agrees to pay the Escrow Agent a fee
of $300 as compensation for its services in connection with establishing the
Escrow Fund, payable at the time this Escrow Agreement is executed, whether or
not any Units are sold. In addition, the Corporation shall pay an annual
maintenance fee of $100, prorated for the number of months the Escrow Account is
open, payable whether or not any Units are sold. The Corporation shall pay, in
addition to the foregoing fees, the following charges:
$700.00 Handling and processing fees.
$ 7.50 Per check disbursed.
$ 10.00 Per prorated net interest computation if funds are
returned to investors.
$ 10.00 Per Form 1099 required to be transmitted by
the Escrow Agent.
$ 25.00 Per check returned for insufficient funds.
Except for the set-up fee due upon execution of this Escrow Agreement, the fees
and charges shall be paid by the Corporation on the date(s) the Escrow Fund is
distributed pursuant to Section 4. The Escrow Agent shall have the right to
cause any fees due hereunder to be paid out of the interest earned on the Escrow
Account.
6. Termination. This Escrow Agreement shall terminate no later than the
Termination Date, or on such earlier date as the Escrow Agent shall have paid
out a total of at least $6,500,000 in collected funds in accordance with the
provisions of this Escrow Agreement.
7. Resignation and Removal of Escrow Agent. The Escrow Agent may at any
time resign and be discharged of the duties and obligations created by this
Escrow Agreement by giving at least sixty (60) days' written notice to the
Corporation and the Underwriter; the Escrow Agent may be removed at any time
upon sixty (60) days' notice by an instrument purportedly signed by an
authorized person of the Corporation and the Underwriter. Any successor Escrow
Agent shall be appointed and approved by the Corporation and the Underwriter.
Any such successor Escrow Agent shall deliver to the former Escrow Agent a
written instrument, acknowledged by the Corporation and the Underwriter,
accepting such appointment hereunder and thereupon it shall take delivery of the
Escrow Fund to hold and distribute in accordance with the terms hereof. If no
successor Escrow Agent shall have been appointed within thirty (30) days after
the Corporation and the Underwriter are notified of the Escrow Agent's
resignation, the Escrow Agent shall return the Escrow Fund to the Subscribers in
accordance with the procedure set forth in Section 4(c). Upon the delivery of
the Escrow Fund in accordance with this Section 7, the Escrow Agent shall be
discharged from any further duties hereunder.
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8. Binding Effect. This Escrow Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
9. Headings. The headings contained in this Escrow Agreement are
intended for convenience and shall not in any way determine the rights of the
parties to this Escrow Agreement.
10. Waiver. Waiver of any terms or conditions of this Escrow Agreement
by any party shall not be construed as (a) a waiver of a subsequent breach or
failure of the same term or condition, or (b) a waiver of any other term or
condition of this Escrow Agreement.
11. Counterparts. This Escrow Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Escrow Agreement to produce or account for
more than one such counterpart.
12. Modification. This Escrow Agreement constitutes the entire
agreement between the parties as to the escrow of Subscribers' funds, and shall
not be modified except in writing signed and acknowledged by all the parties.
13. Notices. All notices and communications hereunder shall be in
writing and shall be deemed to be duly given on the date delivered by the United
States Mail, registered or certified mail, return receipt requested, postage
prepaid to the address of the Corporation and Underwriter as first above
written, and to the Escrow Agent at P.O. Box 22900, Rochester, New York 14629,
Attn: Lynn M. Carlton, provided, however, that notices may be given by telex,
cable, telecopier, courier service, telephone, personal delivery or otherwise,
effective the date of such communication, provided that notices given by such
means of communications are confirmed by mail as aforesaid, postmarked within
one business day after such other form of communication.
14. Governing Law. This Escrow Agreement shall be construed and
enforced in accordance with the laws of the State of New York. The parties
consent to the personal jurisdiction of all courts of the State of New York, and
agree that such jurisdiction shall be exclusive.
IN WITNESS WHEREOF, the parties have executed and delivered this Escrow
Agreement as of the date and year first above written.
CORPORATION: INTERVEST BANCSHARES CORPORATION
By: ________________________________________
Its: ________________________________________
ESCROW AGENT: MANUFACTURERS AND TRADERS TRUST COMPANY
By: _______________________________________
Its: _______________________________________
UNDERWRITER: SAGE, RUTTY & CO., INC.
By: ______________________________________
Its: ______________________________________
5
<PAGE>
[DRAFT]
TO: Shareholders of Intervest Bank
We have enclosed the Prospectus dated ___________, 1997 of Intervest
Bancshares Corporation (the "Company"). As is indicated on page _____ of the
Prospectus, the Company is offering to issue one share of its Class A Common
Stock, together with warrants for the purchase of two shares of its Class A
Common Stock for every two shares of Common Stock of Intervest Bank surrendered
for exchange.
If you wish to tender shares, please send certificates for the shares
to be tendered, a properly completed and duly executed Letter of Transmittal and
any other documents required by the Letter of Transmittal by registered mail to
the Company as follows:
Intervest Bank
625 Court Street
Clearwater, Florida 34625
Attention: Keith A. Olsen,
President
--------------------------------
The method of delivery of shares, the Letter of Transmittal and all
other required documents, including certificates for shares tendered, is at the
option and risk of the tendering shareholder. If certificates for shares are
sent by mail, registered mail with return receipt requested, properly insured,
is recommended. In all cases, sufficient time should be allowed to ensure timely
delivery.
No fractional shares of the Company will be issued. With respect to any
portion of a shareholder's holdings which are less than two full shares of
Intervest Bank stock, the Company will issue $5.00 plus a warrant to purchase
one share of Class A Common Stock for each remaining share of Intervest Bank
stock.
The tender of shares pursuant to the procedure described above will
constitute an agreement between the tendering stockholder and the Company upon
the terms and subject to the conditions of the Exchange Offer.
All stockholders should consult with their own tax advisor as to the
particular tax consequences of the Exchange Offer to them, including the
applicability and effect of any state, local and foreign tax laws.
If you have any questions, please call ______________________
at______________________.
INTERVEST BANCSHARES CORPORATION
By: _____________________________________
Jerome Dansker, Chairman of the Board
<PAGE>
LETTER OF TRANSMITTAL
---------------------
To Exchange Shares of Common Stock
of
INTERVEST BANK
Pursuant to the Exchange Offer described in the Prospectus
dated _________________
of
INTERVEST BANCSHARES CORPORATION
Please return this Letter of Transmittal and any accompanying documentation by
registered mail to: Intervest Intervest Bank 625 Court Street Clearwater,
Florida 34625 Attention: Keith A. Olsen, President (
813-442-2551).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NUMBER OF SHARES OF COMMON STOCK TENDERED
*----------------------------------------------------------*---------------------------------------------------------*
* Name(s) and Address(es) of Registered Holder(s) * Shares of Common Stock Tendered *
*(Please fill in, if blank, exactly as name(s) * (Attach additional signed list if necessary) *
* appear(s) on stock certificate * *
*----------------------------------------------------------*---------------*-----------------------*-----------------*
* * Certificate * Total Number of * Number of *
* * Number(s)(1) * Shares Represented * Shares *
* * * by Certificate(s) * Tendered(1)*
* * * * *
*----------------------------------------------------------*---------------*-----------------------*-----------------*
* * * * *
*----------------------------------------------------------*---------------*-----------------------*-----------------*
* * * * *
*----------------------------------------------------------*---------------*-----------------------*-----------------*
*(1) Unless otherwise indicated, it will be assumed that all Shares evidenced by *
*the stock certificates delivered to the Purchaser are being tendered. *
*--------------------------------------------------------------------------------------------------------------------*
</TABLE>
The Undersigned hereby tenders to Intervest Bancshares Corporation, a
Delaware corporation (the "Company"), the above described shares of Common Stock
(the "Shares") of Intervest Bank, a Florida bank (the "Bank"), pursuant to the
Company's offer to exchange its securities for all outstanding Shares not owned
by it, upon the terms and subject to the conditions set forth in the Exchange
Offer.
The Undersigned hereby represents and warrants that the Undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby, and that when the same are accepted for payment by the Company,
Company will acquire good and unencumbered title thereto, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claims.
Any obligation of the Undersigned hereunder shall survive the death or
incapacity of the Undersigned, and shall be binding upon the heirs, personal
representatives, successors and assigns of the Undersigned. This tender is
irrevocable, and constitutes a binding agreement between the Undersigned and the
Company.
SIGN HERE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s) of Owner(s)
Dated: ____________________________________________, 1997
(Must be signed by registered holder(s) exactly as name(s) appear(s) on the
stock certificate(s). If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, please set forth full title and see
Instruction 4.)
Name:___________________________________________________________________________
(Please Print)
- --------------------------------------------------------------------------------
Capacity (full title) (See Instruction 5): _____________________________________
Address: _______________________________________________________________________
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number: ________________________________________________
Tax Identification or Social Security No.: _____________________________________
GUARANTEE OF SIGNATURE(S)
-------------------------------------
Authorized Signature
-------------------------------------
Name of Firm
-------------------------------------
Address
Dated: ________________, 1997
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<PAGE>
INSTRUCTIONS
1. Guarantee of Signatures. All signatures on this Letter of
Transmittal must be guaranteed by a bank, broker, dealer, credit union, savings
association or other entity that is a member of a recognized Medallion Program
approved by The Securities Transfer Association, Inc. (an "Eligible
Institution").
2. Delivery of Letter of Transmittal and Shares. This Letter of
Transmittal is to be used for the tender of the Shares. A properly completed and
duly executed Letter of Transmittal and any other documents required by this
Letter of Transmittal including, stock certificates evidencing the Shares
tendered herewith for purchase duly endorsed for transfer to Intervest
Bancshares Corporation (the "Company"), must be received by the Company at the
address set forth on the front page of this Letter of Transmittal by the
Expiration Date.
The method of delivery of Shares, this Letter of Transmittal and all
other required documents is at the option and risk of the tendering stockholder.
If certificates for Shares are sent by mail, registered mail with return receipt
requested, properly insured, is recommended.
3. Partial Tenders. Partial tenders are generally NOT permitted and all
of the Shares of the holder should be tendered. The Company, in its sole
discretion, may accept a tender of less than all of the shares of a holder.
4. Signatures on Letters of Transmittal; Stock Powers and Endorsements.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, the signature(s) must correspond with the name(s) as
written on the face of the stock certificates, without alteration, enlargement
or any change whatsoever.
If any of the Shares tendered hereby are held of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, stock certificates must be
endorsed or accompanied by appropriate stock powers, in either case, signed
exactly as the name(s) of the registered holder(s) appear(s) on the stock
certificates for such Shares. Signature(s) on any such stock powers or stock
certificates must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any stock power or stock certificate
is signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Purchaser of the authority of such person so to act must be
submitted.
5. Stock Transfer Taxes. The Company will pay any stock transfer taxes
with respect to the sale and transfer of any Shares to it pursuant to the Offer.
6. Lost, Destroyed or Stolen Certificates. If any stock certificate
representing Shares has been lost, destroyed or stolen, the stockholder should
promptly notify the Company. The stockholder will be instructed as to the steps
that must be taken in order to replace the stock certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost or destroyed stock certificates have been followed.
7. Acceptance of Tendered Shares. Upon the terms and subject to the
conditions of the Offer, the Company will have accepted for exchange Shares
validly tendered and not withdrawn as, if and when the Company gives oral or
written notice to the Undersigned of its acceptance of the tender of such Shares
pursuant to the Offer.
8. Withdrawal Rights. Tendered Shares may not be withdrawn.
2
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