As filed with the Securities and Exchange Commission on September 24, 1998
Registration No. 333-_______
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INTERVEST BANCSHARES CORPORATION
(Name of Small Business Issuer in Its charter)
Delaware 6060 13-3699013
-------- ---- ----------
(State or Jurisdiction 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
-------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices)
10 Rockefeller Plaza (Suite 1015), New York, New York 10020-1903
----------------------------------------------------------------
(Address of Principal Place of Business)
Lawrence G. Bergman, Vice President
Intervest Bancshares Corporation
10 Rockefeller Plaza (Suite 1015)
New York, New York 10020-1903
---------------------------------------------------------
(Name, Address and Telephone Number of Agent For Service)
-----------------
with copies to:
Thomas E. Willett, Esq.
Harris Beach & Wilcox
130 East Main Street
Rochester, New York 14604
Approximate Date of Proposed Sale to the Public: As soon as practicable.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE(1)
- ----------------------------------------------------------------------------------------------------------------------------------
Title of Each Class of Amount to be Proposed Maximum Proposed Amount of
Securities to be Registered Offering Price Per Maximum Registration
Registered Unit(2)(3) Offering Price Fee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Warrants $0 $0 $0 $0
- ----------------------------------------------------------------------------------------------------------------------------------
Class A Common Stock 122,000 $8.75 $1,067,500 $323.49
- ----------------------------------------------------------------------------------------------------------------------------------
Class B Common Stock 50,000 $10.00 $500,000 151.51
- ----------------------------------------------------------------------------------------------------------------------------------
Total ---- --- $2,600,000 $475.00
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As permitted by Rule 429(a) of the Securities Act, the Prospectus
included herein also relates to: a Registration Statement on Form SB-2
(No. 333-82246) with respect to 675,000 Warrants and 675,000 shares of
Class A Common Stock; a Registration Statement on Form SB-2 (No.
333-3522) with respect to 613,500 Warrants and 613,500 shares of Class
A Common Stock; a Registration Statement on Form SB-2 (No. 333-26583)
with respect to 240,165 Warrants, 240,165 shares of Class A Common
Stock and 150,000 shares of Class B Common Stock; and a Registration
Statement on Form SB-2 (No. 333-33419) related to 965,683 Warrants and
965,683 shares of Class A Common Stock.
(2) No dollar value has been attributed to the Warrants.
1
<PAGE>
(3) Estimated solely for purposes of calculating the Registration Fee. The
shares of Class A Common Stock are issuable upon conversion of the
Warrants and the offering price is based on the closing sale price on
the NASDAQ SmallCap Market on September 14, 1998.
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.
2
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 23, 1998
PROSPECTUS
INTERVEST BANCSHARES CORPORATION
(A Bank Holding Company for Intervest Bank)
The securities offered hereby consist of warrants related to 1,732,683
shares of Class A Common Stock issued by Intervest Bancshares Corporation (the
"Company"), a warrant related to the purchase of 150,000 shares of Class B
Common Stock (collectively the "Warrants") and 2,616,348 shares of Class A
Common Stock, par value $1.00 per share (the "Class A Common Stock") and 200,000
shares of Class B Common Stock, par value $1.00 per share (the "Class B Common
Stock") issuable upon exercise of Warrants. Warrants related to a total of
645,000 shares of Class A Common Stock were issued by the Company in a
registered public offering in 1994. Warrants related to a total of 965,683
shares of Class A Common Stock were issued by the Company in a registered public
offering in 1997. In addition, Warrants related to 883,665 shares of Class A
Common Stock have been issued in private placements by the Company and Warrants
related to an additional 122,000 shares of Class A Common Stock and 50,000
shares of Class B Common Stock are being registered hereunder.
The Company's Warrants are not exercisable unless the Company has a
current prospectus covering the shares issuable upon exercise of the Warrants
and a prospectus covers those shares.
The Class A Common Stock of the Company is listed on the Nasdaq Stock
Market SmallCap Market under the symbol "IBCA".
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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Underwriting
Discounts and Proceeds to
Price to Public Commissions(1) Company(2)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share(2) (3) $0 (3)
- ----------------------------------------------------------------------------------------------------------------------------------
Per Warrant(2)(4) --- $0 ---
- ----------------------------------------------------------------------------------------------------------------------------------
Total(2) $14,545,754.00 $0 $14,545,754.00
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company will not use brokers or dealers in connection with this
offering.
(2) Before deducting expenses estimated at $40,000.
(3) Warrants related to 1,492,365 shares of Class A Common Stock are at an
exercise price of $6.67 per share; Warrants related to 122,000 shares
of Class A Common Stock are at an exercise price of $14.00 per share;
and the remaining Class A Warrants are at an exercise price of $10.00
per share. Warrants related to 150,000 shares of Class B Common Stock
are at an exercise price of $6.67 per share and Warrants related to
50,000 shares of Class B Common Stock are at an exercise price of
$10.00 per share.
(4) The Company has attributed no value to the Warrants.
The date of this Prospectus is ____________, 1998
1
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
and regulations promulgated thereunder, and in accordance therewith, files
reports, and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, and other information can be inspected and copied
at prescribed rates at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can also be obtained at
prescribed rates by writing to the Securities and Exchange Commission's Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a website that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of that site is: "http://www.sec.gov".
This Prospectus constitutes a part of a Registration Statement on Form
SB-2 filed by the Company with the Commission through the Electronic Data
Gathering and Retrieval ("EDGAR") system with respect to the securities offered
hereby. This Prospectus omits certain information contained in the Registration
Statement, certain items of which are contained in exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement including the exhibits
filed as a part thereof, which may be inspected at the principal or regional
offices of the Commission, without charge.
The Company will furnish annual reports to its shareholders which will
contain audited financial statements certified by its independent public
accountants. The Company may distribute unaudited quarterly reports and other
interim reports to its shareholders as it deems appropriate.
The Company will provide without charge to each person to whom a
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all documents referred to above that have been incorporated into this
Prospectus by reference. Written or oral requests for such copies should be
directed to: Mr. Lawrence G. Bergman, Intervest Bancshares Corporation, 10
Rockefeller Plaza, New York, New York 10020; (212) 757-7300.
2
<PAGE>
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.
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 99% 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 real estate loans, commercial 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, 1998, the Company had consolidated assets and deposits
of $177.7 million and $148.8 million, respectively. The Company's stockholders'
equity at June 30, 1998 was $18.5 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..................... 2,576,068 shares of Class A Common
Stock and 200,000 shares of Class B
Common Stock issuable upon exercise of
the Warrants. See "Description of
Securities."
Shares of Class A Common
Stock currently outstanding......... 2,164,715(1)
Shares of Class A Common
Stock outstanding after
Exercise of Class A Warrants...... 4,740,783
Shares of Class B Common
Stock currently outstanding.......... 300,000
Shares of Class B Common
Stock outstanding after
Exercise of Class B Warrants....... 500,000
Class A Common Stock............... The Class A Common Stock is listed on
the Nasdaq Stock Market's SmallCap
Market under the symbol "IBCA." At
June 30, 1998, 2,157,915 shares of
Class A Common Stock were outstanding.
Use of Proceeds......................... The Company intends to apply the net
proceeds of this Offering to the
Company's capital 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."
3
<PAGE>
Investment Considerations............. Prospective investors in the
Debentures 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) 2,576,068 shares of Class A Common Stock issuable upon
exercise of Warrants for Class A Common Stock; and (iii) 200,000 shares
of Class A Common Stock issuable upon conversion of Class B Common
Stock issuable upon exercise of Warrants for Class B Common Stock; and
(iv) 608,696 shares of Class A Common Stock issuable upon conversion of
the Company's Series 5/14/98 Convertible Subordinated Debentures.
4
<PAGE>
<TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share figures)
As of or for the
Six Months Ended Year Ended Year Ended Year Ended Year Ended
June 30, December 31, December 31, December 31, December 31,
----------------------- ------------ ------------ ------------ ------------
1998 1997 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
(unaudited)
Income Statement Summary:
<S> <C> <C> <C> <C> <C> <C>
Interest income ................. $ 6,018 $ 4,304 $ 9,347 $ 6,381 $ 4,190 $ 2,158
Interest expense ................ (3,814) (2,688) (5,894) (3,745) (2,225) (803)
----------- ----------- ----------- ----------- ----------- -----------
Net interest income ............. 2,204 1,616 3,453 2,636 1,965 1,355
Provision for loan losses ....... (230) (184) (352) (250) (233) (124)
----------- ----------- ----------- ----------- ----------- -----------
Net interest income
after provision
for loan losses ............... 1,974 1,432 3,101 2,386 1,732 1,231
Other Income .................... 100 68 136 106 89 112
Other expense ................... (1,036) (940) (1,906) (1,551) (1,415) (1,054)
----------- ----------- ----------- ----------- ----------- -----------
Earnings before
income taxes .................. 1,038 560 1,331 941 406 289
Provision for income
taxes ......................... (405) (213) (487) (383) (136) (108)
----------- ----------- ----------- ----------- ----------- -----------
Net earnings .................... $ 633 $ 347 $ 844 $ 558 $ 270 $ 181
=========== =========== =========== =========== =========== ===========
Per Share Data:
Basic earnings per share ........ $ .26 $ .21 $ .49 $ .34 $ .16 $ .11
Diluted earnings per share ...... .19 .18 .41 .34 .16 .11
Cash dividends .................. -- -- -- -- -- --
Book value (1) .................. 7.53 6.12 7.27 5.91 5.57 5.38
Shares outstanding at
period-end(2) ................. 2,457,915 1,650,000 2,424,415 1,650,000 1,650,000 1,650,000
Period-End Balance Sheet Summary:
Total assets .................... $ 177,697 $ 117,537 $ 150,755 $ 105,196 $ 68,942 $ 40,117
Securities ...................... 60,842 38,296 58,821 34,507 19,630 8,638
Loans (net of unearned
income) ....................... 90,961 70,539 76,825 60,310 37,058 22,754
Allowance for loan losses ....... 1,405 999 1,173 811 593 369
Deposits ........................ 148,842 104,862 131,167 93,447 58,601 30,092
Convertible debentures .......... 7,000 -- -- -- -- --
Stockholders' equity ............ 18,518 10,094 17,620 9,747 9,189 8,884
- ----------------------
</TABLE>
(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.
5
<PAGE>
<TABLE>
<CAPTION>
As of or for the
Six Months Year Year Year Year
Ended Ended Ended Ended Ended
June 30, December 31, December 31, December 31, December 31,
-------------- ----------- ------------ ------------ ------------
1998 1997 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
(unaudited)
Selected Financial Ratios:
<S> <C> <C> <C> <C> <C> <C>
sReturn on average
assets ......................... .77% .61% .68% .67% .51% .61%
Return on average
equity ......................... 7.02% 7.00% 7.53% 5.91% 3.01% 3.02%
Dividends declared to
net earnings ................... -- -- -- -- -- --
Loans (net of unearned
income) to deposits ............ 61.11% 67.27% 58.57% 64.54% 63.24% 75.61%
Net charge-offs to
loans at period-end ............ -- -- (.01%) .05% .02% .03%
Ratio of Allowance for loan
losses to loans
at period-end .................. .015 .014 .015 .013 .016 .016
Average stockholders'
equity to average total
assets ......................... 10.15% 8.43% 8.96% 11.29% 16.89% 20.05%
Ratio of Allowance for Loan losses
to nonperforming loans ......... -- -- -- -- -- 1.05
- ------------------------------
</TABLE>
6
<PAGE>
THE COMPANY AND THE BANK
Intervest Bancshares Corporation
- --------------------------------
The Company, a Delaware corporation organized in 1993, is a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended (the "BHCA"). The Company's principal asset is its ownership interest of
approximately 99.8% 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, 1998, the Company, on a
consolidated basis, had total assets of $177.7 million, net portfolio loans of
$89.6 million, total deposits of $148.8 million, and stockholders' equity of
$18.5 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 which was organized
in December, 1987. The Bank engages in commercial banking from five offices,
four of which are located in Clearwater, Florida and one of which is in South
Pasadena, Florida.
The 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 has a
fourth branch in South Pasadena, Florida at 6750 Gulfport Blvd.
7
<PAGE>
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 Debentures. The prospectus
contains certain forward-looking statements and actual results could differ
materially from those projected in the forward-looking statements as a result of
numerous factors, including those set forth below and elsewhere in the
prospectus.
Management's Broad Discretion Over Proceeds
- -------------------------------------------
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.
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.
8
<PAGE>
As of June 30, 1998, the Company had a loan portfolio of approximately
$89.6 million and the allowance for loan losses was $1,405,000, which
represented 1.57% of the total amount of loans. At June 30, 1998, 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."
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."
9
<PAGE>
Lack of Diversification
- -----------------------
The primary business activity of the Company consists of its ownership
and control of the capital stock of the Bank. As a result, the Company presently
lacks diversification as to business activities and market area, and any event
affecting the Bank will have a direct impact on the Company. See "Business."
Dependence on Key Personnel
- ---------------------------
The Company and the Bank are dependent upon the services of their
principal officers. If the services of any of these persons were to become
unavailable for any reason, the operation of the Company and the Bank might be
adversely affected in a material manner. The Bank presently has 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."
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 approximately 42% 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.
USE OF PROCEEDS
The net proceeds to the Company will depend upon the number of Warrants
actually exercised and cannot be determined at this time. However, assuming all
of the Warrants were to be exercised, the net proceeds to the Company would be
$22.8 million.
The net proceeds of the Offering will become a part of the Company's
capital funds to be used for general corporate purposes, including, without
limitation, the financing of the expansion of the Company's or the 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. On July 10,1998, the Company filed an application
with the Office of the Comptroller of the Currency and the FDIC for a national
bank charter for a de novo bank. The new bank will be a wholly-owned subsidiary
of the Company with a principal office in the City of New York. It is presently
anticipated that approximately $9.0 million will be contributed to the capital
of that new subsidiary. Except for that bank, 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.
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
10
<PAGE>
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
The Company's Class A Common Stock was approved for listing on the
NASDAQ SmallCap Market (Symbol: IBCA) in November of 1997. Prior to then, there
had been no established public trading market for the securities of the Company.
The high and low sales prices for Class A Common Stock during the period from
November 25, 1997, when trading commenced, and December 31, 1997 were $12.25 and
$11.50, respectively. At December 31, 1997, there were approximately 272 holders
of record (and approximately 700 beneficial owners) of the Company's Class A
Common Stock and three holders of record of the Company's Class B Common Stock.
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 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.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 31, 1998, and as adjusted at that date after giving effect to the receipt
of the estimated net proceeds from the exercise of all of the Warrants.
<TABLE>
<CAPTION>
Actual As Adjusted(1)
------ --------------
(Dollars in thousands)
Stockholders' Equity:
<S> <C> <C>
Class A Common Stock, $1.00 par value, 7,500,000 shares authorized,
2,164,715 shares issued
and outstanding(2)..................................................... $ 2,165 $ 4,741
Class B Common Stock, $1.00 par value, 700,000
shares authorized, 300,000 shares issued and outstanding............... 300 500
Additional Paid-in Capital............................................... 13,634 33,638
Retained Earnings........................................................ 2,724 2,724
----- -----
Total Stockholders' Equity................................................ $18,823 $41,603
======= =======
- -------------------------
</TABLE>
(1) Reflects the 2,576,068 shares of Class A Common Stock and 200,000
shares of Class B Common Stock issuable upon exercise of the Warrants.
(2) Does not include shares of Class B Common Stock issuable upon
conversion of Class A Common Stock.
12
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected consolidated 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, 1997, 1996, 1995 and 1994 are derived from the audited consolidated
financial statements of the Company or the Bank, as the case may be. The
selected financial data should be read in conjunction with, and are qualified in
their entirety by, the Consolidated Financial Statements and the Notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein. The data for the six months ended June 30,
1998 and 1997 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 periods are not necessarily
indicative of the results that may be expected for the entire fiscal year.
<TABLE>
<CAPTION>
At or At or
for the for the
At or for the Seven Months Five Months
Six Months Ended At or for the Years Ended Ended Months Ended
June 30, December 31, December 31, May 31,
----------------- -------------------------------------------- ------- -------
1998 1997 1997 1996 1995 1994 1993(1) 1993(2)
---- ---- ---- ---- ---- ---- ------- -------
(unaudited) (Dollars in Thousands, Except Per Share Data)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total assets .............. $ 177,697 $ 117,537 $150,755 $105,196 $ 68,942 $ 40,117 $ 29,071 $ 22,557
Cash and cash equivalents . 19,096 3,836 9,176 6,320 8,551 6,088 5,519 2,569
Net loans ................. 89,556 69,540 75,652 59,499 36,465 22,385 16,224 16,163
Securities ................. 60,842 38,296 58,821 34,507 19,630 8,638 5,231 2,958
Deposits .................. 148,842 104,862 131,167 93,447 58,601 30,092 22,195 20,138
Convertible debentures .... 7,000 -- -- -- -- -- -- --
Retained earnings
(accumulated deficit) ... 2,469 1,339 1,836 992 434 164 (17) (2,050)
Total stockholders' equity 18,518 10,094 17,620 9,747 9,189 8,884 5,828 1,275
Income Statement Data:
Interest income ........... $ 6,018 $ 4,304 $ 9,347 $ 6,381 $ 4,190 $ 2,158 $ 1,007 $ 741
Interest expense .......... (3,814) (2,688) (5,894) (3,745) (2,225) (803) (345) (335)
--------- --------- --------- --------- --------- --------- --------- ---------
Net interest income ....... 2,204 1,616 3,453 2,636 1,965 1,355 662 406
Provision for loan losses . (230) (184) (352) (250) (233) (124) -- (90)
--------- --------- --------- --------- --------- --------- --------- ---------
Net interest income after
provision for loan losses 1,974 1,432 3,101 2,386 1,732 1,231 662 316
Other income .............. 100 68 136 106 89 112 59 102
Other expense ............. (1,036) (940) (1,906) (1,551) (1,415) (1,054) (738) (401)
--------- --------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before
income taxes ........... 1,038 560 1,331 941 406 289 (17) 17
Provision for income taxes (405) (213) (487) (383) (136) (108) -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) ....... $ 633 $ 347 $ 844 $ 558 $ 270 $ 181 $ (17) $ 17
========= ========= ========= ========= ========= ========= ========= =========
Per Share Data:
Basic earnings (loss) ....... $ .26 $ .21 $ .49 $ .34 $ .16 $ .11 $ (.01) $ .05
Diluted earnings (loss) ..... $ .19 $ .18 $ .41 $ .34 $ .16 $ .11 $ (.01) $ .05
Book value at period end .... $ 7.53 $ 6.12 $ 7.27 $ 5.91 $ 5.57 $ 5.38 $ 3.53 $ 3.64
</TABLE>
- ---------------------
(1) Includes the consolidated financial information of the Company from
June 1, 1993.
(2) Financial information of the Bank only
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
General
The Company's principal asset is its ownership of a controlling
interest in the Bank. Accordingly, the Company's results of operations are
primarily dependent upon the results of operations of the Bank. The Bank
conducts a commercial banking business which consists of attracting deposits
from the general public and applying those funds to the origination of
commercial, consumer and real estate loans (including commercial loans
collateralized by real estate). The Bank's profitability depends primarily on
net interest income, which is the difference between interest income generated
from interest-earning assets (i.e., loans and investments) less the interest
expense incurred on interest-bearing liabilities (i.e., customer deposits and
borrowed funds). Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities, and the interest-rate
earned and paid on these balances. Net interest income is dependent upon the
Bank's interest-rate spread, which is the difference between the average yield
earned on its interest-earning assets and the average rate paid on its
interest-bearing liabilities. When interest-earning assets approximate or exceed
interest-bearing liabilities, any positive interest rate spread will generate
net interest income. The interest rate spread is impacted by interest rates,
deposit flows, and loan demand. Additionally, and to a lesser extent, the Bank's
profitability is affected by such factors as the level of noninterest income and
expenses, the provision for credit losses, and the effective tax rate.
Noninterest income consists primarily of loan and other fees. Noninterest
expense consists of compensation and benefits, occupancy related expenses,
deposit insurance premiums paid to the FDIC, and other operating expenses.
Since its acquisition of control of the Bank in 1993, the Company has
sought to strengthen the operation of the Bank, to improve asset quality, to
increase the loan portfolio and to decrease nonperforming loans. During 1997,
the Company completed a public offering of 747,500 Units for gross proceeds of
$7,475,000 (the "1997 Offering"). Each Unit consisted of one share of the
Company's Class A Common Stock and one warrant to purchase an additional share
of Class A Common Stock. In connection with the 1997 Offering, the Company
issued warrants related to 145,850 shares of Class A Common Stock to the
Underwriter and participating broker/dealers. The Company has reserved a total
of 2,494,348 shares of Class A stock for issuance upon exercise of the Company's
warrants to purchase shares of Class A Common Stock. In 1998, the Company
completed a sale of $7.0 million principal amount of its Convertible
Subordinated Debentures.
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.
The Bank's present offices are located in or near Clearwater, Florida.
Clearwater is located in Pinellas County, which is the most populous county in
the Tampa Bay area of Florida. It also has a branch office in South Pasadena,
which is also in Pinellas County. The "Tampa Bay" area is located on the West
Coast of Florida, midway up the Florida peninsula. The major cities in the area
are Tampa (Hillsborough County) and St. Petersburg and Clearwater (Pinellas
County).
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
14
<PAGE>
is the most densely populated county in Florida, with more than 2,800 people per
square mile. The average age of the population for the region is estimated at 45
years (as compared to 38 years for the State of Florida), and this reflects the
history of Pinellas County as a retirement area. Recent years have shown a
slight drop in average age due to an increase in office and manufacturing
employment opportunities.
The economy of Pinellas County has historically been tourist and
retirement oriented. Pinellas County has recently attracted a larger share of
new business, particularly in the high technology industries. Total per capita
personal income in Pinellas County increased from approximately $15,000 in 1984
to approximately $22,700 in 1992. Employment in the region reflects a
broad-based economy, with an emphasis on the retail trade and service
industries.
The housing market in the region remains stable in the view of
management, although housing starts have slowed from the high levels experienced
during the 1970's.
Clearwater is the county seat of Pinellas County and its second largest
city. It encompasses approximately 32 square miles and has a population of
approximately 100,000.
Management's discussion and analysis of earnings and related financial
data are presented herein to assist investors in understanding the financial
condition and results of operations of the Company for the six months ended June
30, 1998 and 1997, and years ended December 31, 1997 and 1996. This discussion
should be read in conjunction with the consolidated financial statements and
related footnotes presented elsewhere herein.
Results Of Operations
Overview of the First Half of 1998
- ----------------------------------
Intervest Bancshares Corporation and Subsidiary (the "Company") earned
$325,000 for the second quarter of 1998, an increase of 74% from $187,000 in the
second quarter of 1997. On a diluted per share basis, net income was $0.10,
compared to $0.09 in the second quarter of 1997. For the first half of 1998, net
income nearly doubled to $633,000 or $0.19 per diluted share, from $347,000, or
$0.18 per diluted share, for the same period of 1997. (The computations of net
income per share for the 1998 periods included a higher amount of common shares,
due to the public offering of Class A common stock in November 1997 and an
increase in common stock warrants outstanding.) The increase in net income for
both periods of 1998 over the corresponding periods of 1997 was primarily due to
higher net interest and dividend income resulting from growth in net
interest-earning assets.
15
<PAGE>
The following table shows selected ratios at the end of or for the
period indicated:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
For the Quarter Ended Six Months Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Stockholders' equity to total assets 10.42% 8.59% 10.42% 8.59%
Average stockholders' equity to total assets 10.28% 8.51% 10.15% 8.43%
Return on average assets 0.77% 0.64% 0.77% 0.61%
Return on average equity 7.12% 7.48% 7.02% 7.00%
Average interest-earning assets to
interest-bearing liabilities 1.11x 1.08x 1.11x 1.08x
Net interest margin 2.83% 3.03% 2.82% 2.97%
Noninterest expense to average assets 1.25% 1.65% 1.26% 1.64%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On June 26, the Company completed the sale of $7,000,000 of Convertible
Subordinated Debentures (the "Debentures"). The Debentures are due July 1, 2008
and are convertible at the option of the holders at any time prior to April 1,
2008 into shares of Class A common stock at an initial conversion price of
$11.50 per share. The conversion price per share increases over the life of the
Debentures as noted in note 3 to the consolidated financial statements for the
six months ended June 30, 1998. The Company can also redeem the Debentures plus
accrued interest at any time prior to maturity at various redemption prices.
Interest on the debentures accrues and compounds quarterly at 8%, with all
accrued interest payable at maturity.
In July, an application for a national bank charter was filed with the
OCC and FDIC by Intervest National Bank, In Organization. The new bank will be a
wholly owned subsidiary of the Company, with a principal office in the City of
New York. The new bank will have initial capital of $9,000,000, which will be
provided by the Company.
Comparison of Financial Condition at June 30, 1998 and December 31, 1997
- ------------------------------------------------------------------------
General. Total assets at June 30, 1998 increased to $177,697,000, from
$150,755,000 at December 31, 1997. The increase was primarily due to a higher
level of loans receivable and cash and cash equivalents. Total liabilities
increased from $133,135,000 at December 31, 1997, to $159,179,000 at June 30,
1998, reflecting increases in deposit liabilities and borrowed funds.
16
<PAGE>
The Company's balance sheet was comprised of the following:
<TABLE>
At June 30, 1998 At December 31, 1997
---------------- --------------------
Carrying % of Carrying % of
($ in thousands) Value Total Assets Value Total Assets
- ---------------- ----- ------------ ----- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 19,096 10.7% $ 9,176 6.1%
Securities held to maturity, net 60,842 34.2 58,821 39.1
Loans receivable, net 89,556 50.5 75,652 50.1
All other assets 8,203 4.6 7,106 4.7
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $177,697 100.0% $150,755 100.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Deposits $148,842 83.8% $131,167 87.0%
Convertible debentures 7,000 3.9 -- --
All other liabilities 3,337 1.9 1,968 1.3
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 159,179 89.6 133,135 88.3
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 18,518 10.4 17,620 11.7
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $177,697 100.0% $150,755 100.0%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Cash and Cash Equivalents. Cash and cash equivalents increased
primarily due to the net proceeds from the sale of the Debentures.
Loans Receivable. Loans receivable increased due to new originations of
commercial real estate loans, partially offset by principal repayments on the
portfolio. At June 30, 1998 and December 31, 1997, the Company did not have any
loans on a nonaccrual status or classified as impaired.
Allowance for Loan Losses. The Company monitors its loan portfolio to
determine the appropriate level of the allowance for loan losses based on
various factors that are discussed on pages 21 and 22 of the Company's 1997
Annual Report on Form 10-KSB. At June 30, 1998, the allowance amounted to
$1,405,000, compared to $1,173,000 at year-end 1997. The increase reflected the
growth in the loan portfolio.
Deposits. Deposit liabilities increased due to net deposit inflows and
growth in deposit accounts. At June 30, 1998, time deposit accounts totaled
$101,496,000 and demand deposits and savings and checking accounts aggregated
$47,346,000. This compared to deposits of $93,378,000 and $37,789,000,
respectively, at December 31, 1997. Time deposits represented 68% of total
deposits at June 30, 1998, compared to 71% at year-end 1997.
Stockholders' Equity and Regulatory Capital. Stockholders' equity
increased primarily as a result of net income of $633,000 for the first half of
1998 and $235,000 of proceeds from the issuance of 33,500 shares of Class A
common stock upon the exercise of stock warrants. Intervest Bank's Tier 1
leverage capital ratio was 6.01% at June 30, 1998, compared to 6.53% at December
31, 1997. The Bank's total risk-based capital ratio amounted to 10.45% at June
30, 1998, compared to 11.46% at year-end 1997. The decline in these ratios
reflected the growth in the bank's assets.
Comparison of Results of Operations for the Quarters Ended June 30, 1998 and
1997
- --------------------------------------------------------------------------------
General. Net income for the second quarter of 1998 increased to
$325,000, or $0.10 per diluted share, from $187,000, or $0.09 per diluted share,
for the same quarter of 1997. Higher net income was due to a $294,000 increase
in net interest and dividend income, partially offset by increases of $84,000
17
<PAGE>
in the provision for income taxes, $38,000 in the provision for loan losses and
$48,000 in noninterest expenses.
Net Interest and Dividend Income. Net interest and dividend income is
the Company's largest source of earnings and is influenced primarily by the
amount, distribution and repricing characteristics of its interest-earning
assets and interest-bearing liabilities as well as by the relative levels and
movements of interest rates. The table below sets forth information on average
assets, liabilities and stockholders' equity; yields earned on interest-earning
assets; and rates paid on interest-bearing liabilities for the periods
indicated. The yields and rates shown are based on a computation of annualized
income/expense for each period divided by average interest-earning
assets/interest-bearing liabilities during each period. Certain yields and rates
shown are adjusted for related fee income or expense. Average balances are
derived from daily balances. Net interest margin is computed by dividing
annualized net interest and dividend income by the average of total
interest-earning assets during each period.
<TABLE>
<CAPTION>
For the Quarter Ended
------------------------------------------------------------------------
June 30, 1998 June 30, 1997
------------- -------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- ---------------- ------- --------- ---- ------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Assets
Interest-earning assets:
Loans $ 86,271 $ 1,991 9.23% $67,986 $ 1,569 9.23%
Securities 65,870 1,009 6.13 40,665 623 6.12
Other interest-earning assets 8,241 109 5.30 2,121 27 5.07
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 160,382 $ 3,109 7.75% 110,772 $ 2,219 8.01%
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 8,591 5,688
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $168,973 $116,460
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Demand, money market and NOW
deposits $ 26,778 $ 310 4.63% $17,929 $ 203 4.53%
Savings deposits 15,824 192 4.85 8,783 107 4.87
Time deposits 101,509 1,456 5.74 75,517 1,068 5.66
--------------------------------------------------------------------------------------------
Total deposits accounts 144,111 1,958 5.44 102,229 1,378 5.39
--------------------------------------------------------------------------------------------
Convertible debentures and other
borrowed funds 801 17 8.59 9 1 6.15
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 144,912 $ 1,975 5.45% 102,238 $ 1,379 5.39%
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities 5,798 4,224
Stockholders' equity 18,263 9,998
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $168,973 $116,460
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $ 1,134 2.30% $ 840 2.62%
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 15,470 2.83% $ 8,534 3.03%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.11x 1.08x
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
Net interest and dividend income increased to $1,134,000 in the second
quarter of 1998, from $840,000 in the 1997 second quarter. The increase was due
to a higher level of net interest-earning assets, partially offset by a decline
in the net interest margin. The increase in net interest-earning assets was
largely due to the investment of the proceeds from the issuance of common stock
in November 1997. The decline in the net interest margin was a function of a
lower interest rate spread resulting from a decline in the yield on earning
assets and an increase in the cost of funds.
The yield on earning assets declined by 26 basis points primarily due
to the investment of a portion of the proceeds from the public stock offering in
November 1997, as well as deposit inflow, into securities and other short-term
investments, which have lower yields than loans. The cost of funds increased
slightly by 6 basis points due to higher rates paid on deposits.
Provision for Loan Losses. The provision for loan losses is based on
management's ongoing assessment of the adequacy of the allowance for loan
losses. The provision amounted to $130,000 in the second quarter of 1998,
compared to $92,000 in the second quarter of 1997, reflecting a higher level of
outstanding loans.
Noninterest Expenses. Total noninterest expenses increased to $527,000
in the second quarter of 1998, from $479,000 in the second quarter of 1997. The
increase over last year's period was primarily due to an increase in salaries
and employee benefits, resulting primarily from the Company's growth and
increased staff.
Provision for Income Taxes. The provision for income taxes increased to
$203,000 in the second quarter of 1998, from $119,000 in the second quarter of
1997, due to higher pre-tax earnings. The Company's effective tax rate
(inclusive of state and local taxes) amounted 38.4% in the second quarter of
1998, compared to 38.9% in the same quarter of 1997.
Comparison of Results of Operations for the Six Months Ended June 30, 1998 and
1997
- --------------------------------------------------------------------------------
General. Net income for the six months ended June 30, 1998 increased to
$633,000, or $0.19 per diluted share, from $347,000, or $0.18 per diluted share,
for the same half of 1997. Higher net income was due to a $588,000 increase in
net interest and dividend income, partially offset by increases of $192,000 in
the provision for income taxes, $46,000 in the provision for loan losses and
$96,000 in noninterest expenses. The reasons for the changes in the provision
for loan losses and income taxes as well as noninterest expenses are essentially
the same as those discussed in the comparison of the quarters ended.
Net Interest and Dividend Income. The table that follows sets forth
information similar to the table on page 18 for the six-month periods.
19
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
For the Six Months Ended
---------------------------------------------------------------------------------
June 30, 1998 June 30, 1997
-------------------------------------- -------------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- -----------------------------------------------------------------------------------------------------------------------------------
Assets
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans $ 82,667 $3,801 9.19% $ 65,507 $3,003 9.17%
Securities 66,622 2,038 6.12 40,338 1,232 6.11
Other interest-earning assets 7,238 179 4.96 2,959 69 4.70
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 156,527 $6,018 7.69% 108,804 $4,304 7.91%
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 7,661 5,591
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $164,188 $114,395
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Demand, money market and NOW deposits $ 24,814 $ 569 4.59% $ 17,202 $ 379 4.41%
Savings deposits 15,128 366 4.84 7,635 185 4.85
Time deposits 100,216 2,861 5.71 75,563 2,123 5.62
---------------------------------------------------------------------------------
Total deposits accounts 140,158 3,796 5.42 100,400 2,687 5.35
---------------------------------------------------------------------------------
Convertible debentures and other
borrowed funds 426 18 8.44 27 1 5.76
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 140,584 $3,814 5.43% 100,427 $2,688 5.35%
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities 5,574 4,055
Stockholders' equity 18,030 9,913
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $164,188 $114,395
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $2,204 2.26% $1,616 2.56%
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 15,943 2.82% $ 8,377 2.97%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.11x 1.08x
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net interest and dividend income increased to $2,204,000 in the first
half of 1998, from $1,616,000 in the 1997 first half. The increase was due to a
higher level of net interest-earning assets, partially offset by a decline in
the net interest margin. The reasons for these changes are essentially the same
as those discussed in the comparison of the quarters ended June 30, 1998 and
1997.
Comparison of Year Ended December 31, 1997 and 1996.
General
- -------
Net earnings for the year ended December 31, 1997 were $844,000
compared to $558,000 for the year ended December 31, 1996. This increase in the
20
<PAGE>
Company's net earnings was primarily due to an increase in net interest income
partially offset by an increase in noninterest expenses and the provision for
income taxes.
Interest Income and Expense
- ---------------------------
Interest income increased by $2,966,000 from $6,381,000 for the year
ended December 31, 1996 to $9,347,000 for the year ended December 31, 1997.
Interest income on loans increased $1,791,000 due to an increase in the average
loan portfolio balance from $49.3 million for the year ended December 31, 1996
to $68.7 million for 1997, partially offset by a decrease in the weighted
average yield of 5 basis points. Interest on securities increased $1,118,000 due
to an increase in the average securities balance from $25.6 million in 1996 to
$42.8 million in 1997 and an increase in the average yield from 5.92% in 1996 to
6.15% in 1997. Interest on other interest-earning assets increased $57,000
primarily due to an increase from $4.7 million in average other interest-earning
assets in 1996 to $6.9 million in 1997.
Interest expense increased to $5,894,000 for the year ended December
31, 1997 from $3,745,000 for the year ended December 31, 1996. Interest expense
on deposit accounts increased primarily because of a $39.0 million increase in
the average balance, in addition to an increase of 4 basis points in the average
yield paid on deposits for the year ended December 31, 1997 compared to 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 $250,000 for the year ended December 31, 1996 to
$352,000 for the year ended December 31, 1997. At December 31, 1997, there were
no non-performing loans. Management believes that the allowance for loan loss of
$1,173,000 is adequate at December 31, 1997.
Other Income
- ------------
Total other income increased $30,000 for the year ended December 31,
1997 compared to 1996.
Other Expenses
- --------------
Total other expenses increased $355,000 for the year ended December 31,
1997 when compared to 1996, primarily due to an increase in employee
compensation and benefits and occupancy and equipment expenses. The increase is
primarily due to additional costs for the new branches and the overall growth of
the Company.
Provision for Income Taxes
- --------------------------
In 1997 the provision for income taxes is $487,000, an effective income
tax rate of 36.6%, as compared to $383,000 and 40.7% respectively, in 1996. In
1996, a greater portion of the consolidated earnings was generated by the
holding company which has a higher state income tax rate.
21
<PAGE>
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 $3,453,000 for the Company for the year ended
December 31, 1997 compared with $2,636,000 for the year ended December 31, 1996.
This improvement in net interest income is primarily a result of a higher level
of net interest-earning assets.
22
<PAGE>
The following tables set forth, for the periods indicated, information
regarding (i) the total dollar amount of interest and dividend income of the
Company from interest-earning assets and the resultant average yields; (ii) the
total dollar amount of interest expense on interest-bearing liabilities and the
resultant average costs; (iii) net interest/dividend income; (iv) interest rate
spread; (v) net interest margin. Average balances are based on average daily
balances.
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------------------------------------
1998 1997
-------------------------------- --------------------------------
(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) ....................... $ 82,667 $ 3,801 9.19% $ 65,507 $ 3,003 9.17%
Securities ..................... 66,622 2,038 6.12 40,338 1,232 6.11
Other interest-earning assets(2) 7,238 179 4.96 2,959 69 4.70
------- -------- ---- ------- -------- ----
Total interest-earning
assets .............. 156,527 $ 6,018 7.69% 108,804 $ 4,304 7.91%
------- -------- ---- -------- ----
Noninterest-earning assets ....... 7,661 5,591
------- -------
Total assets ............ $164,188 $114,395
======== ========
Interest-bearing liabilities:
Demand, money market and
NOW deposits ................ $ 24,814 $ 569 4.59% $ 17,202 $ 379 4.41%
Savings ....................... 15,128 366 4.84 7,635 185 4.85
Certificates of deposit ....... 100,216 2,861 5.71 75,563 2,123 5.62
------- -------- ---- ------- -------- ----
Total Deposit Accounts ........ 140,158 3,796 5.42 100,400 2,687 5.35
Convertible debentures and
other borrowed funds ....... 426 18 8.44 27 1 5.76
------- -------- ---- ------- -------- ----
Total interest-bearing
liabilities .......... 140,584 $ 3,814 5.43% 100,427 $ 2,688 5.35%
-------- ---- --------
Noninterest-bearing liabilities .. 5,574 4,055
Stockholders' equity ............. 18,030 9,913
------ -----
Total liabilities and
stockholders' equity . $164,188 $114,395
======== ========
Net interest/dividend income ..... $ 2,204 $ 1,616
======== ========
Interest rate spread(3) .......... 2.26% 2.56%
==== ====
Net interest margin(4) ........... 2.82% 2.97%
==== ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities ........... 1.11 1.08
==== ====
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1997 1996
--------------------------------- -------------------------------
(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) ....................... $ 68,711 $ 6,415 9.34% $ 49,266 $ 4,624 9.39%
Securities ..................... 42,763 2,632 6.15% 25,577 1,514 5.92%
Other interest-earning assets(2) 6,913 300 4.34% 4,730 243 5.14%
-------- -------- ---- -------- -------- ----
Total interest-earning
assets .............. 118,387 $ 9,347 7.90% 79,573 $ 6,381 8.02%
-------- ---- -------- ----
Noninterest-earning assets ....... 6,619 4,089
----- -----
Total assets ............ $125,006 $ 83,662
======== ========
Interest-bearing liabilities:
Demand, money market and
NOW deposits ................ $ 18,087 $ 816 4.51% $ 8,432 $ 310 3.68%
Savings ....................... 9,128 446 4.89% 1,470 62 4.22%
Certificates of deposit ....... 81,167 4,632 5.71% 59,437 3,371 5.67%
Other ......................... -- -- -- 34 2 5.88%
------ ----- ---- ------ ----- ----
Total interest-bearing
liabilities .......... 108,382 $ 5,894 5.44% 69,373 $ 3,745 5.40%
-------- ---- -------- ----
Noninterest-bearing liabilities .. 5,413 4,840
Stockholders' equity ............. 11,211 9,449
------ -----
Total liabilities and
stockholders' equity . $125,006 $ 83,662
======== ========
Net interest/dividend income ..... $ 3,453 $ 2,636
======== ========
Interest rate spread(3) .......... 2.46% 2.62%
==== ====
Net interest margin(4) ........... 2.92% 3.31%
==== ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities ........... 1.09 1.15
==== ====
- ------------------------------------
</TABLE>
24
<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 annualized net interest income divided by
average interest-earning assets.
Rate/Volume Analysis
- --------------------
The following tables set 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,
1998 vs. 1997
---------------------------
Increase (Decrease) Due to:
---------------------------
Rate/
Rate Volume Volume Total
---- ------ ------ -----
Interest-earning assets: ............... (Dollars in thousands)
Loans ............................... $ 10 $ 787 $ 1 $ 798
Securities .......................... 9 788 9 806
Other interest-earning assets ....... 7 80 23 110
------ ------ ------ ------
Total ................................ 26 1,655 33 1,714
------ ------ ------ ------
Interest-bearing liabilities:
Demand, Money Market and NOW Deposits 16 167 7 190
Savings ............................. (1) 182 -- 181
Certificates of Deposit ............. 34 693 11 738
------ ------ ------ ------
Total Deposits ...................... 49 1,042 18 1,109
Convertible debentures and
other borrowed funds ............. -- -- 17 17
------ ------ ------ ------
Total ................................ 49 1,042 35 1,126
------ ------ ------ ------
Net change in net interest income
before provision for credit losses .. $ (23) $ 613 $ (2) $ 588
====== ====== ====== ======
25
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1997 vs. 1996
---------------------------
Increase (Decrease) Due to:
---------------------------
Rate/
Rate Volume Volume Total
---- ------ ------ -----
<S> <C> <C> <C> <C>
Interest-earning assets: ............... (Dollars in thousands)
Loans ............................... $ (25) $ 1,826 $ (10) $ 1,791
Securities .......................... 59 1,020 39 1,118
Other interest-earning assets ....... (38) 112 (17) 57
------- ------- ------- -------
Total ................................ (4) 2,958 12 2,966
------- ------- ------- -------
Interest-bearing liabilities:
Demand, Money Market and NOW Deposits 70 356 80 506
Savings ............................. 10 323 51 384
Certificates of Deposit ............. 24 1,228 9 1,261
Other Borrowings .................... (2) (2) 2 (2)
------- ------- ------- -------
Total ................................ 102 1,905 142 2,149
------- ------- ------- -------
Net change in net interest income
before provision for credit losses .. $ (106) $ 1,053 $ (130) $ 817
======= ======= ======= =======
</TABLE>
Income Taxes
- ------------
At June 30, 1998, the Company had net operating loss carryforwards for federal
income tax purposes available to offset future federal taxable income. They were
in the aggregate amount of $479,000, with specified portions expiring in each
year from 2006 through 2008. Use of the carryforwards is subject to an annual
limitation of $332,000.
At the time of its incorporation, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires it to take into account changes in tax rates when valuing
the deferred income tax amounts carried on its balance sheets.
Asset/Liability Management
- --------------------------
A principal objective of the Bank's asset/liability management strategy is to
minimize the Bank's exposure to changes in interest rates by matching the
maturity and repricing horizons of interest-earning assets and interest-bearing
liabilities. This strategy is overseen in part through the direction of the
Asset and Liability Committee of the Bank (the "ALCO Committee") which
establishes policies and monitors results to control interest rate sensitivity.
As a part of the Bank's interest rate risk management policy, the ALCO
Committee examines the extent to which its assets and liabilities are "interest
rate-sensitive" and monitors the Bank's interest rate sensitivity "gap." An
asset or liability is considered to be interest rate-sensitive if it will
reprice or mature within the time period analyzed, usually one year or less. The
interest rate-sensitivity gap is the difference between interest-earning assets
and interest-bearing liabilities scheduled to mature or reprice within such time
period. A gap is considered positive when the amount of interest rate-sensitive
assets exceeds the amount of interest rate-sensitive liabilities. A gap is
considered negative when the amount of interest rate-sensitive liabilities
exceeds interest rate-sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income, while
a positive gap would tend to result in an increase in net interest income.
26
<PAGE>
During a period of falling interest rates, a negative gap would tend to result
in an increase in net interest income, while a positive gap would tend to
adversely affect net interest income. If the repricing of the Bank's assets and
liabilities were equally flexible and moved concurrently, the impact of any
increase or decrease in interest rates on net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO Committee also evaluates how the repayment of
particular assets and liabilities is impacted by changes in interest rates.
Income associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in general market rates. In addition, certain
assets, such as adjustable rate mortgage loans, have features (generally
referred to as "interest rate caps") which limit changes in interest rates on a
short-term basis and over the life of the asset. In the event of a change in
interest rates, prepayment and early withdrawal levels also could deviate
significantly from those assumed in calculating the interest-rate gap. The
ability of many borrowers to service their debts also may decrease in the event
of an interest-rate increase.
Management's strategy is to maintain a balanced interest rate risk position to
protect its net interest margin from market fluctuations. To this end, the ALCO
Committee reviews, on a monthly basis, the maturity and repricing of assets and
liabilities. The ALCO Committee has adopted a goal of achieving and maintaining
a six-month ratio between rate sensitive assets to rate sensitive liabilities of
.80 to 1.20.
Principal among the Bank's asset/liability management strategies has been the
emphasis on managing its interest-rate sensitive liabilities in a manner
designed to attempt to reduce the Bank's exposure during periods of fluctuating
interest rates. Management believes that the type and amount of the Bank's
interest rate-sensitive liabilities may reduce the potential impact that a rise
in interest rates might have on the Bank's net interest income. Additionally,
the Bank maintains a "floor," or minimum rate, on many of its floating 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.
27
<PAGE>
The following table sets forth certain information relating to the Company's
interest-earning assets and interest-bearing liabilities at June 30, 1998 that
are estimated to mature or are scheduled to reprice within the period shown.
<TABLE>
<CAPTION>
More than More than
One Year and Five Years and
0-3 4-12 Less than Less than
Months Months Five Years Ten Years Total
------ ------ ---------- --------- -----
(Dollars in thousands)
Mortgage and commercial loans (1):
<S> <C> <C> <C> <C> <C>
Commercial loans $ 2,309 $ 390 $ 236 $ 200 $ 3,135
Commercial real estate loans 9,916 14,125 39,725 21,614 85,380
Residential mortgage loans 324 257 324 1,937 2,842
Consumer loans 15 8 59 25 107
-------- -------- -------- -------- --------
Total loans 12,564 14,780 40,344 23,776 91,464
Federal funds sold 6,021 -- -- -- 6,021
Interest-bearing deposits with banks -- 99 -- 100 199
Securities (2) 14,697 7,285 25,506 24,782 72,270
-------- -------- -------- -------- --------
Total rate-sensitive assets $ 33,282 $ 22,164 $ 65,850 $ 48,658 $169,954
======== ======== ======== ======== ========
Deposit accounts (3):
Money market deposits $ 21,944 $---- $---- $---- $ 21,944
NOW deposits 6,547 -- -- -- 6,547
Savings deposits 15,957 -- -- -- 15,957
Certificates of deposit 19,687 31,977 38,748 11,084 101,496
-------- -------- -------- -------- --------
Total Deposits 64,135 31,977 38,748 11,084 145,944
Convertible debentures -- -- -- 7,000 7,000
-------- -------- -------- -------- --------
Total rate-sensitive liabilities 64,135 31,977 38,748 18,084 152,944
-------- -------- -------- -------- --------
GAP (repricing differences) $(30,853) $ (9,813) $ 27,102 $ 30,574 $ 17,010
======== ======== ======== ======== ========
Cumulative GAP $(30,853) $(40,666) $(13,564) $ 17,010
======== ======== ======== ========
Cumulative GAP/total assets (17.4%) (22.9%) (7.6%) 9.5%
======== ======== ======== ========
- -------------------------------
</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) Securities are scheduled through their maturity dates. Securities
include Federal Reserve Bank stock and short-term investments in
securities and money market funds.
(3) Money market, NOW and savings deposits are regarded as ready accessible
withdrawable accounts. All other time deposits are scheduled through
the maturity dates.
28
<PAGE>
Financial Condition
Lending Activities
- ------------------
A significant source of income for the Company is the interest earned
on loans. At June 30, 1998, the Company's total assets were $177.7 million and
its net loans were $89.6 million or 50.4% of total assets as compared to $150.8
million of total assets at December 31, 1997, and net loans of $75.6 million
representing 50.1% of the total assets at December 31, 1997.
Lending activities are conducted pursuant to a written policy which has
been adopted by the Bank. Each loan officer has defined lending authority beyond
which loans, depending upon their type and size, must be reviewed and approved
by a loan committee comprised of certain directors of the Bank.
LOAN PORTFOLIO ANALYSIS
The following table sets forth information concerning the Company's
loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
At June 30, 1998 At December 31, 1997 At December 31, 1996
---------------- -------------------- --------------------
% of % of % of
Total Amount Amount Total Amount Total
----- ------ ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial loans $ 3,135 3.4% $ 3,281 4.3% $ 3,514 5.8%
Commercial real estate loans 85,380 93.4 70,533 91.3 54,198 89.4
Residential mortgage loans 2,842 3.1 3,150 4.1 2,784 4.6
Consumer loans 107 .1 262 .3 157 .2
------ ---- ------ ---- ------ ----
Total loans 91,464 100.0% 77,226 100.0% 60,653 100.0%
===== ===== =====
Less:
Deferred loan fees (503) (401) (343)
Allowance for loan losses (1,405) (1,173) (811)
------ ------ ----
Loans, net $ 89,556 $ 75,652 $ 59,499
======== ======== =========
</TABLE>
29
<PAGE>
The following table reflects the contractual principal repayments by
period of the Company's loan portfolio at June 30, 1998.
Residential Commercial
Years Ended Commercial Mortgage Real Estate Consumer
December 31, Loans Loans Loans Loans Total
------------ ----- ----- ----- ----- -----
(Dollars in thousands)
1999 $2,699 $581 $21,840 $23 $25,143
2000 236 262 29,693 16 30,207
2001-2002 136 443 11,674 43 12,296
2003-2004 64 564 10,461 25 11,114
2005-2010 ---- 992 11,712 ---- 12,704
-------- --- ------ ------ ------
Total $3,135 $2,842 $85,380 $107 $91,464
====== ====== ======= ==== =======
Of the $66.3 million of loans due after 1999, 30% of such loans have
fixed interest rates and 70% have adjustable interest rates.
The following table sets forth total loans originated and repaid during
the periods indicated.
Six Months Year Ended Year Ended
Ended June 30, December 31, December 31,
1998 1997 1997 1996
---- ---- ---- ----
(Dollars in thousands)
Originations:
Commercial loans $ 1,115 $ 373 $ 502 $ 497
Real estate loans 18,738 12,935 23,180 30,802
Consumer loans 70 40 162 145
-------- -------- -------- --------
Total loans originated 19,923 13,348 23,844 31,444
Principal reductions (6,439) (3,088) (7,271) (8,082)
-------- -------- -------- --------
Increase in total loans $ 13,484 $ 10,260 $ 16,573 $ 23,362
======== ======== ======== ========
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, 1998, approximately 93.4%, and as of December 31,
1997, approximately 91.3% 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. There were no
non-performing assets at June 30, 1998 or December 31, 1997. At 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
30
<PAGE>
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."
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. Concentrations of loans in the
following categories constituted the total loan portfolio as of the dates
indicated:
At June 30, At December 31, At December 31,
----------- --------------- ---------------
1998 1997 1996
---- ---- ----
Commercial loans 3.4% 4.3% 5.8%
Real estate mortgage loans 93.4% 91.3% 89.4%
Consumer and other loans 3.2% 4.4% 4.8%
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
established a review process with the objective of quickly identifying,
evaluating, and initiating necessary corrective action for marginal loans. The
goal of the loan review process is to address classified and non-performing
loans as early as possible. Management maintains a cautious outlook in
anticipating the potential effects of uncertain economic conditions (both
locally and nationally) and the possibility of more stringent regulatory
standards. See "Investment Considerations and Risk Factors-Supervision and
Regulation."
Classification of Assets
- ------------------------
Generally, interest on loans is accrued and credited to income based
upon the principal balance outstanding. It is management's policy to discontinue
the accrual of interest income and classify a loan as non-accrual when principal
or interest is past due 90 days or more and the loan is not adequately
collateralized, or when in the opinion of management, principal or interest is
not likely to be paid in accordance with the terms of the obligation. Consumer
installment loans will be charged-off after 90 days of delinquency unless
adequately collateralized and in the process of collection. Loans will not be
returned to accrual status until principal and interest payments are brought
current and future payments appear reasonably certain. Interest accrued and
unpaid at the time a loan is placed on nonaccrual status is charged against
interest income. Subsequent payments received are applied to the outstanding
principal balance.
Real estate acquired by the Bank as a result of foreclosure or by deed
in lieu of foreclosure is classified as foreclosed real estate. Foreclosed real
estate is recorded at the lower of cost or fair value less estimated selling
costs, and the estimated loss, if any, is charged to the allowance for loan
losses at the time it is transferred. Further allowances for losses are recorded
at the time management believes additional deterioration in value has occurred.
At June 30, 1998 and December 31, 1997 and 1996, the Bank had no foreclosed real
estate.
31
<PAGE>
The following table sets forth certain information on nonaccrual loans
and foreclosed real estate, the ratio of such loans and foreclosed real estate
to total assets as of the dates indicated, and certain other related
information.
At June 30, At December 31,
----------- ---------------
1998 1997 1996
---- ---- ----
(Dollars in thousands)
Nonaccrual loans:
Residential mortgage loans -- -- --
Commercial loans -- -- --
Consumer and other loans -- -- --
------ ------ ----
Total non-accrual loans -- -- --
====== ====== ====
Total nonperforming loans -- -- --
====== ====== ====
Total nonperforming loans to
total loans % % %
====== ====== ====
Total nonperforming loans to
total assets % % %
====== ====== ====
Foreclosed real estate:
Real estate acquired by foreclosure or
deed in lieu of foreclosure $--- $ -- $185
------ ------ ----
Total nonperforming loans and
foreclosed real estate $--- $ -- $185
====== ====== ====
Total nonperforming loans and
foreclosed real estate to total assets ----% ----% .17%
====== ====== ====
Loan Impairment and Losses
- --------------------------
The Company follows Statements of Financial Accounting Standards No.
114 and 118 ("SFAS 114 and 118"). These Statements address the accounting by
creditors for impairment of certain loans. The Statements generally require the
Company to identify loans for which the Company probably will not receive full
repayment of principal and interest, as impaired loans. The Statements require
that impaired loans be valued at the present value of expected future cash
flows, discounted at the loan's effective interest rate, or at the observable
market price of the loan, or the fair value of the underlying collateral if the
loan is collateral dependent. The Company has implemented the Statements by
modifying its monthly review of the adequacy of the allowance for loan losses to
also identify and value impaired loans in accordance with guidance in the
Statements. The adoption of the Statements did not have any material effect on
the results of operations for the six months ended June 30, 1997 and for the
years ended December 31, 1997 and 1996.
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
32
<PAGE>
known by management which would indicate that full repayment of the principal
and interest is not probable. In evaluating loans for impairment, management
generally considers delinquencies of 60 days or less to be minimum delays, and
accordingly does not consider such delinquent loans to be impaired in the
absence of other indications of impairment.
Management evaluates smaller balance, homogeneous loans for impairment
and adequacy of allowance for loan losses collectively, and evaluates other
loans for impairment individually, on a loan- by-loan basis. The Company
evaluates the consumer loan portfolio which are smaller homogeneous loans for
impairment on an aggregate basis, and utilizes its own historical charge-off
experience, as well as the charge-off experience of its peer group and industry
statistics to evaluate the adequacy of the allowance for loan losses. For all
commercial, commercial real estate and residential mortgage loans, the Company
evaluates loans for impairment on a loan-by-loan basis.
The Company evaluates all nonaccrual loans as well as any accruing
loans exhibiting collateral or other credit deficiencies for impairment. With
respect to impaired, collateral-dependent loans, any portion of the recorded
investment in the loan that exceeds the fair value of the collateral is charged
off.
For impairment recognized in accordance with SFAS 114 and 118, the
entire change in the present value of expected cash flows, or the entire change
in estimated fair value of collateral for collateral dependent loans is reported
as a provision for loan losses in the same manner in which impairment initially
was recognized or as a reduction in the amount of the provision that otherwise
would be reported.
The Company had no impaired loans at June 30, 1998, December 31, 1997
or 1996. The average recorded investment in impaired loans during 1996 was
$31,000. There were no impaired loans identified during 1997. No interest income
on impaired loans was recognized in 1996.
Loans are reported at the principal amount outstanding net of the
allowance for loan losses and unamortized premiums, discounts and deferred loan
origination fees and costs.
The allowance for loan losses is established through a provision for
loan losses charged to operations. Loans are charged against the allowance for
loan losses when management believes that the collectability of the principal is
unlikely. Subsequent recoveries are added to the allowance. The allowance is an
amount that management believes will be adequate to absorb possible losses
inherent in existing loans and loan commitments, based on evaluations of
collectability and prior loss experience. Management evaluates the adequacy of
the allowance monthly, or more frequently if considered necessary. The
evaluation takes into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, loan concentrations,
specific problem loans and commitments, and current and anticipated economic
conditions that may affect the borrower's ability to repay.
Management continues to actively monitor the Bank's asset quality and
to charge-off loans against the allowance for loan losses when appropriate or to
provide specific loss allowances when necessary. Although management believes it
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, 1997 was
$1,173,000, and the Bank increased its allowance for loan losses to $1,405,000
as of June 30, 1998, 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."
33
<PAGE>
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
----------------
June 30, June 30, Year Ended Year Ended
December 31, December 31,
1998 1997 1997 1996
---- ---- ---- ----
(Dollars in thousands)
Average loans outstanding, net $ 82,667 $ 65,507 $ 68,711 $ 49,266
======== ======== -------- --------
Allowance at beginning of period $ 1,173 $ 811 $ 811 $ 593
-------- -------- -------- --------
Charge-offs:
Real estate loans -- -- -- 62
Commercial loans -- -- -- --
Consumer loans -- -- -- 3
-------- -------- -------- --------
Total loans charged-off -- -- -- 65
-------- -------- -------- --------
Recoveries 2 4 10 33
-------- -------- -------- --------
Net recoveries (charge-offs) 2 4 10 (32)
-------- -------- -------- --------
Provision for loan losses charged
to operating expenses 230 184 352 250
-------- -------- -------- --------
Allowance at end of period $ 1,405 $ 999 $ 1,173 $ 811
======== ======== ======== ========
Ratio of net charge-offs to
average loans outstanding -- -- -- .001
======== ======== ======== ========
Ratio of allowance for loan losses
to period-end total loans .015 .014 .015 .013
======== ======== ======== ========
Ratio of allowance for loan losses
to nonperforming loans -- -- -- --
======== ======== ======== ========
Period end total loans $ 91,464 $ 70,913 $ 77,226 $ 60,653
======== ======== ======== ========
34
<PAGE>
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:
<TABLE>
<CAPTION>
At June 30, 1998 At December 31, 1997 At December 31, 1996
---------------- ----------------------- -----------------
Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial loans $ 50 3.6% $ 50 4.3% $ 82 5.8%
Commercial real estate loans 1,309 93.2 1,071 91.3 677 89.4
Residential real estate loans 44 3.1 48 4.1 50 4.6
Consumer loans and other 2 .1 4 .3 2 .2
----- ---- ----- ---- --- ----
Total allowance for
loan losses $1,405 100.0% $1,173 100.0% $ 811 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
The allowance for loan losses represented 1.5% of the total loans
outstanding at June 30, 1998 and December 31, 1997, compared with 1.3% at
December 31, 1996.
Securities
The following table sets forth the carrying value of the Bank's securities
portfolio as of the dates indicated:
At June 30, At December 31,
----------- --------------
1998 1997 1996
---- ---- ----
(Dollars in thousands)
Securities held to maturity:
U.S. Treasury securities $ 3,021 $ 4,027 $ 1,499
Other U.S. Government and
agency securities 57,821 54,794 33,008
------- ------- -------
$60,842 $58,821 $34,507
======= ======= =======
35
<PAGE>
The following table sets forth, by maturity distribution, certain
information pertaining to the securities held-to maturity portfolio as follows:
<TABLE>
<CAPTION>
One Year After One Year After Five Years
Or Less to Five Years to Ten Years Total
------------------ ------------------ ----------------- ---------------------
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
At June 30, 1998:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 1,999 6.01% $ 1,022 6.04% $ --- ---% $ 3,021 6.02%
Other U.S. Government
agency securities ... 8,788 6.05 36,750 6.17 12,283 6.32 57,821 6.18
----- ---- ------ ---- ------ ---- ------ ----
Total ......... $10,787 6.04% $37,772 6.17% $12,283 6.32% $60,842 6.18%
======= ==== ======= ==== ======= ==== ======= ====
At December 31, 1997:
U.S. Treasury Securities $ 1,996 6.10% $ 2,031 6.03% $ ---- ---% $ 4,027 6.06%
Other U.S. Government
agency securities ... 11,173 6.08 30,859 6.23 12,762 6.46 54,794 6.28
------ ---- ------ ---- ------ ---- ------ ----
Total ......... $13,169 6.08% $32,890 6.21% $12,762 6.46% $58,821 6.24%
======= ==== ======= ==== ======= ==== ======= ====
At December 31, 1996:
U.S. Treasury Securities $ 500 6.04% $ 999 6.17% $ ----- ---- % $ 1,499 6.12%
Other U.S. Government
agency securities ... 8,142 5.97 22,856 6.16 2,010 6.33 33,008 6.12
----- ---- ------ ---- ----- ---- ------ ----
Total ......... $ 8,642 5.97% $23,855 6.16% $ 2,010 6.33% $34,507 6.12%
======= ==== ======= ==== ======= ==== ======= ====
</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,
1998, the Bank met the definition of a "well capitalized" depository
institution.
36
<PAGE>
The following table shows the distribution of, and certain other
information relating to, the Bank's deposit accounts by type:
<TABLE>
<CAPTION>
At June 30, 1998 At December 31, 1997 At December 31, 1996
---------------- -------------------- --------------------
% of % of % of
Amount Deposits Amount Deposits Amount Deposits
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits ........ $ 2,898 1.9% $ 3,490 2.7% $ 2,401 2.6%
NOW deposits ........... 6,546 4.4 4,290 3.3 4,536 4.9
Money market deposits .. 21,944 14.8 17,180 13.1 7,507 8.0
Savings deposits ....... 15,958 10.7 12,829 9.7 4,742 5.0
------ ---- ------ ---- ------ ----
Subtotal ....... 47,346 31.8 37,789 28.8 19,186 20.5
------ ---- ------ ---- ------ ----
Certificate of deposits:
4.00%-4.99% ......... -- -- 30 -- 1,682 1.8
5.00%-5.99% ......... 78,868 53.0 69,855 53.3 53,507 57.3
6.00%-6.99% ......... 16,792 11.3 16,882 12.9 13,307 14.2
7.00%-7.99% ......... 5,836 3.9 6,611 5.0 5,765 6.2
------ ---- ------ ---- ------ ----
Total certificates
of deposit (1) ...... 101,496 68.2 93,378 71.2 74,261 79.5
-------- ----- -------- ----- -------- -----
Total deposit .......... $148,842 100.0% $131,167 100.0% $ 93,447 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
- -------------------------
(1) Includes individual retirement accounts ("IRAs") totaling $7,663,000,
$7,136,000 and $5,569,000 at June 30, 1998, December 31, 1997 and
December 31, 1996 respectively, all of which are in the form of
certificates of deposit.
37
<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 Year Ended
June 30, June 30, December 31, December 31,
-------- -------- ------------ ------------
1998 1997 1997 1996
Average Average Average Average Average Average Average Average
Balance Yield Balance Yield Balance Yield Balance Yield
------- ----- ------- ----- ------- ----- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money market
& NOW $ 24,814 4.59 $ 17,202 4.41% $ 18,087 4.51% $ 8,432 3.68%
Savings deposit 15,128 4.84 7,635 4.85 9,128 4.89 1,470 4.22
Certificates of deposit 100,216 5.71 75,563 5.62 81,167 5.71 59,437 5.67
------- ---- ------ ---- ------ ---- ------ ----
Total deposits $140,158 5.42% $100,400 5.35% $108,382 5.44% $ 69,339 5.40%
======== ==== ======== ==== ======== ==== ======== ====
</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.
38
<PAGE>
The following tables presents by various interest rate categories the amounts
of certificates of deposit at which mature during the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------------------------------
1999 2000 2001 2002 2003 & thereafter Total
---- ---- ---- ---- -----------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
At June 30, 1998:
4.00%-4.99% $ ---- $ ---- $ ---- $ ---- $ ---- $ ----
5.00%-5.99% 51,501 13,187 6,082 3,115 4,983 78,868
6.00%-6.99% 38 1,391 898 8,363 6,102 16,792
7.00%-7.99% 127 5,502 -- 207 -- 5,836
-------- -------- -------- -------- -------- --------
Total certificates of deposit $ 51,666 $ 20,080 $ 6,980 $ 11,685 $ 11,085 $101,496
======== ======== ======== ======== ======== ========
Year Ending December 31,
---------------------------------------------------------------
1998 1999 2000 2001 2002 & thereafter Total
---- ---- ---- ---- ----------------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1997:
4.00%-4.99% $ 30 $ ---- $ ---- $ ---- $ ---- $ 30
5.00%-5.99% 46,513 13,955 4,149 1,873 3,365 69,855
6.00%-6.99% 349 791 656 7,389 7,697 16,882
7.00%-7.99% 62 1,808 4,641 100 -- 6,611
------- ------- ------- ------- ------- -------
Total certificates of deposit $46,954 $16,554 $ 9,446 $ 9,362 $11,062 $93,378
======= ======= ======= ======= ======= =======
Year Ending December 31,
---------------------------------------------------------------
1997 1998 1999 2000 2001 & thereafter Total
---- ---- ---- ---- ----------------- -----
(dollars in thousands)
At December 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
4.00%-4.99% $ 1,636 $ 46 $ --- $ --- $ --- $ 1,682
5.00%-5.99% 36,664 10,477 620 3,741 2,005 53,507
6.00%-6.99% 4,545 404 803 465 7,090 13,307
7.00%-7.99% -- 62 1,831 3,631 241 5,765
------- ------- ------- ------- ------- -------
Total certificates of deposit $42,845 $10,989 $ 3,254 $ 7,837 $ 9,336 $74,261
======= ======= ======= ======= ======= =======
</TABLE>
39
<PAGE>
Jumbo certificates ($100,000 and over) mature as follows:
At At At
June 30, December 31, December 31,
----------------------------------
1998 1997 1996
---- ---- ----
(Dollars in thousands)
Due three months or less $ 2,383 $ 1,554 $ 733
Due over three months to six months 1,934 1,149 2,136
Due over six months to one year 1,494 1,787 2,566
Due over one year 5,209 5,016 1,826
------- ------- -------
$11,020 $ 9,506 $ 7,261
======= ======= =======
The following table sets forth the net deposit flows of the Bank during the
periods indicated:
Six Months Ended Year Ended Year Ended
June 30, December 31, December 31,
1998 1997 1997 1996
---- ---- ---- ----
(Dollars in thousands)
Net increase before
interest credited $13,526 $ 8,731 $32,164 $31,168
Net interest credited 4,149 2,684 5,556 3,678
------- ------- ------- -------
Net deposit increase $17,675 $11,415 $37,720 $34,846
======= ======= ======= =======
Convertible Debentures
- ----------------------
On June 26, 1998, the Company sold $7,000,000 of Convertible
Subordinated Debentures (the "Debentures"). The proceeds from the sale, net of
underwriting discounts, commissions and other fees, amounted to approximately
$6,500,000. The proceeds are part of the Company's capital funds and are not
restricted to their usage. The Debentures are due July 1, 2008 and are
convertible at the option of the holders at any time prior to April 1, 2008,
unless previously redeemed by the Company, into shares of Class A common stock
at an initial conversion price of $11.50 per share through December 31, 1998.
The initial conversion price was based on the average closing prices of the
Class A common stock during the 20 trading days prior to June 26, 1998. The
table that follows shows the conversion prices beginning January 1, 1999.
Period Conversion Price Per Share
------ --------------------------
From January 1, 1999 to June 30, 1999 $ 12.50
From July 1, 1999 to June 30, 2000 14.00
From July 1, 2000 to June 30, 2001 15.50
From July 1, 2001 to June 30, 2002 17.00
From July 1, 2002 to June 30, 2003 18.50
From July 1, 2003 to June 30, 2004 20.50
From July 1, 2004 to June 30, 2005 22.50
From July 1, 2005 to June 30, 2006 25.50
From July 1, 2006 to June 30, 2007 28.50
From July 1, 2007 to April 1, 2008 32.50
40
<PAGE>
The Company has the right to establish conversion prices, which are less
than those set forth above for such periods as the Company may determine. The
conversion prices are also subject to adjustments based on certain conditions
and circumstances. The Company also has the option at any time to call all or
any part of the Debentures for payment and redeem the same at any time prior to
maturity thereof. The redemption price for the Debentures is (i) the face amount
plus a 2% premium if the date of redemption is prior to July 1, 1999, (ii) the
face amount plus a 1% premium if redemption occurs on or after July 1, 1999 and
prior to July 1, 2000, or (iii) the face amount if the date of redemption is on
or after July 1, 2000. In all cases, the debenture holder will also receive
accrued interest to the date of redemption. Interest on the Debentures will
accrue and compound each calendar quarter at 8%, which represents the prime rate
of Chase Manhattan Bank on June 26, 1998, less one-half of one percent. All
accrued interest is payable at the maturity of the debentures whether by
acceleration, redemption or otherwise. Any debenture holder may, on or before
July 1 of each year commencing July 1, 2003, elect to be paid all accrued
interest and to thereafter receive payments of interest quarterly. Once made,
the election to receive interest is irrevocable.
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 Company'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, 1998, that the Bank
meets all capital adequacy requirements to which it is subject.
41
<PAGE>
As of December 31, 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.
<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, 1998::
Total capital
<S> <C> <C> <C> <C> <C> <C>
(to Risk Weighted Assets) $10,896 10.45% $ 8,340 8.00% $10,425 10.00%
Tier I Capital
(to Risk Weighted Assets) $ 9,593 9.20% $ 4,170 4.00% $ 6,255 6.00%
Tier I Capital
(to Average Assets) $ 9,593 6.01% $ 6,379 4.00% $ 7,974 5.00%
As of December 31, 1997:
Total capital
(to Risk Weighted Assets) $10,243 11.46% $ 7,153 8.00% $ 8,941 10.00%
Tier I Capital
(to Risk Weighted Assets) $ 9,125 10.21% $ 3,578 4.00% $ 5,365 6.00%
Tier I Capital
(to Average Assets) $ 9,125 6.53% $ 5,591 4.00% $ 6,988 5.00%
</TABLE>
The Company continues to explore a variety of alternatives related to
the expansion of its business, including both branch expansions in and near the
Bank's existing markets, as well as the acquisition or de novo chartering of an
additional bank outside the Bank's existing market. While management believes
that its current capital is adequate to finance any expansion opportunities it
may pursue in the near term, including the organization of a de novo banking
institution headquartered in the City of New York, the Company believes that the
additional capital to be raised in the offering will position it for continued
growth. In that regard, 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, additional
transactions to obtain funds will be considered by the Company.
Recent Accounting Developments
Reporting Comprehensive Income
- ------------------------------
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting comprehensive income. Comprehensive income
42
<PAGE>
is defined by the standard as the change in equity of an enterprise except for
those changes resulting from stockholder transactions. All components of
comprehensive income are required to be reported in a new financial statement
that is displayed with equal prominence as existing financial statements. The
Company has no items of comprehensive income, therefore such a statement is not
presented.
Employers' Disclosures about Pensions and Other Postretirement Benefits
- -----------------------------------------------------------------------
In February 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits - an amendment of SFAS No. 87, 88 and 106." The statement revises,
deletes or adds certain disclosures with regard to such plans. It does not
change the measurement or recognition of those plans. The statement is effective
for fiscal years beginning after December 15, 1997. This standard has no impact
to the Company's financial statement disclosures, since the Company currently
does not provide these benefits.
Accounting for Derivative Instruments and Hedging Activities
- ------------------------------------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires, among other things, that an entity recognizes all derivatives as
either assets or liabilities in the statement of financial condition and
measures those instruments at fair value. The statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Since the Company
does not currently use derivative financial instruments, the standard will not
have any impact to the Company's financial statements when adopted.
Accounting for Start-Up Costs
- -----------------------------
In April 1998, the AICPA issued Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities," which is effective for all
nongovermental entities, except as provided for therein, for fiscal years
beginning after December 15, 1998. The SOP requires that all start-up costs
(except for those that are capitalizable under other GAAP) be expensed as
incurred.
At June 30, 1998, the Company had approximately $90,000 of deferred
costs associated with organizing a de novo bank. Upon adoption of this
statement, it is anticipated that a significant portion of these deferred costs
will be expensed. In addition, the Company expects additional start-up costs to
be incurred in the third quarter of 1998 in connection with organizing this new
bank.
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use
- --------------------------------------------------------------------------------
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which is effective
for all nongovermental entities for fiscal years beginning after December 15,
1998. The SOP, among other things, provides guidance as to when and what types
of costs should be capitalized as it relates to internal-use software. Upon
adoption, the Company expects that this SOP will not have any impact on its
financial statements.
43
<PAGE>
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.
Market Risk
- -----------
Market risk is the risk of loss from adverse changes in market prices
and rates. The Company's market risk arises primarily from interest rate risk
inherent in its lending and deposit taking activities. To that end, management
actively monitors and manages its interest rate risk exposure. The measurement
of market risk associated with financial instruments is meaningful only when all
related and offsetting on- and off-balance-sheet transactions are aggregated,
and the resulting net positions are identified. Disclosures about the fair value
of financial instruments as of December 31, 1997 and 1996, which reflect changes
in market prices and rates, can be found in Note 7 of Notes to Consolidated
Financial Statements for the years ended December 31, 1997 and 1996.
The Company's primary objective in managing interest-rate risk is to
minimize the adverse impact of changes in interest rates on the Bank's net
interest income and capital, while adjusting the Company's asset-liability
structure to obtain the maximum yield-cost spread on that structure. The Company
relies primarily on its asset-liability structure to control interest rate risk.
However, a sudden and substantial increase in interest rates may adversely
impact the Company's earnings, to the extent that the interest rates borne by
assets and liabilities do not change at the same speed, to the same extent, or
on the same basis. The Company does not engage in trading activities.
Year 2000 Compliance
- --------------------
The Bank has an ongoing program designed to ensure that its operational
and financial systems will continue to function properly on and after the year
2000, free of software failures due to processing errors arising from
calculations using the year 2000 date. The Bank does not expect to incur any
significant expenditures over the next three years on its program to redevelop,
replace, or repair its computer applications to make them "year 2000 compliant."
While the Bank believes it is doing everything technologically possible to
assure year 2000 compliance, it is to some extent dependent upon vendor
cooperation. The Bank is requiring its computer system and software vendors to
represent that the products provided are, or will be, year 2000 compliant, and
has planned a program of testing for compliance. It is recognized that any year
2000 compliance failures could result in additional expense to the Bank.
44
<PAGE>
BUSINESS
General
- -------
The Company is a registered bank holding company incorporated under the
laws of the State of Delaware in 1993. Its 99%-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 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.
As is the case with banking institutions generally, the Bank's
operations are materially and significantly influenced by general economic
45
<PAGE>
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 890,000. The Bank's deposit gathering and lending markets are
concentrated on the communities surrounding its offices in Clearwater, Florida.
Management believes that its offices are located in an area serving small and
mid-sized businesses and serving middle and upper income residential
communities.
Market for Services
- -------------------
Management believes that the Bank's principal markets are: (i) the
established and expanding commercial market within the primary market area: and
(ii) the moderate and the affluent residential market within the primary market
area. Moreover, management believes that a community bank is well positioned to
establish these relationships with both commercial customers and households.
Management believes 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, 1998 the Bank's net loan portfolio was $89.6 million,
representing 50.4% of its total assets. As of such date, the loan portfolio
consisted of 3.6% commercial loans, 96.3% real-estate mortgage loans and .1%
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.
46
<PAGE>
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.
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.
47
<PAGE>
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.
Employees
- ---------
At June 30, 1998, the Company and the Bank together employed 32
full-time employees and 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 at 10 Rockefeller Plaza, New York, New
York. The Bank maintains its principal office at 625 Court Street, Clearwater,
Florida. In addition to its principal office the bank operates four branch
offices. Three of the branch offices are in Clearwater, Florida, at 1875 Belcher
Road North, 2175 Nursery Road and 2575 Ulmerton Road, and one is at 6750
Gulfport Blvd., South Pasadena, Florida. With the exception of the Belcher Road
office, which is leased, all of the offices are owned by the Bank.
The office at 625 Court Street consists of a two story building
containing approximately 22,000 sq. ft. The Bank occupies the ground floor
(approximately 8,500 sq. ft.) and leases the 2nd floor to a single commercial
tenant. The branch office at 1875 Belcher Road is a two story building in which
the bank leases approximately 5,100 sq. ft. for its branch office. The branch
48
<PAGE>
office at 2175 Nursery Road is a one story building containing approximately
2,700 sq. ft. which is entirely occupied by the Bank. The branch office at 2575
Ulmerton Road is a three story building containing approximately 17,000 sq. ft.
The bank occupies the ground floor (approximately 2,500 sq. ft.) and leases the
upper floors to commercial tenants. The branch office at 6750 Gulfport Blvd. is
a one story building containing approximately 2,800 sq. ft. which is entirely
occupied by the Bank. In addition, each of the Bank's offices include
drive-through teller facilities.
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.
49
<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 79, 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 47, 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.
50
<PAGE>
William F. Holly, age 69, 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.
Edward J. Merz, age 66, serves as a Director of the Company and has
served in such capacity since February, 1998. Mr. Merz received a Bachelor of
Business Administration from The City College of New York and is a graduate of
The Stonier School of Banking at Rutgers University. Mr. Merz is Chairman of the
Board of Directors of The Suffolk County National Bank of Riverhead and of its
parent, Suffolk Bancorp, and has been an officer and director of those companies
for more than five years. He is also a director of the Independent Bankers
Association of New York.
David J. Willmott, age 60, 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 55, serves as a Director of the Company, and has
served in such capacity since March, 1994. Mr. Wood received a Bachelor of
Science degree from New York University, School of Commerce. Mr. Wood is
President of Marketing Capital Corporation, an international marketing
consulting and investment firm which he founded in 1973. He is also a Director
of Intervest Corporation of New York, a Director of the Center of Direct
Marketing at New York University, a member of the Marketing Committee at
Fairfield University in Connecticut, and a Trustee of St.
Dominics R.C. Church in Oyster Bay, New York.
All of the directors of the Company have been elected to serve as
directors until the next annual meeting of the Company's shareholders. Each of
the officers of the Company has been elected to serve as an officer until the
next annual meeting of the Company's directors.
Mr. Bergman's wife is the sister of Lowell S. Dansker, and Jerome
Dansker is the father of Lowell S. Dansker and Mrs. Bergman.
Directors and Executive Officers of the Bank
The current directors and executive officers of the Bank are as follows:
Lawrence G. Bergman serves as Co-Chairman of the Board of Directors and
as a member of the Loan Committee of the Bank and has served as a director since
May 1993. See "Directors and Executive Officers of the Company."
Stephen M. Bragin, age 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.
51
<PAGE>
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.
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.
Lawton Swan, III, age 55, serves as a Director of the Bank and has
served in such capacity since November, 1997. Mr. Swan received a Bachelor of
Science in Insurance from Florida State University. He is President of Interisk
52
<PAGE>
Corporation, a firm specializing in risk management and employee benefit
consulting services, which he founded more than 20 years ago. Mr. Swan is an
active member of the insurance industry participating on an executive level in
various organizations, as well as lecturing and publishing numerous articles.
Charlotte Grant, age 60, serves as Vice President and Cashier of
the Bank and has served in that capacity since July 23, 1998. Ms. Grant received
her Bachelors degree from the University of South Florida and her Masters degree
from the University of Tampa. Prior to joining the Bank, she was an accountant
in practice with the firm of Hacker, Johnson, Cohen & Grieb, P.A., Tampa,
Florida.
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.
53
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards(2)
Other Annual Number of
Name and Principal Year Salary(1) Bonuses Compensation Shares Pay-Outs
- ------------------ ---- --------- -------------------- ------ --------
Position
<S> <C> <C> <C> <C>
Keith A. Olsen, President 1995 $ 90,000 $ 10,000 -- 15,000 --
1996 $ 95,000 $ 10,000 -- 15,000 --
1997 $115,000 $ 10,000 -- -- --
</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 the number of shares of Class A
Common Stock set forth in the table.
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 $115,000 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 $21,377 to this Plan in
1997.
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 $3.2 million as of December
31, 1997, which represented approximately 18.2% of the Company's total
stockholders' equity. There are no loans to directors or officers of Intervest
Bancshares Corporation.
Except for the transactions 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.
54
<PAGE>
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.
Mr. William F. Holly, a director of the Company, is Chairman of the Board and
Chief Executive Officer of Sage, Rutty & Co., Inc., which is the underwriter in
this offering and which was the underwriter in the Company's public offering of
units in 1997. In that public offering, Sage, Rutty received aggregate
compensation of approximately $256,000, as well as warrants to related 18,000
shares of the Company's Class A Common Stock. 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.
55
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1998 by (i) each person
who is known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock of the Company, (ii) each of the Company's directors,
(iii) each executive officer of the Company and (iv) all current directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
-------------------- --------------------
Name and Address of
Beneficial Holder Number of Percent of Number Percent of
Shares Class(1) of Shares Class
------ -------- --------- -----
<S> <C> <C> <C> <C>
Helene D. Bergman 225,000 10.73% 75,000 16.67%
201 East 62nd Street
New York, New York 10021
Directors and Executive Officers
Lawrence G. Bergman 307,500(2) 14.11% 75,000 16.67%
201 East 62nd Street
New York, New York 10021
Lowell S. Dansker 532,500(2) 24.27% 150,000 33.33%
360 West 55th Street
New York, New York 10019
Michael A. Callen 45,000(3) 2.11% 0 0%
Ryutat
Jeddah, Saudi Arabia
Jerome Dansker 553,965(4) 20.89% 150,000(4) 33.33%
860 Fifth Avenue
New York, New York 10021
Milton F. Gidge 31,500(5) 1.48% 0 0%
43 Salem Ridge Drive
Huntington, New York 11743
William F. Holly 22,500(6) 1.06% 0 0%
206 Edgemere Drive
Rochester, New York 14612
David J. Wilmott 82,500(7) 3.84% 0 0%
West Way
Southhampton, New York
Wesley T. Wood 97,500(8) 4.52% 0 0%
24 Timber Ridge Drive
Oyster Bay, New York 11771
All directors and executive
officers as a group 1,672,965 56.49% 375,000 83.33%
- ------------------------------
</TABLE>
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(1) Percentages have been computed based upon the total outstanding shares
of the Company plus, for each person and the group, shares that person
or the group has the right to acquire pursuant to warrants.
(2) Includes 82,500 shares of Class A common stock issuable upon the
exercise of warrants.
(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 11,250 shares of Class A common stock issuable upon the
exercise of warrants.
(6) Includes 22,500 shares of Class A common stock issuable upon the
exercise of warrants.
(7) Includes 52,500 shares of Class A common stock issuable upon the
exercise of warrants.
(8) Includes 60,000 shares of Class A common stock issuable upon the
exercise of warrants.
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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
2,164,715 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.
Common Stock
- ------------
Both classes of common stock have equal voting rights as to all
matters, except that, so long as at least 50,000 shares of Class B Common Stock
remain issued and outstanding, the holders of the outstanding shares of Class B
Common Stock are entitled to vote for the election of two-thirds of the
directors (rounded up to the nearest whole number) and the holders of the
outstanding shares of Class A Common Stock are entitled to vote for the
remaining directors of the Company. Under Delaware law, the holders of Class A
and Class B Common Stock would be entitled to vote as separate classes upon
certain matters which would adversely affect or subordinate the rights of a
class.
Subject to preferences that may be applicable to any outstanding shares
of Preferred Stock (none of which are presently outstanding), holders of Class A
Common Stock are entitled to share ratably in dividends when and as declared by
the Company's Board of Directors out of funds legally available therefor. See
"Dividends."
No dividends may be declared or paid with respect to shares of Class B
Common Stock until January 1, 2000, after which time the holders of Class A
Common Stock and Class B Common Stock will share ratably in dividends when and
as declared by the Board of Directors.
The shares of Class B Common Stock are convertible, on a share for
share basis, into Class A Common Stock, at any time and from time to time after
January 1, 2000. Neither Class A nor Class B Common Stock holders have any
preemptive rights as to additional issues of common stock. Shareholders are
subject to no assessments and, upon liquidation, both Class A and Class B common
shareholders would be entitled to participate equally per share in the assets of
the Company available to common shareholders.
Class A Warrants
- ----------------
As of the date of this prospectus, there are also outstanding warrants
related to 2,454,068 shares of the Company's Class A Common Stock. Warrants
related to 1,492,365 shares of Class A Common Stock entitle the registered
holders thereof to purchase one share of Class A Common Stock at a price of
$6.67 per share and the remaining warrants (the "1997 Warrants") entitle the
holder to purchase shares of Class A Common Stock at a price of $10.00 per share
through December 31, 1999; $11.50 per share from January 1, 2000 through
December 31, 2000; $12.50 per share from January 1, 2001 through December 31,
2001; and $13.50 per share from January 1, 2002 to December 31, 2002. Warrants
related to 990,900 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
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January 31, 2006. Except for the exercise price, the expiration dates and the
redemption provisions applicable to the 1997 warrants, all of the outstanding
warrants related to Class A Shares are alike in all respects and the following
discussion applies to all of the warrants for Class A Common Stock. In addition
to the warrants described above, on May 27, 1998, the shareholders of the
Company approved, subject to their registration under the Securities Act, the
issuance of warrants related to the purchase of 122,000 shares of Class A Common
Stock to directors of the Company and officers, directors and employees of
Intervest Bank. Such warrants entitle the holder to purchase shares at a price
of $14.00 per share through December 31, 1999; $15.00 per share from January 1,
2000 through December 31, 2000; $16.00 per share from January 1, 2001 through
December 31, 2001; and $17.00 per share from January 1, 2002 until expiration.
Except for the exercise prices, such warrants are the same as the 1997 Warrants.
The exercise price is subject to adjustment in accordance with the
anti-dilution and other provisions referred to below. The holder of any Warrant
may exercise such Warrant or any portion thereof by surrendering the certificate
representing the Warrant to the Company's transfer and warrant agent, with the
subscription on the reverse side of such certificate properly completed and
executed, together with payment of the exercise price. The Warrant may be
exercised at any time until expiration of the Warrant. No fractional shares will
be issued upon the exercise of the Warrants. Warrants may not be exercised as to
fewer than 100 shares unless exercised as to all Warrants held by the holder
thereof. The exercise prices of the Warrants have been arbitrarily determined by
the Company and are not necessarily related to the Company's book value, net
worth or other established criteria of value. The exercise price should in no
event be regarded as an indication of any future market price of the securities
offered hereby.
The Warrants are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the shares of common stock issuable
upon exercise of such Warrants and such shares have been registered, qualified
or deemed to be exempt under the securities law of the state of residence of the
holders of such Warrants. Although the Company will use its best efforts to have
all such shares so registered or qualified on or before the exercise date and to
maintain a current prospectus relating thereto until the expiration of such
Warrants, there can be no assurance that it will be able to do so.
The exercise price and the number of shares of Class A Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications on or of the Class A Common Stock or sales by
the Company of shares of its Class A Common Stock at a price below the then
applicable exercise price of the Warrants. Additionally, an adjustment will be
made in the case of a reclassification or exchange of Class A Common Stock,
consolidation or merger of the Company with or into another corporation or sale
of all or substantially all of the assets of the Company in order to enable
warrant holders to acquire the kind and number of shares of stock or other
securities or property receivable in such event by a holder of the number of
shares of Class A Common Stock that might otherwise have been purchased upon the
exercise of the Warrant. In most cases, no adjustment will be made until the
number of shares issued by the Company exceeds 5% of the number of shares
outstanding after the offering and thereafter no adjustments will be made until
the cumulative adjustments and exercise price per share amount to $.05 or more.
No adjustment to the exercise price of the shares subject to the Warrants will
be made for dividends (other than stock dividends), if any paid on the Class A
Common Stock or for securities issued pursuant to a company stock option plan,
if any, or other employee benefit plans of the Company.
The Warrants are fully registered and may be presented to the transfer
and warrant agent for transfer, exchange or exercise at any time at or prior to
the close of business on the expiration date for such Warrant, at which time the
Warrant becomes wholly void and of no value. If a market for the Warrants
develops, the holder may sell the Warrants instead of exercising them. There can
be no assurance, however, that a market for the Warrants will develop or
continue.
The Warrants do not confer upon holders any voting or any other rights
as a shareholder of the Company.
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Class B Warrants
- ----------------
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. On April 27, 1998, the Board of Directors also authorized, subject to
registration, the issuance of stock warrants to the Company's chairman to
purchase a total of 50,000 shares of Class B Common Stock, exercisable on or
before January 31, 2008, at a price of $10.00 per share. The issuance of these
warrants was approved by the Company's shareholders on May 27, 1998. That
warrant would vest as to 7,100 shares upon its grant and as to an additional
7,100 shares on each anniversary of its grant for five years. On the sixth
anniversary of its grant, the warrant vests for an additional 7,400 shares, so
that it is fully vested. Should the Chairman cease to be affiliated with the
Company, then the warrant shall thereafter be exercisable only to the extent
vested at the date of termination, except that the warrant shall become fully
vested upon termination by reason of death or disability.
Transfer Agent and Warrant Agent
- --------------------------------
The registrar and transfer agent for the Common Stock and the Warrant
Agent for the Warrants is The Bank of New York.
Preferred Stock
- ---------------
The Company's Articles of Incorporation authorize the Board of
Directors, without further shareholder approval, to issue shares of Preferred
Stock in one or more series with powers, preferences, rights, restrictions,
limitations, and other qualifications that could adversely affect the voting and
other rights of the holders of Common Stock.
The Board of Directors has the authority to issue up to 300,000 shares
of the Preferred Stock of the Company in any number of series (to designate the
rights and preferences of such series) which could operate to render more
difficult the accomplishment of mergers or other business combinations. The
Board of Directors of the Company has no present intent to issue any Preferred
Stock at this time. Under certain circumstances and when, in the judgment of the
Board of Directors, the action will be in the best interest of the stockholders
and the Company, such shares could be used to create voting impediments or to
frustrate persons seeking to gain control of the Company. Such shares could be
privately placed with purchasers friendly to the Board of Directors in opposing
a hostile takeover bid. In addition, the Board of Directors could authorize
holders of a series of Preferred Stock to vote either separately as a class or
with the holders of the Company's Common Stock on any merger, sale or exchange
of assets by the Company or any other extraordinary corporate transaction. The
existence of the additional authorized shares could have the effect of
discouraging unsolicited takeover attempts or delaying, deferring or preventing
a change in control of the Company. Such an occurrence, in the event of a
hostile takeover attempt, may have an adverse impact on stockholders who may
wish to participate in such offer. The issuance of new shares could be used to
dilute the stock ownership of a person or entity seeking to obtain control of
the Company should the Board of Directors consider the action of such entity or
person not to be in the best interest of the stockholders and the Company. The
Board of Directors is not aware of any present attempt or effort by any person
to accumulate the Company's securities or obtain control of the Company.
Restrictions on Changes in Control
- ----------------------------------
Under the Federal Change in Bank Control Act (the "Control Act"), a
notice must be submitted to the FRB if any person, or group acting in concert,
seeks to acquire 10% or more of any class of outstanding voting securities of
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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 Federal Reserve Board ("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.
As a bank holding company, the Company is required to obtain the prior
approval of the FRB before acquiring direct or indirect ownership or control of
more than 5% of the voting shares of a bank or bank holding company. The FRB
will not approve any acquisition, merger or consolidation that would have a
substantial anti-competitive result, unless the anti-competitive effects of the
proposed transaction are outweighed by a greater public interest in meeting the
needs and convenience of the public. The FRB also considers managerial, capital
and other financial factors in acting on acquisition or merger applications.
A bank holding company may not engage in, or acquire direct or indirect
control of more than 5% of the voting shares of any company engaged in any
non-banking activity, unless such activity has been determined by the FRB to be
closely related to banking or managing banks. The FRB has identified by
regulation various non-banking activities in which a bank holding company may
engage with notice to, or prior approval by, the FRB.
It is the policy of the FRB that bank holding companies should pay cash
dividends on common stock only out of income available over the past year and
only if prospective earnings retention is consistent with the organizations
expected future needs and financial condition. The policy provides that bank
holding companies should not maintain a level of cash dividends that undermines
the bank holding company's ability to serve as a source of strength to its
banking subsidiaries. In the future, dividends from Intervest Bank are expected
to be a significant source of funds for the Company. In addition, the federal
regulatory agencies are authorized to prohibit a banking institution or bank
holding company from engaging in an unsafe or unsound banking practice.
Depending upon the circumstances, the agencies could take the position that
paying a dividend would constitute an unsafe or unsound banking practice. Under
FRB policy, a bank holding company is expected to act as a source of financial
strength to its banking subsidiaries and to commit resources to their support.
Such support may be required at times when, absent this FRB policy, a holding
company may not be inclined to provide it. As discussed below, a bank holding
company in certain circumstances could be required to guarantee the capital plan
of an undercapitalized banking subsidiary.
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In the event of a bank holding company's bankruptcy under Chapter 11 of
the U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is
required to cure immediately any deficit under any commitment by the debtor
holding company to any of the federal banking agencies to maintain the capital
of an insured depository institution, and any claim for breach of such
obligation will generally have priority over most other unsecured claims.
Because the Company is a legal entity separate and distinct from its
subsidiary, its right to participate in the distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization will be subject
to the prior claims of the subsidiary's creditors. In the event of a liquidation
or other dissolution of Intervest Bank, the claims of depositors and other
general or subordinated creditors are entitled to a priority of payment over the
claims of holders of any obligation of the institution to its stockholders,
including any depository institution holding company (such as the Company) or
any stockholder or creditor thereof.
The FRB monitors the capital adequacy of bank holding companies and has
adopted risk-based capital adequacy guidelines to evaluate bank holding
companies on a consolidated basis. The guidelines require a ratio of "Tier I" or
Core Capital (generally, common stockholders equity, perpetual preferred stock
and minority interests in consolidated subsidiaries, less good will, other
disallowed intangibles and disallowed deferred tax assets, among other items) to
total risk-weighted assets of at least 4% and a ratio of total capital to
risk-weighted assets of at least 8%. At June 30, 1998, the Bank's ratio of total
capital to risk-weighted assets was 10.45% and its risk-based Tier I capital
ratio was 9.20%.
The FRB also uses a leverage ratio to evaluate the capital adequacy of
bank holding companies. The leverage ratio applicable to the Company requires a
ratio of Tier I capital to adjusted total assets of not less than 3%, although
most organizations are expected to maintain leverage ratios that are 100-200
basis points above this minimum ratio. The Bank's leverage ratio at June 30,
1998 was 6.01%.
The federal banking agencies' risk-based and leverage ratios are
minimum supervisory ratios generally applicable to banking organizations that
meet certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to operate
with capital positions well above the minimum ratios. The FRB guidelines also
provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets. In addition, the regulations of the FRB provide that concentration of
credit risk and certain risk arising from nontraditional activities, as well as
an institution's ability to manage these risks, are important factors to be
taken into account by regulatory agencies in assessing an organization's overall
capital adequacy.
The FRB and the other federal banking agencies recently adopted
amendments to their risk-based capital regulations to provide for the
consideration of interest rate risk in the agency's determination of a banking
institutions capital adequacy. The amendments require such institutions to
effectively measure and monitor their interest rate risk and to maintain capital
adequate for that risk.
Bank Regulation
---------------
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
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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.
Applicable law provides the federal banking agencies with broad powers
to take prompt corrective action to resolve problems of insured depository
institutions. The extent of those powers depends upon whether the institution in
question is "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," or "critically undercapitalized." The federal
banking agencies have issued uniform regulations defining such capital levels.
Under the regulations, a bank is considered "well capitalized" if it has (i) a
total risk-based capital ratio of 10% or greater, (ii) a Tier 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 is
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 is 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, 1998, the Bank met the definition of a "Well
Capitalized" institution.
The FDIC has issued rules regulating brokered deposits. Under these
rules, "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 deposits of Intervest Bank are insured by the FDIC through the Bank
Insurance Fund (the "BIF") to the extent provided by law. Under the FDIC's
risk-based insurance system, BIF-insured institutions are currently assessed
premiums of between $.0 and $.27 per $100 of eligible deposits, depending upon
the institutions capital position and other supervisory factors. Congress
recently enacted legislation that, among other things, provides for assessments
against BIF- insured institutions that will be used to pay certain financing
corporation ("FICO") obligations. In addition to any BIF insurance assessments,
BIF-insured banks are expected to make payments for the FICO obligations equal
to an estimated $0.0129 per $100 of eligible deposits each year during 1997
through 1999 and an estimated $0.024 per $100 of eligible deposits thereafter.
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Intervest Bank is subject to Sections 23A and 23B of the Federal
Reserve Act, which governs certain transactions, such as loans, extensions of
credit, investments and purchases of assets between member banks and their
affiliates, including their parent holding companies. These restrictions limit
the transfer of funds to the Company, as defined in the statute, in the form of
loans, extensions of credit, investment or purchases of assets ("Transfers"),
and they require that Intervest Bank's transactions with the Company be on terms
no less favorable to Intervest Bank than comparable transactions between
Intervest Bank and unrelated third parties. Transfers by Intervest Bank to the
Company are limited in amount to 10% of Intervest Bank's capital and surplus,
and transfers to all affiliates are limited in the aggregate to 20% of Intervest
Bank's capital and surplus. Furthermore, such loans and extensions of credit are
also subject to various collateral requirements.
Under the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA"), a depository institution insured by the FDIC can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC-insured institution endanger of default. "Default" is defined
generally as the appointment of a conservator or receiver and "in danger of
Default" is defined generally as the existence of certain conditions indicating
that a "default" is likely to occur in the absence of regulatory assistance.
This provision would become applicable to the Company and Intervest Bank in the
event that the Company acquired or organized an additional depository
institution subsidiary.
The Federal Community Reinvestment Act of 1977 ("CRA") has become
increasingly important to financial institutions. Among other things, the CRA
allows regulators to withhold approval of an acquisition or the establishment of
a branch unless the applicant has performed satisfactorily under the CRA.
Satisfactory performance means adequately meeting the credit needs of the
communities the institution serves, including low and moderate income areas. The
applicable federal regulators now regularly conduct CRA examinations to assess
the performance of financial institutions. Intervest Bank has received
"satisfactory" ratings in its most recent CRA examination.
The federal regulators have adopted regulations and examination
procedures promoting the safety and soundness of individual institutions by
specifically addressing, among other things: (i) internal controls, information
systems and internal audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) interest rate exposure; (v) asset growth; (vi) ratio of
classified assets to capital; (vii) minimum earnings; and (viii) compensation
and benefits standards for management officials.
The laws and regulations affecting banks and bank holding companies are
continually being reviewed and revised. The rules of the regulatory agencies in
this area have changed significantly over recent years and there is reason to
expect that similar changes will continue in the future. It is difficult to
predict the outcome of these changes.
The FRB and the other federal banking agencies have broad enforcement
powers, including the power to terminate deposit insurance, and poss substantial
fines and other civil and criminal penalties and appoint a conservative or
receiver. Failure to comply with applicable laws, regulations and supervisory
agreements could subject the Company or its banking subsidiary, as well as
officers, directors and other institution-affiliated parties of these
organizations, to administrative sanctions and potentially civil monetary
penalties. In addition, the Florida Banking Department possess certain
enumerated enforcement powers to address violations of the Florida Banking Law
by state-chartered banks and to preserve safety and soundness, including, in the
most severe cases, the authority to take possession of a state bank.
Monetary Policy and Economic Control
- ------------------------------------
The commercial banking business in which the 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
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changes in reserve requirements against member banks' deposits and assets of
foreign branches and the imposition of and changes in reserve requirements
against certain borrowings by banks and their affiliates are some of the
instruments of monetary policy available to the FRB. These monetary policies are
used in varying combinations to influence overall growth and distributions of
bank loans, investments and deposits, and this use may affect interest rates
charged on loans or paid on deposits. The monetary policies of the FRB have had
a significant effect on the operating results of commercial banks and are
expected to do so in the future. The monetary policies of these agencies are
influenced by various factors, including inflation, unemployment, short-term and
long-term changes in the international trade balance and in the fiscal policies
of the United States Government. Future monetary policies and the effect of such
policies on the future business and earnings of the Company and the Bank cannot
be predicted.
PLAN OF DISTRIBUTION
The Company's Warrants are not exercisable unless the Company has a
current prospectus covering the shares issuable upon exercise of the Warrants
and this prospectus covers those shares.
With respect to the shares of Class A Common Stock and Class B Common
Stock issuable upon exercise of the Warrants, those shares shall be issued by
the Company, from time to time, upon exercise by the holders thereof of the
Warrants. Shares of Class A Common Stock or Class B Common Stock may be
purchased by the holders of Warrants only by mailing or delivering a completed
and duly executed Election to Purchase Form which is on the reverse side of the
Warrant Certificate, together with payment of the then applicable exercise price
per share for each warrant surrendered to the Bank of New York, the Company's
warrant agent, prior to expiration of the warrant. Payment may be made in
certified funds, cashier check, bank draft or bank check, payable to the order
of the Warrant Agent. All funds received by the Warrant Agent from the exercise
of warrants will be forwarded to the Company.
LEGAL MATTERS
The validity of the Warrants and shares offered hereby will be passed
upon for the Company by Harris Beach & Wilcox LLP, Rochester, New York.
EXPERTS
The consolidated balance sheets of Intervest Bancshares Corporation and
Subsidiary as of December 31, 1997 and 1996 and the related consolidated
statements of earnings, stockholders' equity and cash flows for the years then
ended included in this Prospectus, have been included herein in reliance on the
report of Hacker, Johnson, Cohen & Grieb PA, Tampa, Florida, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
65
<PAGE>
<TABLE>
<CAPTION>
Index to Financial Statements
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
<S> <C>
Intervest Bancshares Corporation and Subsidiary Page
Condensed Consolidated Statements of Financial Condition as of
June 30, 1998 and December 31, 1997 F-2
Condensed Consolidated Statements of Income for the Quarters Ended
June 30, 1998 and 1997 F-3
Condensed Consolidated Statements of Income for the Six Months Ended
June 30, 1998 and 1997 F-4
Condensed Consolidated Statements of Changes in Stockholders' Equity for the
Six Months Ended June 30, 1998 and 1997 F-5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1997 F-6
Notes to Condensed Consolidated Financial Statements F-7
Independent Auditors' Report F-10
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-11
Consolidated Statements of Earnings for the Years Ended December 31, 1997 and 1996 F-12
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1997 and 1996 F-13
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997 and 1996 F-14
Notes to Consolidated Financial Statements F-15
</TABLE>
All schedules are omitted because of the absence of conditions under
which they are required or because the required information is included in the
Financial Statements and related Notes.
F-1
<PAGE>
<TABLE>
<CAPTION>
Intervest Bancshares Corporation and Subsidiary
Condensed Consolidated Statements of Financial Condition
(Unaudited)
June 30, December 31,
($ in thousands, except par value) 1998 1997 Change
- ------------------------------------------------------------------------ ------------------- ---------------------- -------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 6,676 $ 1,738 $ 4,938
Federal funds sold 6,021 162 5,859
Short-term investments 6,399 7,276 (877)
------------------- ---------------------- -------------
Total cash and cash equivalents 19,096 9,176 9,920
Interest-bearing deposits with banks 199 99 100
Securities held to maturity, net (estimated fair value of
$60,965 and $58,836, respectively) 60,842 58,821 2,021
Federal Reserve Bank stock, at cost 233 233 -
Loans receivable (net of allowance for loan losses of
$1,405 and $1,173, respectively) 89,556 75,652 13,904
Accrued interest receivable 1,513 1,327 186
Premises and equipment, net 5,028 4,877 151
Deferred income tax asset 479 485 (6)
Other assets 751 85 666
- ------------------------------------------------------------------------ ------------------- ---------------------- -------------
Total assets $177,697 $150,755 $26,942
- ------------------------------------------------------------------------ ------------------- ---------------------- -------------
LIABILITIES
Deposits:
Demand deposits $ 2,898 $ 3,490 $ (592)
Savings and NOW deposits 22,504 17,119 5,385
Money-market deposits 21,944 17,180 4,764
Time deposits 101,496 93,378 8,118
------------------- ---------------------- -------------
Total deposits 148,842 131,167 17,675
Convertible debentures 7,000 - 7,000
Other liabilities 3,314 1,947 1,367
- ------------------------------------------------------------------------ ------------------- ---------------------- -------------
Total liabilities 159,156 133,114 26,042
- ------------------------------------------------------------------------ ------------------- ---------------------- -------------
Minority interest 23 21 2
STOCKHOLDERS' EQUITY
Preferred stock (300,000 shares authorized, none issued) - - -
Class A common stock ($1.00 par value, 7,500,000 shares
authorized, 2,157,915 and 2,124,415 shares issued and
outstanding, respectively) 2,158 2,124 34
Class B common stock ($1.00 par value, 700,000 shares
authorized, 300,000 issued and outstanding) 300 300 -
Additional paid-in-capital, common 13,591 13,360 231
Retained earnings 2,469 1,836 633
- ------------------------------------------------------------------------ ------------------- ---------------------- -------------
Total stockholders' equity 18,518 17,620 898
- ------------------------------------------------------------------------ ------------------- ---------------------- -------------
Total liabilities, minority interest and stockholders' equity $177,697 $150,755 $26,942
- ------------------------------------------------------------------------ ------------------- ---------------------- -------------
See accompanying notes to condensed consolidated financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
Intervest Bancshares Corporation and Subsidiary
Condensed Consolidated Statements of Income
(Unaudited)
For the Quarter Ended
June 30,
--------------------------------
($ in thousands, except per share data) 1998 1997 Change
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans receivable $1,991 $1,569 $ 422
Securities 1,009 623 386
Other interest-earning assets 109 27 82
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
Total interest and dividend income 3,109 2,219 890
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
INTEREST EXPENSE
Deposits 1,958 1,378 580
Borrowed funds 17 1 16
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
Total interest expense 1,975 1,379 596
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
Net interest and dividend income 1,134 840 294
Provision for loan losses 130 92 38
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
Net interest and dividend income after provision for loan losses 1,004 748 256
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
NONINTEREST INCOME
Customer service fees 43 29 14
Other 8 8 -
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
Total noninterest income 51 37 14
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
NONINTEREST EXPENSES
Salaries and employee benefits 270 222 48
Occupancy and equipment, net 82 101 (19)
Advertising and promotion 4 31 (27)
Professional fees 60 50 10
Other 111 75 36
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
Total noninterest expenses 527 479 48
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
Income before income taxes 528 306 222
Income taxes 203 119 84
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
Net income $ 325 $ 187 $ 138
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
Basic earnings per share $ 0.13 $ 0.11 $0.02
Diluted earnings per share $ 0.10 $ 0.09 $0.01
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Intervest Bancshares Corporation and Subsidiary
Condensed Consolidated Statements of Income
(Unaudited)
For the Six Months Ended
June 30,
-----------------------------------
($ in thousands, except per share data) 1998 1997 Change
- ----------------------------------------------------------------------------- ------------------ ---------------- ----------------
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans receivable $3,801 $3,003 $ 798
Securities 2,038 1,232 806
Other interest-earning assets 179 69 110
- ----------------------------------------------------------------------------- ------------------ ---------------- ----------------
Total interest and dividend income 6,018 4,304 1,714
- ----------------------------------------------------------------------------- ------------------ ---------------- ----------------
INTEREST EXPENSE
Deposits 3,796 2,687 1,109
Borrowed funds 18 1 17
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
Total interest expense 3,814 2,688 1,126
- ----------------------------------------------------------------------------- ------------------ ---------------- ----------------
Net interest and dividend income 2,204 1,616 588
Provision for loan losses 230 184 46
- ----------------------------------------------------------------------------- ------------------ ---------------- ----------------
Net interest and dividend income after provision for loan losses 1,974 1,432 542
- ----------------------------------------------------------------------------- ------------------ ---------------- ----------------
NONINTEREST INCOME
Customer service fees 88 56 32
Other 12 12 -
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
Total noninterest income 100 68 32
- ----------------------------------------------------------------------------- ------------------ ---------------- ----------------
NONINTEREST EXPENSES
Salaries and employee benefits 516 438 78
Occupancy and equipment, net 156 191 (35)
Advertising and promotion 11 42 (31)
Professional fees 103 64 39
Other 250 205 45
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
Total noninterest expenses 1,036 940 96
- ----------------------------------------------------------------------------- ------------------ ---------------- ----------------
Income before income taxes 1,038 560 478
Income taxes 405 213 192
- ----------------------------------------------------------------------------- ------------------ ---------------- ----------------
Net income $ 633 $ 347 $ 286
- ----------------------------------------------------------------------------- ------------------ ---------------- ----------------
Basic earnings per share $ 0.26 $ 0.21 $ 0.05
Diluted earnings per share $ 0.19 $ 0.18 $ 0.01
- ----------------------------------------------------------------------------- ------------------ ---------------- ----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Intervest Bancshares Corporation and Subsidiary
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
For the Six Months Ended
June 30,
-------------------------------------
($ in thousands) 1998 1997
- -------------------------------------------------------------------------------------- ------------------- ------------------
<S> <C> <C>
CLASS A COMMON STOCK
Balance at beginning of period $ 2,124 $ 900
Issuance of 33,500 shares upon exercise of warrants 34 -
- -------------------------------------------------------------------------------------- ------------------- ------------------
Balance at end of period 2,158 900
- -------------------------------------------------------------------------------------- ------------------- ------------------
CLASS B COMMON STOCK
- -------------------------------------------------------------------------------------- ------------------- ------------------
Balance at beginning and end of period 300 200
- -------------------------------------------------------------------------------------- ------------------- ------------------
ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of period 13,360 7,655
Compensation related to issuance of stock warrants 30 -
Issuance of 33,500 shares upon exercise of stock warrants 201 -
- -------------------------------------------------------------------------------------- ------------------- ------------------
Balance at end of period 13,591 7,655
- -------------------------------------------------------------------------------------- ------------------- ------------------
RETAINED EARNINGS
Balance at beginning of period 1,836 992
Net income for the period 633 347
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
Balance at end of period 2,469 1,339
- -------------------------------------------------------------------------------------- ------------------- ------------------
Total stockholders' equity at end of period $18,518 $10,094
- -------------------------------------------------------------------------------------- ------------------- ------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Intervest Bancshares Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
----------------------------------
<S> <C> <C>
($ in thousands) 1998 1997
- ----------------------------------------------------------------------------------------- ---------------- -----------------
OPERATING ACTIVITIES
Net income $ 633 $ 347
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 125 108
Provision for loan losses 230 184
Provision for deferred income taxes 18 31
Accrued interest expense on debentures 16 -
Compensation expense related to stock warrants 30 -
Amortization of premiums, fees and discounts, net 69 12
Increase in accrued interest receivable and other assets (374) (183)
Increase in other liabilities 1,246 579
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
Net cash provided by operating activities 1,993 1,078
- ----------------------------------------------------------------------------------------- ---------------- -----------------
INVESTING ACTIVITIES
Increase to interest-earning deposits (100) -
Principal repayments of securities held to maturity 21,576 11,358
Purchases of securities held to maturity (23,568) (15,128)
Net increase in loans receivable (14,136) (10,256)
Purchases of premises and equipment, net (278) (1,135)
Sales of foreclosed real estate - 184
- ----------------------------------------------------------------------------------------- ---------------- -----------------
Net cash used by investing activities (16,506) (14,977)
- ----------------------------------------------------------------------------------------- ---------------- -----------------
FINANCING ACTIVITIES
Net increase in demand, savings, NOW and money-market deposits 9,557 10,017
Net increase in time deposits 8,118 1,398
Proceeds from convertible debentures and other borrowed funds 7,683 -
Repayment of other borrowed funds (1,160) -
Proceeds from issuance of common stock 235 -
- --------------------------------------------------------------------------------- ---------------- ---------------- ---------------
Net cash provided by financing activities 24,433 11,415
- ----------------------------------------------------------------------------------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents 9,920 (2,484)
Cash and cash equivalents at beginning of period 9,176 6,320
- ----------------------------------------------------------------------------------------- ---------------- -----------------
Cash and cash equivalents at end of period $ 19,096 $ 3,836
- ----------------------------------------------------------------------------------------- ---------------- -----------------
SUPPLEMENTAL DISCLOSURES Cash paid during the period for:
Interest $ 3,798 $ 2,684
Income taxes 229 397
Noncash financing activities:
Outstanding stock warrants 30 -
Interest on convertible debentures 16 -
- ----------------------------------------------------------------------------------------- ---------------- -----------------
See accompanying notes to condensed consolidated financial statements.
</TABLE>
F-6
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 - General
The condensed consolidated financial statements of Intervest Bancshares
Corporation and Subsidiary (the "Company") in this report have not been audited
except for the information derived from the audited Consolidated Statement of
Financial Condition as of December 31, 1997. These statements should be read in
conjunction with the consolidated financial statements and related notes thereto
included in the Company's Annual Report to Stockholders on Form 10-KSB for the
year ended December 31, 1997.
The consolidated financial statements include the accounts of Intervest
Bancshares Corporation, a bank holding company, and its subsidiary, Intervest
Bank. The holding company's primary business activity is the ownership of the
bank. All intercompany accounts and transactions have been eliminated in
consolidation. In the opinion of management, all material adjustments necessary
for a fair presentation of financial condition and results of operations for the
interim periods presented have been made. These adjustments are of a normal
recurring nature. The results of operations for the interim periods are not
necessarily indicative of results that may be expected for the entire year or
any other interim period. In preparing the consolidated financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. Actual results
could differ from those estimates. Certain reclassifications have been made to
prior period amounts to conform to the current periods' presentations.
Note 2 - Loan Impairment and Credit Losses
No loans were identified as being impaired during the 1998 and 1997
reporting periods. The table below summarizes the activity in the allowance for
loan losses:
<TABLE>
<CAPTION>
For the Quarter Ended For the Six Months Ended
June 30, June 30,
--------------------- ------------------------
($ in thousands) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $1,274 $906 $1,173 $811
Provision for loan losses charged to operations 130 92 230 184
Recoveries 1 1 2 4
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $1,405 $999 $1,405 $999
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 3 - Convertible Debentures
On June 26, 1998, the Company sold $7,000,000 of Convertible
Subordinated Debentures (the "Debentures"). The proceeds from the sale, net of
underwriting discounts, commissions and other fees, amounted to approximately
$6,500,000. The proceeds are part of the Company's capital funds and are not
restricted to their usage. The Debentures are due July 1, 2008 and are
convertible at the option of the holders at any time prior to April 1, 2008,
unless previously redeemed by the Company, into shares of Class A common stock
at an initial conversion price of $11.50 per share through December 31, 1998.
The initial conversion price was based on the average closing prices of the
Class A common stock during the 20 trading days prior to June 26, 1998. The
table that follows on page 7 shows the conversion prices beginning January 1,
1999.
Period Conversion Price Per Share
------ --------------------------
From January 1, 1999 to June 30, 1999 $ 12.50
From July 1, 1999 to June 30, 2000 14.00
From July 1, 2000 to June 30, 2001 15.50
From July 1, 2001 to June 30, 2002 17.00
From July 1, 2002 to June 30, 2003 18.50
From July 1, 2003 to June 30, 2004 20.50
From July 1, 2004 to June 30, 2005 22.50
From July 1, 2005 to June 30, 2006 25.50
From July 1, 2006 to June 30, 2007 28.50
From July 1, 2007 to April 1, 2008 32.50
F-7
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
The Company has the right to establish conversion prices, which are
less than those set forth above for such periods as the Company may determine.
The conversion prices are also subject to adjustments based on certain
conditions and circumstances. The Company also has the option at any time to
call all or any part of the Debentures for payment and redeem the same at any
time prior to maturity thereof. The redemption price for the Debentures is (i)
the face amount plus a 2% premium if the date of redemption is prior to July 1,
1999, (ii) the face amount plus a 1% premium if redemption occurs on or after
July 1, 1999 and prior to July 1, 2000, or (iii) the face amount if the date of
redemption is on or after July 1, 2000. In all cases, the debenture holder will
also receive accrued interest to the date of redemption. Interest on the
Debentures will accrue and compound each calendar quarter at 8%, which
represents the prime rate of Chase Manhattan Bank on June 26, 1998, less
one-half of one percent. All accrued interest is payable at the maturity of the
debentures whether by acceleration, redemption or otherwise. Any debenture
holder may, on or before July 1 of each year commencing July 1, 2003, elect to
be paid all accrued interest and to thereafter receive payments of interest
quarterly. Once made, the election to receive interest is irrevocable.
Note 4 - Earnings Per Share (EPS) and Common Stock Warrants
Basic EPS is calculated by dividing net income by the weighted-average
number of shares of common stock outstanding. Diluted EPS is calculated by
dividing adjusted net income by the weighted-average number of shares of common
stock and dilutive potential common stock shares that may be outstanding in the
future. Diluted EPS reflects the potential dilution that could occur if the
Company's outstanding stock warrants and Convertible Subordinated Debentures
were converted into common stock that then shared in the earnings of the
Company. Adjusted net income for Diluted EPS represents net income plus the
addback of interest expense, net of taxes, on the Convertible Subordinated
Debentures outstanding. This adjustment would arise from a hypothetical
conversion of all the debentures into common stock. Potential common stock
shares consist of outstanding dilutive common stock warrants (which are computed
using the treasury stock method) and the shares of common stock that would arise
from the conversion of the debentures. Prior to the public stock offering in
November 1997, there was no public market for the Company's common stock. For
purposes of calculating Diluted EPS for the 1997 periods, the $10 stock offering
price is assumed to be the market price.
Intervest Bancshares Corporation and Subsidiary
Net income applicable to common stock and the weighted-average number
of shares used for basic and diluted earnings per share computations are
summarized as follows:
<TABLE>
<CAPTION>
For the Quarter Ended For the Six Months Ended
June 30, June 30,
--------------------- ------------------------
1998 1997 1998 1997
- ------------------------------------------------------------- -------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income applicable to common stockholders $ 325,000 $ 187,000 $ 633,000 $ 347,000
Average number of common shares outstanding 2,453,140 1,650,000 2,440,595 1,650,000
- ------------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share amount $0.13 $0.11 $0.26 $0.21
- ------------------------------------------------------------- -------------- ---------------- ---- ---------------- ----------------
Diluted earnings per share:
Adjusted net income applicable to common stockholders $ 334,000 $ 187,000 $ 642,000 $ 347,000
Average number of common shares outstanding:
Common shares outstanding 2,453,140 1,650,000 2,440,595 1,650,000
Potential dilutive shares from conversion of warrants 862,455 355,615 839,291 355,616
Potential dilutive shares from conversion of debentures 67,037 - 33,518 -
----------------------------------------------------------------------
Total average number of common shares outstanding used 3,382,632 2,005,615 3,313,404 2,005,615
- ------------------------------------------------------------- -------------- ---------------- ---- ---------------- ----------------
Diluted earnings per share amount $0.10 $0.09 $0.19 $0.18
- ------------------------------------------------------------- -------------- ---------------- ---- ---------------- ----------------
</TABLE>
F-8
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
On March 16, 1998, the Board of Directors authorized the grant of stock
warrants to directors of the Company and officers, directors and employees of
Intervest Bank, its subsidiary, to purchase a total of 122,000 shares of Class A
common stock at an initial price of $14.00 per share, which represented the
market price of the common stock on such date. The grant was approved by the
Company's shareholders on May 27, 1998. The warrants vest immediately and expire
on December 31, 2002. The warrants were not included in the computations of
Diluted EPS for the 1998 periods because the warrants' exercise price was
greater than the average market price of the common shares. Also, the Debentures
were not outstanding for the entire part of 1998. Accordingly, if the Debentures
had been outstanding throughout 1998, approximately 560,000 of additional shares
would have been included in the Diluted EPS computations for 1998.
On April 27, 1998, the Board of Directors also authorized the issuance
of stock warrants to the Chairman of the Board to purchase a total of 50,000
shares of Class B common stock, exercisable on or before January 31, 2008, at a
price of $10.00 per share. The issuance of these stock warrants was also
approved by the Company's shareholders on May 27, 1998. The warrants vest as
follows: 7,100 immediately; 7,100 on each anniversary of the grant date for five
years; and 7,400 on the sixth anniversary date. The warrants become fully vested
earlier upon certain conditions. The exercise price of the warrants was below
the market price of the common shares at the date of grant. Therefore, in
accordance with APB No. 25, "Accounting for Stock Issued to Employees,"
approximately $14,000, net of taxes, was charged to earnings in the second
quarter of 1998 in connection with the issuance of these warrants.
Note 5 - Regulatory Capital
The Company's subsidiary, Intervest Bank, is required to maintain
certain minimum regulatory capital requirements. The following is a summary at
June 30, 1998 of the regulatory capital requirements and Intervest Bank's actual
capital on a percentage basis:
<TABLE>
<CAPTION>
Ratios of Minimum To Be Considered
the Bank Requirement Well Capitalized
-------- ----------- ----------------
<S> <C> <C> <C>
Total capital to risk-weighted assets 10.45% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 9.20% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 6.01% 4.00% 5.00%
</TABLE>
Note 6 - Proposed Bank
On July 10, 1998, an application for a national bank charter was filed
with the Office of the Comptroller of the Currency and the FDIC by Intervest
National Bank, In Organization. The new bank will be a wholly owned subsidiary
of the Company, with a principal office in the City of New York. The new bank
will have an initial capital of $9,000,000, which will be provided by the
Company.
F-9
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
Intervest Bancshares Corporation
New York, New York:
We have audited the accompanying consolidated balance sheets of Intervest
Bancshares Corporation and Subsidiary (the "Company") at December 31, 1997 and
1996 and the related consolidated statements of earnings, stockholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
December 31, 1997 and 1996 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
January 23, 1998
F-10
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
---------------------------
Assets 1997 1996
---- ----
<S> <C> <C>
Cash and due from banks. . . . . . . . . . . . . . . . $ 1,738 2,318
Federal funds sold . . . . . . . . . . . . . . . . . . 162 3,452
Short-term investments . . . . . . . . . . . . . . . . 7,276 550
--------- -------
Total cash and cash equivalents . . . . . . . 9,176 6,320
Interest-bearing deposits with banks . . . . . . . . . 99 99
Securities held to maturity. . . . . . . . . . . . . . 58,821 34,507
Loans receivable, net of allowance for loan losses of $1,173
in 1997 and $811 in 1996 . . . . . . . . . . . . . . 75,652 59,499
Accrued interest receivable. . . . . . . . . . . . . . 1,327 842
Premises and equipment, net. . . . . . . . . . . . . . 4,877 2,940
Restricted securities, Federal Reserve Bank stock, at cost 233 203
Foreclosed real estate . . . . . . . . . . . . . . . . - 185
Deferred income tax asset. . . . . . . . . . . . . . . 485 526
Other assets . . . . . . . . . . . . . . . . . . . . . 85 75
--------- -------
$ 150,755 105,196
========= =======
Liabilities and Stockholders' Equity
Liabilities:
Demand deposits. . . . . . . . . . . . . . . . . . . 3,490 2,401
Savings and NOW deposits . . . . . . . . . . . . . . 17,119 9,278
Money-market deposits. . . . . . . . . . . . . . . . 17,180 7,507
Time deposits. . . . . . . . . . . . . . . . . . . . 93,378 74,261
--------- -------
Total deposits. . . . . . . . . . . . . . . . 131,167 93,447
Other liabilities. . . . . . . . . . . . . . . . . . 1,947 1,676
--------- -------
Total liabilities . . . . . . . . . . . . . . 133,114 95,123
--------- -------
Minority interest. . . . . . . . . . . . . . . . . . . 21 326
--------- -------
Commitments (Notes 4 and 7)
Stockholders' Equity:
Preferred stock, 300,000 shares authorized, issued none - -
Class A common stock - $1 par value, 7,500,000 shares
authorized; 2,124,415 and 900,000 shares issued
and outstanding in 1997 and 1996 . . . . . . . . . 2,124 900
Class B common stock - $1 par value, 700,000 shares
authorized; 300,000 and 200,000 shares issued
and outstanding in 1997 and 1996 . . . . . . . . . 300 200
Additional paid-in capital . . . . . . . . . . . . . 13,360 7,655
Retained earnings. . . . . . . . . . . . . . . . . . 1,836 992
--------- -------
Total stockholders' equity. . . . . . . . . . 17,620 9,747
--------- -------
$ 150,755 105,196
========= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-11
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
($ in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Interest income:
Loans receivable . . . . . . . . . . . . . . . . . . $ 6,415 4,624
Securities held to maturity. . . . . . . . . . . . . 2,632 1,514
Other interest earning assets. . . . . . . . . . . . 300 243
--------- ---------
Total interest income . . . . . . . . . . . . 9,347 6,381
Interest expense on deposits . . . . . . . . . . . . . 5,894 3,745
--------- ---------
Net interest income . . . . . . . . . . . . . 3,453 2,636
Provision for loan losses. . . . . . . . . . . . . . . 352 250
--------- ---------
Net interest income after
provision for loan losses . . . . . . . . . . 3,101 2,386
--------- ---------
Noninterest income:
Customer service charges . . . . . . . . . . . . . . 121 89
Other. . . . . . . . . . . . . . . . . . . . . . . . 15 17
--------- ---------
Total noninterest income. . . . . . . . . . . 136 106
--------- ---------
Noninterest expenses:
Salaries and employee benefits . . . . . . . . . . . 907 739
Occupancy and equipment. . . . . . . . . . . . . . . 406 342
Advertising and promotion. . . . . . . . . . . . . . 40 9
Professional fees. . . . . . . . . . . . . . . . . . 48 57
State assessment . . . . . . . . . . . . . . . . . . 26 19
Audit and accounting . . . . . . . . . . . . . . . . 48 27
Data processing. . . . . . . . . . . . . . . . . . . 21 9
Deposit insurance premiums . . . . . . . . . . . . . 12 2
General insurance. . . . . . . . . . . . . . . . . . 31 31
Stationery, printing and supplies. . . . . . . . . . 83 51
Other . . . . . 282 246
Minority interest in subsidiary. . . . . . . . . . . 2 19
Total noninterest expenses. . . . . . . . . . 1,906 1,551
Earnings before income taxes . . . . . . . . . . . . . 1,331 941
Income taxes. . . . . . . . . . . . . . . . . 487 383
--------- ---------
Net earnings . . . . . . . . . . . . . . . . . . . . . $ 844 558
========= =========
Basic earnings per share . . . . . . . . . . . . . . . $ .49 .34
========= =========
Diluted earnings per share . . . . . . . . . . . . . . $ .41 .34
========= =========
Weighted-average number of shares
outstanding for basic earnings per share . . . . . . 1,712,292 1,650,000
========= =========
Weighted-average number of shares
outstanding for diluted earnings per share . . . . . 2,072,459 1,650,000
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-12
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
($ in thousands)
<TABLE>
<CAPTION>
Shares of
Class A Class A Class B Additional Total
Common Common Common Paid-In Retained Stockholders'
Stock Stock Stock Capital Earnings Equity
----- ----- ----- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995 ................................... 900,000 $ 900 200 7,655 434 9,189
Net earnings ............................. - - - - 558 558
--------- ------- --- ------ ----- ------
Balance at December 31,
1996 ................................... 900,000 900 200 7,655 992 9,747
Effect of 1.5 for 1 stock
split .................................. 450,000 450 100 (550) - -
Proceeds from 747,500 shares
of stock issued, net of stock
issuance cost of $755 ................. 747,500 748 - 5,972 - 6,720
Net earnings ............................. - - - - 844 844
Issuance of common stock
in exchange for common
stock of minority
stockholders of
subsidiary ............................. 26,915 26 - 283 - 309
--------- ------- --- ------ ----- ------
Balance at December 31,
1997 ................................... 2,124,415 $ 2,124 300 13,360 1,836 17,620
========= ======= === ====== ===== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-13
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------------
1997 1996
---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . $ 844 558
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . 260 176
Provision for deferred income taxes . . . . . . . . 41 67
(Increase) decrease in other assets . . . . . . . . (10) 35
Increase in other liabilities . . . . . . . . . . . 275 850
Increase in accrued interest receivable . . . . . . (485) (199)
Net amortization of fees, premiums and discounts. . 19 271
Provision for loan losses . . . . . . . . . . . . . 352 250
------- -------
Net cash provided by operating activities . . . . 1,296 2,008
------- -------
Cash flows from investing activities:
Purchase of securities held to maturity. . . . . . . . . (44,450) (30,025)
Maturities of securities held to maturity. . . . . . . . 20,175 15,050
Net purchases of premises and equipment. . . . . . . . . (2,197) (667)
Net increase in loans. . . . . . . . . . . . . . . . . . (16,563) (23,642)
Proceeds from sale of foreclosed real estate . . . . . . 185 -
Purchase of Federal Reserve Bank stock . . . . . . . . . (30) -
Maturity of interest-bearing deposits. . . . . . . . . . - 199
------- -------
Net cash used in investing activities . . . . . . (42,880) (39,085)
======= =======
Cash flows from financing activities:
Net increase in demand, savings, NOW and
money market deposits. . . . . . . . . . . . . . . . . 18,603 9,639
Net increase in time deposits. . . . . . . . . . . . . . 19,117 25,207
Proceeds from issuance of common stock, net of stock issuance costs 6,720 -
------- -------
Net cash provided by financing activities . . . . 44,440 34,846
------- -------
Net increase (decrease) in cash and cash equivalents 2,856 (2,231)
Cash and cash equivalents at beginning of year . . . . . . 6,320 8,551
------- -------
Cash and cash equivalents at end of year . . . . . . . . . $ 9,176 6,320
======== =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . . . . . $ 5,832 3,678
======== =======
Income taxes. . . . . . . . . . . . . . . . . . . $ 700 17
======== =======
Noncash transactions:
Reclassification of loans to foreclosed real estate $ - 185
======== =======
Issuance of common stock in exchange of common
stock of minority stockholders of subsidiary. . . . . $ 309 -
======== =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-14
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1997 and 1996
(1) Description of Business and Summary of Significant Accounting Policies
General. Intervest Bancshares Corporation (the "Holding Company") was
incorporated on February 5, 1993. The Holding Company owned 99.78% and
95.76% at December 31, 1997 and 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 five banking offices located in
Pinellas County, Florida.
The principal executive offices of the Bank are located at 625 Court Street,
Clearwater, Florida. In addition, the Bank has four branch offices, three in
Clearwater, Florida located at (i) 2575 Ulmerton Road; (ii) 2175 Nursery
Road; and (iii) 1875 Belcher Road and one in South Pasadena, Florida at 6750
Gulfport Boulevard.
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.
Securities Held to Maturity. United States government treasury and agency
securities for which the Company has the positive intent and ability to hold
to maturity are reported at cost, adjusted for amortization of premiums and
accretion of discounts which are recognized in interest income using the
interest method over the period to maturity.
Loans Receivable. Loans receivable that management has the intent and ability
to hold for the foreseeable future or until maturity or pay-off are reported
at their outstanding principal adjusted for any charge-offs, the allowance
for loan losses, and any deferred fees or costs on originated loans.
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
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.
(continued)
F-15
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Description of Business and Summary of Significant Accounting Policies,
Continued
Loans Receivable, Continued. The 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.
Stock-Based Compensation. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("Statement 123") establishes a
"fair value" based method of accounting for stock-based compensation plans
and encourages all entities to adopt that method of accounting for all of
their stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" (Opinion 25). The Company has
elected to follow Opinion 25 and related interpretations in accounting for
its stock-based compensation which is in the form of stock warrants.
Statement 123 requires the disclosure of proforma net earnings and earnings
per share determined as if the Company accounted for its stock warrants
under the fair value method of that Statement.
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 interest-bearing deposits with banks
approximate their fair value.
Securities Held to Maturity. Fair values for securities held to maturity are
based on quoted market prices.
(continued)
F-16
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Description of Business and Summary of Significant Accounting Policies,
Continued
Fair Values of Financial Instruments, Continued.
Federal Reserve Bank Stock. Book value for these securities approximates
fair value.
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 ("EPS") of common stock has been
computed on the basis of the weighted-average number of shares of common
stock outstanding. Prior to the public stock offering in November, 1997,
there was no public market for the Company's common stock. For purposes of
calculating diluted EPS the $10 stock offering price is assumed to be the
market price for the entire year ended December 31, 1997. For 1997,
outstanding warrants are considered dilutive securities for purposes of
calculating diluted EPS which is computed using the treasury stock method.
Such warrants were not considered dilutive in 1996. The following table
presents the calculations of EPS (See Note 16) ($ in thousands, except per
share amounts).
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS:
Net earnings available to common stockholders . . . . . . . . $ 844 1,712,292 $ .49
Effect of dilutive securities-
Incremental shares from assumed conversion
of warrants . . . . . . . . . . 360,167
---------
Diluted EPS:
Net earnings available to common stockholders
and assumed conversions . . . . . . . . $ 844 2,072,459 $ .41
===== ========= =====
</TABLE>
(continued)
F-17
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1)Description of Business and Summary of Significant Accounting Policies,
Continued
Earnings Per Share, Continued. Warrants to purchase 1,528,665 and 150,000
shares of Class A and Class B common stock at $6.67 per share were assumed
to be exercised on January 1, 1997 and June 1, 1997, respectively. Warrants
to purchase 989,083 shares of Class A common stock at $10.00 per share are
not included in the computation of diluted EPS because the warrants'
exercise price approximated the market price of the stock. None of the above
warrants have been exercised as of December 31, 1997.
Reclassifications. Certain amounts in the 1996 financial statements have been
reclassified to conform to the 1997 presentation.
Future Accounting Requirements. Financial Accounting Standards 130 - Reporting
Comprehensive Income establishes standards for reporting comprehensive
income. The Standard defines comprehensive income as the change in equity of
an enterprise except those resulting from stockholder transactions. All
components of comprehensive income are required to be reported in a new
financial statement that is displayed with equal prominence as existing
financial statements. The Company will be required to adopt this Standard
effective January 1, 1998. As the Statement addresses reporting and
presentation issues only, there will be no impact on operating results from
the adoption of this Standard.
Financial Accounting Standards 131 - Disclosures about Segments of an
Enterprise and Related Information establishes standards for related
disclosures about products and services, geographic areas, and major
customers. The Company will be required to adopt this Standard effective
January 1, 1998. As the Standard addresses reporting and disclosure issues
only, there will be no impact on operating results from adoption of this
Standard.
(continued)
F-18
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Securities Held to Maturity
Debt securities have been classified in the consolidated balance sheets
according to management's intent. The carrying amount of securities and
their approximate fair values are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
December 31, 1997:
U.S. Treasury securities. . . . . . $ 4,027 15 - 4,042
U.S. Government and
agency securities. . . . . . 54,794 64 64 54,794
------ -- -- ------
Total. . . . . . $ 58,821 79 64 58,836
======== == == ======
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
======== == === ======
There were no sales of securities during the years ended December 31, 1997 or
1996.
The scheduled maturities of securities held to maturity at December 31, 1997
are summarized as follows (in thousands):
<CAPTION>
Amortized Fair
Cost Value
-------- -------
<S> <C> <C>
Due in one year or less . . . . . . . . . . . . . $ 13,169 13,186
Due after one year through five years . . . . . . 32,890 32,896
Due after five years through ten years. . . . . . 12,762 12,754
-------- ------
Total . . . . . . . . . . . . . . . . . . . . . $ 58,821 58,836
======== ======
(continued)
</TABLE>
F-19
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans Receivable
The components of loans in the consolidated balance sheets are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
At December 31,
--------------------
1997 1996
---- ----
<S> <C> <C>
Commercial loans. . . . . . . . . . . . . . . . . $ 3,281 3,514
Commercial real estate. . . . . . . . . . . . . . 70,533 54,198
Residential real estate . . . . . . . . . . . . . 3,150 2,784
Consumer loans. . . . . . . . . . . . . . . . . . 262 157
-------- ------
77,226 60,653
Deferred loan fees. . . . . . . . . . . . . . . . (401) (343)
Allowance for loan losses . . . . . . . . . . . . (1,173) (811)
-------- ------
$ 75,652 59,499
======== ======
An analysis of the change in the allowance for loan losses follows (in thousands):
Year Ended
December 31,
---------------------
1997 1996
---- ----
Balance at beginning of year. . . . . . . . . . . $ 811 593
------- ---
Loans charged-off . . . . . . . . . . . . . . . . - (65)
Recoveries. . . . . . . . . . . . . . . . . . . . 10 33
------- ---
Net . . . . . . . . . . . . . . . . . . . 10 (32)
------- ---
Provision for loan losses . . . . . . . . . . . . 352 250
------- ---
Balance at end of year. . . . . . . . . . . . . . $ 1,173 811
======= ===
</TABLE>
The Company had no impaired loans at December 31, 1997 or 1996. The average
recorded investment in impaired loans during the year ended December 31,
1996 was $31,000. There were no impaired loans identified during 1997. No
interest income was recognized on impaired loans during 1996.
(continued)
F-20
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Premises and Equipment
Premises and equipment is summarized as follows (in thousands):
At December 31,
-----------------------
1997 1996
---- ----
Land. . . . . . . . . . . . . . . . $ 915 729
Bank buildings. . . . . . . . . . . 3,570 1,926
Leasehold improvements. . . . . . . 162 61
Furniture and fixtures and equipment 1,203 565
------- -----
Total, at cost. . . . . . . . 5,850 3,281
Less accumulated depreciation and
amortization. . . . . . . . . . (973) (341)
------- -----
Net book value. . . . . . . . $ 4,877 2,940
======= =====
The Bank leases its Belcher Road office. The lease is accounted for as an
operating lease and will expire on October 31, 2007. 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 $125,000 and $163,000 for the years ended
December 31, 1997 and 1996, respectively. Approximate future minimum annual
rental payments under this noncancellable lease at December 31, 1997 is as
follows (in thousands):
Year Ending
December 31,
------------
1998 . . . . . . . . . . . . $ 94
1999 . . . . . . . . . . . . 96
2000 . . . . . . . . . . . . 99
2001 . . . . . . . . . . . . 102
2002 . . . . . . . . . . . . 106
Thereafter . . . . . . . . . 514
-------
Total. . . . . . . . . . . $ 1,011
=======
(continued)
F-21
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Premises and Equipment, Continued
The Company leases a portion of their office space in the branch office
located on Ulmerton Road and beginning in September, 1997, office space at
the new main office on Court Street, to other companies. Such leases begin
to expire in 1998. Rental income during the years ended December 31, 1997
and 1996 totaled approximately $195,000 and $159,000, respectively.
Approximate future minimum lease income under these leases at December 31,
1997 is as follows (in thousands):
Year Ending
December 31,
------------
1998 . . . . . . . . . . . . $ 343
1999 . . . . . . . . . . . . 275
2000 . . . . . . . . . . . . 271
2001 . . . . . . . . . . . . 211
2002 . . . . . . . . . . . . 190
Thereafter . . . . . . . . . 792
-------
Total . . . . . . . . . . . $ 2,082
=======
This table gives no effect to the future rental value of office space
subsequent to lease expiration dates.
(5) Deposits
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000, was approximately $9,506,000 and $7,261,000 at December 31, 1997
and 1996, respectively.
Scheduled maturities of certificates of deposit at December 31, 1997 are as
follows (in thousands):
Year Ending
December 31,
------------
1998 . . . . . . . . . . . . $46,954
1999 . . . . . . . . . . . . 16,554
2000 . . . . . . . . . . . . 9,446
2001 . . . . . . . . . . . . 9,362
2002 and thereafter . . . . 11,062
-------
Total . . . . . . . . . . . $93,378
=======
(continued)
F-22
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6) Other Borrowings
The Company has agreements with correspondent banks whereby the Company may
borrow up to $1,000,000 on an overnight basis under a repurchase agreement
and up to $3,457,000 in federal funds. There were no borrowings under these
agreements at December 31, 1997 or 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.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates
each customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Company upon extension of
credit is based on management's credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers.
(continued)
F-23
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) Financial Instruments, Continued
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1996
-------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents . . . . . . . $ 9,176 9,176 6,320 6,320
Securities held to maturity . . . . . . 58,821 58,836 34,507 34,453
Loans receivable, net . . . . . . . . . 75,652 75,658 59,499 59,692
Accrued interest receivable . . . . . . 1,327 1,327 842 842
Federal Reserve Bank stock. . . . . . . 233 233 203 203
Interest-bearing deposits with bank . . 99 99 99 99
Financial liabilities-
Deposit liabilities . . . . . . . . . . 131,167 131,491 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 at December 31, 1997
follows (in thousands):
Unfunded loan commitments at variable rates . . . $ 2,950
=======
Available lines of credit . . . . . . . . . . . . $ 527
=======
Standby letters of credit . . . . . . . . . . . . $ 100
=======
(8) Credit Risk
The Company grants a majority of its loans to borrowers throughout the State
of Florida. Although the Company has a diversified loan portfolio, a
significant portion of its borrowers' ability to honor their contracts is
dependent upon the economy of the State of Florida. In addition, at December
31, 1997, the Company's loan portfolio contained a concentration of credit
risk in retail shopping centers, apartment buildings and office buildings
totaling $55,707,000.
(continued)
F-24
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(9) Income Taxes
The provision for income taxes consisted of the following (in thousands):
Year Ended December 31, 1997: Current Deferred Total
------- -------- -----
Federal ........................................ $377 35 412
State .......................................... 69 6 75
---- -- ---
Total .................................... $446 41 487
==== == ===
Year Ended December 31, 1996:
Federal ........................................ 244 63 307
State .......................................... 72 4 76
---- -- ---
Total .................................... $316 67 383
==== == ===
The reasons for the differences between the statutory Federal income tax rate
and the effective tax rate are summarized as follows:
Year Ended
December 31,
----------------
1997 1996
---- ----
Tax provision at statutory rate . . . . . . . . . . 34.0% 34.0%
Increase (decrease) in taxes resulting from:
State income taxes. . . . . . . . . . . . . . . . 3.8 8.1
Other . . . . . . . . . . . . . . . . . . . . . . (1.2) (1.4)
---- ----
Income tax provision . . . . . . . . . . . . . . . 36.6% 40.7%
==== ====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets relate to the following (in thousands):
Year Ended
December 31,
----------------
1997 1996
---- ----
Net deferred tax assets:
Allowance for loan losses. . . . . . . . . . . . . $ 298 185
Depreciation . . . . . . . . . . . . . . . . . . . (19) (20)
Deferred loan fees . . . . . . . . . . . . . . . . 13 19
Net operating loss carryforward. . . . . . . . . . 186 311
Other. . . . . . . . . . . . . . . . . . . . . . . 7 31
----- ---
Net deferred tax assets . . . . . . . . . . . . $ 485 526
===== ===
(continued)
F-25
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(9) Income Taxes, Continued
At December 31, 1997, the Company has the following net operating loss
carryforwards relating to the operations of the Bank for federal income tax
purposes available to offset future federal taxable income (in thousands):
Expiration
----------
2006. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 194
2007. . . . . . . . . . . . . . . . . . . . . . . . . . . 297
2008. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
-----
$ 494
=====
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):
Year Ended
December 31,
--------------
1997 1996
------- -----
Balance at beginning of year. . . . . . . . . . . $ 2,941 1,484
Additions . . . . . . . . . . . . . . . . . . . . 510 1,570
Repayments. . . . . . . . . . . . . . . . . . . . (209) (113)
------- -----
Balance at end of year. . . . . . . . . . . . . . $ 3,242 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 were to expire on
December 31, 2001, and were exercisable at $5 per share. All such options
were exchanged for warrants of the Holding Company by the officer during
1997. In 1997 the option plan was terminated.
(continued)
F-26
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(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 $21,377
and $12,181 for the years ended December 31, 1997 and 1996, respectively.
(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 December 31, 1997,
that the Bank meets all capital adequacy requirements to which it is
subject.
(continued)
F-27
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(15) Regulatory Matters, Continued
As of December 31, 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. The Bank's actual capital amounts and
ratios are also presented in the table (dollars in thousands).
<TABLE>
<CAPTION>
For Well
For Capital Capitalized
Actual Adequacy Purposes: Purposes:
----------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital (to Risk
Weighted Assets) ............... $10,243 11.46% $7,153 8.00% $8,941 10.00%
Tier I Capital (to Risk
Weighted Assets) ............... 9,125 10.21 3,578 4.00 5,365 6.00
Tier I Capital
(to Average Assets) ........... 9,125 6.53 5,591 4.00 6,988 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>
(16) Capital 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 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.
(continued)
F-28
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(16) Capital Stock, Continued
On September 19, 1997, the Holding Company's charter was amended to increase
the authorized number of shares of Class A common stock to 7,500,000, Class
B common stock to 700,000 and preferred stock to 300,000.
Inaddition, 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 stockholders of record on September 19, 1997. All
per share amounts reflect the effect of these stock splits.
(17) Common Stock Warrants
The Company has outstanding warrants which entitle the registered holders
thereof to purchase one share of common stock for each issued warrant. All
warrants were exercisable when issued. These warrants have been issued in
connection with public stock offerings, to directors and employees of the
Bank and directors of the Holding Company and to outside third parties for
performance of services. A summary of stock warrant transactions follows ($
in thousands, except per share amounts).
<TABLE>
<CAPTION>
Weighted-
Weighted- Average
Average Contractual
Exercise Per Aggregate Life At
Number of Price Per Warrant Warrant December 31,
Class A Common Stock Warrants: Warrants Warrant Price Price 1997
-------- ------- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Outstanding at December 31,1995. . 1,288,500 $ 6.67 $ 6.67 $ 8,594 5.4 years
Warrants granted . . . . . . . 240,165 6.67 6.67 1,602 5.1 years
Outstanding at December 31, 1996 . 1,528,665 6.67 6.67 10,196 5.4 years
Warrants granted . . . . . . . 949,183 10.00 10.00 9,492 2.0 years(1)
Warrants granted . . . . . . . 16,500 10.00 10.00 165 4.0 years
Outstanding at December 31, 1997 . 2,494,348 $ 6.67-10.00 $ 7.96 19,853 4.1 years
========= ============ ====== ======= =========
</TABLE>
__________________________________
(1) These warrants entitle the holder to purchase one share of Class A common
stock at a price of $10.00 per share through December 31, 1999; $11.50 per
share from January 1, 2000 through December 31, 2000; $12.50 per share from
January 1, 2001 through December 31, 2001 and $13.50 per share from January 1,
2002 through December 31, 2002. For purposes of the above table it is assumed
that these warrants will be exercised on December 31, 1999.
(continued)
F-29
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(17) Common Stock Warrants, Continued
<TABLE>
<CAPTION>
Weighted-
Weighted- Average
Average Contractual
Option Per Aggregate Life At
Number of Price Per Warrant Warrant December 31,
Class B Common Stock Warrants: Warrants Warrant Price Price 1997
-------- ------- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Outstanding at December 31,1995
and 1996 ............................... - - - - -
Warrants granted ............................. 150,000 $ 6.67 $ 6.67 $ 1,001 9.0 years
------- -------
Outstanding at December 31, 1997 ............. 150,000 $ 6.67 $ 6.67 $ 1,001 9.0 years
======= ====== ====== ======= =========
</TABLE>
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
issued to employees and directors of the Bank, directors of the Holding
Company and to outside third parties for performance of services being
greater than or approximating the market value of the common stock at the
date of grant, no compensation expense has been recognized in the
consolidated statements of earnings.
Inorder to calculate the fair value of the warrants issued to employees and
directors of the Bank, directors of the Holding Company and to outside third
parties for the performance of services, it was assumed that the risk-free
interest rate was 6.0%, there would be no dividends paid by the Company over
the exercise period, the expected life of the warrants would be the entire
exercise period, except for warrants issued in 1997 that have increasing
option prices which is the end of the initial exercise period, and stock
volatility would be zero due to the lack of an active market for the stock.
The following information pertains to the fair value of the such warrants
granted to purchase common stock in 1996 and 1997 (in thousands, except per
share amounts):
Year Ended
December 31,
------------
1997 1996
---- ----
Weighted-average grant date fair value of warrants
issued during the year. . . . . . . . . . . . . . $ 622 470
===== ===
Proforma net earnings. . . . . . . . . . . . . . . . . $ 222 88
===== ==
Proforma basic earnings per share. . . . . . . . . . . $ .13 .05
===== ===
(continued)
F-30
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(18) Holding Company Financial Information
The Holding Company's financial information is as follows (in thousands):
Condensed Balance Sheets
At December 31,
---------------
1997 1996
---- ----
Assets
Cash. . . . . . . . . . . . . . . . . . . . . . . $ 223 698
Short-term securities . . . . . . . . . . . . . 7,276 550
-------- -----
Cash and cash equivalents. . . . . . . . . 7,499 1,248
Loans receivable. . . . . . . . . . . . . . . . . 752 1,230
Investment in subsidiary. . . . . . . . . . . . . 9,399 7,340
Organizational costs, net . . . . . . . . . . . . 2 32
Other assets. . . . . . . . . . . . . . . . . . . 23 17
-------- -----
Total assets . . . . . . . $ 17,675 9,867
======== =====
Liabilities and Stockholders' Equity
Liabilities . . . . . . . . . . . . . . . . . . . 55 120
Stockholders' equity. . . . . . . . . . . . . . . 17,620 9,747
-------- -----
Total liabilities and stockholders' equity . . $ 17,675 9,867
======== =====
Condensed Statements of Earnings
For the Year Ended
At December 31,
---------------
1997 1996
---- ----
Revenues . . . . . . . . . . . . . . . . . . . . . . . $ 264 325
Expenses . . . . . . . . . . . . . . . . . . . . . . . 172 224
--- ---
Earnings before earnings of subsidiary. . . . . . 92 101
Earnings of subsidiary. . . . . . . . . . . . . . 752 457
--- ---
Net earnings. . . . . . . . . . . . . . . . . . . $ 844 558
===== ===
(continued)
F-31
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(18) Holding Company Financial Information, Continued
Condensed Statements of Cash Flows
Year Ended
December 31,
---------------
1997 1996
---- ----
Cash flows from operating activities:
Net earnings. . . . . . . . . . . . . . . . . . $ 844 558
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Equity in undistributed earnings of
subsidiary. . . . . . . . (752) (457)
Net decrease in organizational costs . . . . 30 29
Other. . . . . . . . . . . . . . . . . . . . (69) 72
------ -----
Net cash provided by operating activities 53 202
------ -----
Cash flows used in investing activities -
Net decrease (increase) in loans. . . . . . . . 478 (62)
------ -----
Cash flows from financing activities:
Proceeds from issuance of common stock. . . . . 6,720 -
Purchase of common stock of subsidiary. . . . . (1,000) (40)
------ -----
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . 5,720 (40)
------ -----
Net increase in cash and cash equivalents. . . . . . 6,251 100
Cash and cash equivalents at beginning of
the year. . . . . . . . . . . . . . . . . . . . 1,248 1,148
------- -----
Cash and cash equivalents at end of year . . . . . . $ 7,499 1,248
======= =====
(continued)
F-32
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(19) Selected Quarterly Financial Data (unaudited)
Summarized quarterly financial data follows ($ in thousands, except per share
figures):
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . $ 2,085 2,219 2,337 2,706
Interest expense. . . . . . . . . . . . 1,309 1,379 1,480 1,726
----- ----- ----- -----
Net interest income . . . . . . . . . . 776 840 857 980
Provision for loan losses . . . . . . . 92 92 82 86
----- ----- ----- -----
Net interest income after provision
for loan losses. . . . . . . . . . . . 684 748 775 894
Noninterest income. . . . . . . . . . . 31 37 28 40
Noninterest expense . . . . . . . . . . 461 479 467 499
------ ----- ----- -----
Earnings before income taxes. . . . . . 254 306 336 435
Income taxes. . . . . . . . . . . . . . 94 119 121 153
------ ----- ----- -----
Net earnings . . . . . . . . . . . . . $ 160 187 215 282
====== ===== ===== =====
Basic earnings per share. . . . . . . . $ .10 .11 .13 .15
====== ===== ===== =====
Diluted earnings per share. . . . . . . $ .09 .09 .11 .12
====== ===== ===== =====
Year Ended December 31, 1996
-------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Interest income . . . . . . . . . . . . $ 1,377 1,480 1,637 1,887
Interest expense. . . . . . . . . . . . 788 840 975 1,142
------ ----- ----- -----
Net interest income . . . . . . . . . . 589 640 662 745
Provision for loan losses . . . . . . . 73 55 62 60
------ ----- ----- -----
Net interest income after provision
for loan losses. . . . . . . . . . . . 516 585 600 685
Noninterest income. . . . . . . . . . . 30 48 24 4
Noninterest expense . . . . . . . . . . 361 404 374 412
------ ----- ----- -----
Earnings before income taxes. . . . . . 185 229 250 277
Income taxes. . . . . . . . . . . . . . 75 97 101 110
------ ----- ----- -----
Net earnings . . . . . . . . . . . . . $ 110 132 149 167
====== ===== ===== =====
Basic earnings per share. . . . . . . . $ .07 .08 .09 .10
====== ===== ===== =====
Diluted earnings per share. . . . . . . $ .07 .08 .09 .10
====== ===== ===== =====
</TABLE>
F-33
<PAGE>
No dealer, salesman or any other person is authorized to give any information or
to make any representation not contained in this Prospectus. If given or made,
such information or representation must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer of any
securities other than the registered securities to which it relates or an offer
to any person in any jurisdiction where such an offer would be unlawful. Neither
the delivery of this Prospectus, nor any sale made hereunder, shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to its date.
----------------
TABLE OF CONTENTS
Page
----
Available Information ............ 3
Prospectus Summary ............... 4
Investment Considerations and Risk
Factors ........................ 9
Use of Proceeds .................. 12
Market for Securities ............ 12
Dividends ........................ 13
Capitalization ................... 14
Selected Financial Data .......... 15
Management's Discussion and
Analysis of Financial Condition
and Results of Operation ....... 16
Business ......................... 38
Management ....................... 43
Principal Stockholders ........... 43
Description of Securities ........ 56
Supervision and Regulation ....... 59
Plan of Distribution ............. 64
Legal Matters .................... 65
Experts .......................... 65
Index to Financial Statements .... F-1
INTERVEST BANCSHARES CORPORATION
Warrants Related to
1,732,683 shares of Class A Common
Stock and 50,000 shares of Class B
Common Stock
and
2,616,348 shares of Class A Common Stock
and
200,000 shares of Class B Common Stock
--------------
PROSPECTUS
--------------
___________, 1998
<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 $ 849
Printing and Engraving expenses $ 2,000
Accounting fees and expenses $ 5,000
Legal fees and expenses $15,000
Blue Sky fees and expenses $ 7,000
Transfer Agents and Registrar fees $ --
Miscellaneous $10,151
-------
Total $40,000
- ------------------------------------
<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
- -------------- ----------------------
3.1 Restated Certificate of Incorporation of the Company (1)
3.2 Bylaws of the Company1
4.1 Form of Certificate for Shares of Class A Common Stock (2)
4.2 Form of Certificate for Shares of Class B Common Stock (2)
4.3 Form of Warrant for Class A Common Stock (1)
4.4 Form of Warrant Agreement between the Company and the Bank
of New York (1)
5.1 Opinion of Harris Beach & Wilcox, LLP
24.1 Consent of Harris Beach & Wilcox, LLP is included in the
Opinion of Harris Beach & Wilcox, LLP, filed as Exhibit 5.1
24.2 Consent of Hacker, Johnson, Cohen & Grieb
- ----------------------
1 Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (No. 333-33419), filed with the
Commission on September 22, 1997.
2 Incorporated by reference from Pre-Effective Amendment No. 1 to the
Company's Registration Statement on Form SB-2 (No. 33-82246), filed
with the Commission on September 15, 1994.
II-2
<PAGE>
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 21st day of
September, 1998.
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.
Title Date
----- ----
/s/Lawrence G. Bergman Vice President, September 21, 1998
- ---------------------- Secretary and Director
Lawrence G. Bergman
- ---------------------- Director September ___, 1998
Michael A. Callen
/s/Jerome Dansker Chairman of the Board, September 21, 1998
- ---------------------- Executive Vice President,
Jerome Dansker Director
/s/Lowell S. Dansker President, Treasurer and Director September 21, 1998
- ---------------------- (Principal Executive, Financial
Lowell S. Dansker and Accounting Officer)
- ---------------------- Director September ___, 1998
Milton F. Gidge
/s/William F. Holly Director September 21, 1998
- ----------------------
William F. Holly
- ---------------------- Director September 21, 1998
Edward J. Merz
/s/David J. Willmott Director September 21, 1998
- ----------------------
David J. Willmott
/s/Wesley T. Wood Director September 21, 1998
- ----------------------
Wesley T. Wood
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
5.1 Opinion of Harris Beach & Wilcox, LLP
24.1 Consent of Harris Beach & Wilcox, LLP is
included in the Opinion of Harris Beach
& Wilcox, LLP, filed as Exhibit 5.1
24.2 Consent of Hacker, Johnson, Cohen & Grieb
Exhibit 5.1
September 16, 1998
Intervest Bancshares Corporation
10 Rockefeller Plaza, Suite 1015
New York, New York 10020-1903
Re: Intervest Bancshares Corporation
Registration Statement on Form SB-2
Gentlemen:
You have requested our opinion in connection with a Registration
Statement on Form SB-2 (the "Registration Statement") filed by Intervest
Bancshares Corporation (the "Company") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), in
connection with the Company's Warrants for the purchase of up to 1,732,683
shares of Class A Common Stock and 150,000 shares of Class B Common Stock (the
"Warrants"), as well as 2,616,348 shares of Class A common Stock and 200,000
shares of Class B Common Stock that may be issued upon exercise of the Warrants.
The Class A Common Stock and the Class B Common Stock are herein collectively
referred to as the "Common Stock." Capitalized terms, unless otherwise defined
herein, shall have the meanings set forth in the Registration Statement.
In connection with this opinion, we have examined the Registration
Statement, the Certificate of Incorporation of the Company, the Bylaws of the
Company, Certificates of Public Officials and Officers of the Company and such
other documents and records as we have deemed necessary or appropriate for
purposes of our opinion.
Based on the foregoing, and subject to the qualifications and
assumptions referred to herein, we are of the opinion that:
a. The Company is a corporation validly existing and in good standing
under the laws of the State of Delaware.
b. The Warrants constitute the legal, valid and binding obligations
of the Company.
c. When shares of Common Stock which are issuable upon exercise of the
Warrants have been issued and delivered upon any exercise of the Warrants in
accordance with the terms of the Warrants, such shares of 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 the federal laws of the United States.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the prospectus included in the Registration Statement.
Very truly yours,
Harris Beach & Wilcox, LLP
By: /s/ Thomas E. Willett
---------------------
Thomas E. Willett,
Member of the Firm
Exhibit 24.2
Accountants' Consent
The Board of Directors
Intervest Bancshares Corporation
New York, New York:
We consent to the use of our report dated January 23, 1998 relating to the
consolidated balance sheets as of December 31, 1997 and 1996 and the related
consolidated statements of earnings, stockholders' equity and cash flows for the
years then ended of Intervest Bancshares Corporation and to the use of our name
under the caption of "Experts," in the Registration Statement on Form SB-2 of
Intervest Bancshares Corporation.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
September 16, 1998
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