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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
Commission File No. 000-23377
INTERVEST BANCSHARES CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 13-3699013
- ---------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation
10 Rockefeller Plaza, Suite 1015
New York, New York 10020-1903
----------------------------------------
(Address of principal executive offices)
(212) 218-2800
------------------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section
12, 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days: YES XX NO .
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Title of Each Class: Shares Outstanding:
- -------------------- -------------------
Class A Common Stock, 2,271,879 Outstanding
$1.00 par value per share at October 31, 1999
- ------------------------- -------------------
Class B Common Stock, 305,000 Outstanding
$1.00 par value per share at October 31, 1999
- ------------------------- -------------------
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<PAGE>
<TABLE>
<CAPTION>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
FORM 10-QSB
September 30, 1999
TABLE OF CONTENTS
<S> <C>
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of September 30, 1999 (Unaudited) and December 31, 1998 ............................. 1
Condensed Consolidated Statements of Earnings (Unaudited)
for the Quarter and Nine-Months Ended September 30, 1999 and 1998 ...................... 2
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
for the Nine-Months Ended September 30, 1999 and 1998.................................. 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Nine-Months Ended September 30, 1999 and 1998.................................. 4
Notes to Condensed Consolidated Financial Statements (Unaudited) ......................... 5
Item 2. Management's Discussion and Analysis or Plan of Operation ....................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................ 18
Item 2. Changes in Securities and Use of Proceeds........................................ 18
Item 3. Defaults Upon Senior Securities.................................................. 18
Item 4. Submission of Matters to a Vote of Security Holders.............................. 18
Item 5. Other Information............................................................... 18
Item 6. Exhibits and Reports on Form 8-K................................................. 18
Signatures................................................................................... 18
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
- -----------------------------
ITEM 1. Financial Statements
- ----------------------------
<TABLE>
<CAPTION>
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
($ in thousands, except par value) 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,210 $ 2,876
Federal funds sold 15,343 6,473
Short-term investments 288 4,123
---------- ----------
Total cash and cash equivalents 18,841 13,472
Interest-bearing deposits with banks 100 199
Securities held to maturity, net
(estimated fair value of $78,744 and $82,173 respectively) 80,168 82,338
Restricted security, Federal Reserve Bank stock, at cost 508 233
Loans receivable (net of allowance for loan loss reserves of
($2,268 and $1,662, respectively) 121,067 96,074
Accrued interest receivable 1,801 1,800
Premises and equipment, net 5,698 4,917
Deferred income tax asset 721 579
Other assets 1,252 910
- --------------------------------------------------------------------------------------------------------------------------
Total assets $230,156 $200,522
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits:
Demand deposits $ 3,464 $ 3,027
NOW deposits 7,943 7,955
Savings deposits 21,951 26,823
Money-market deposits 59,227 33,629
Time deposits 104,766 99,033
---------- ----------
Total deposits 197,351 170,467
Convertible debentures 6,930 7,000
Accrued interest on convertible debentures 738 299
Mortgage escrow funds 2,491 870
Official checks outstanding 1,108 1,572
Other liabilities 1,111 747
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 209,729 180,955
- --------------------------------------------------------------------------------------------------------------------------
Minority interest 18 23
STOCKHOLDERS' EQUITY
Preferred stock (300,000 shares authorized, none issued) - -
Class A common stock ($1.00 par value, 7,500,000 shares authorized,
(2,194,379 and 2,184,515 shares issued and outstanding respectively) 2,194 2,184
Class B common stock ($1.00 par value, 700,000 shares authorized,
(305,000 and 300,000 shares issued and outstanding respectively) 305 300
Additional paid-in-capital, common 13,909 13,789
Retained earnings 4,001 3,271
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 20,409 19,544
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities, minority interest and stockholders' equity $230,156 $200,522
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited)
For the For the
Quarter Ended Nine-Months Ended
September 30, September 30,
---------------- -----------------
($ in thousands, except per share data) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans receivable $2,396 $2,260 $ 6,580 $6,010
Securities 1,193 1,037 3,674 3,075
Other interest-earning assets 150 123 350 302
- --------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 3,739 3,420 10,604 9,387
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INTEREST EXPENSE
Deposits 2,192 2,042 6,181 5,838
Convertible debentures and federal funds purchased 163 150 482 167
- --------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,355 2,192 6,663 6,005
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Net interest and dividend income 1,384 1,228 3,941 3,382
Provision for loan loss reserves 270 127 605 357
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Net interest and dividend income
after provision for loan loss reserves 1,114 1,101 3,336 3,025
- --------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Customer service fees 34 44 100 100
Income from mortgage activities 94 24 250 115
All other - 3 1 6
- --------------------------------------------------------------------------------------------------------------------------
Total noninterest income 128 71 351 221
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NONINTEREST EXPENSES
Salaries and employee benefits 395 264 1,114 784
Occupancy and equipment, net 231 120 552 324
Advertising and promotion 6 10 17 22
Professional fees and services 60 43 163 164
Stationery, printing and supplies 25 21 107 77
All other 98 60 332 183
- --------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 815 518 2,285 1,554
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Earnings before income taxes & change in accounting principle 427 654 1,402 1,692
Provision for income taxes 149 261 544 666
Cumulative effect of change in accounting principle (note 6) - - (128) -
- --------------------------------------------------------------------------------------------------------------------------
Net earnings $ 278 $ 393 $ 730 $1,026
- --------------------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Earnings before change in accounting principle $ 0.11 $ 0.16 $ 0.34 $ 0.42
Cumulative effect of change in accounting principle - - (0.05) -
- --------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 0.11 $ 0.16 $ 0.29 $ 0.42
- --------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Earnings before change in accounting principle $ 0.10 $ 0.13 $ 0.29 $ 0.32
Cumulative effect of change in accounting principle - - (0.04) -
- --------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 0.10 $ 0.13 $ 0.25 $ 0.32
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
For the Nine-Months Ended
($ in thousands) September 30,
-------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A COMMON STOCK
Balance at beginning of period $ 2,184 $ 2,124
Issuance of 510 shares in exchange for common stock of minority stockholders of Intervest Bank 1 -
Issuance of 7,554 shares upon the conversion of debentures 7 -
Issuance of 1,800 and 40,300 shares, respectively, upon exercise of warrants 2 41
- ------------------------------------------------------------------------------------------------------------------------
Balance at end of period 2,194 2,165
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CLASS B COMMON STOCK
Balance at beginning of period 300 300
Issuance of 5,000 shares upon the exercise of warrants 5 -
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Balance at end of period 305 300
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ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of period 13,789 13,360
Issuance of 510 shares in exchange for common stock of minority stockholders of Intervest Bank 6 -
Issuance of 7,554 shares upon the conversion of debentures, net of issuance costs 56 -
Compensation related to issuance of Class B stock warrants 19 36
Issuance of 5,000 shares upon exercise of Class B stock warrants 28 -
Issuance of 1,800 and 40,300 shares, respectively, upon exercise of Class A Stock Warrants 11 240
- ------------------------------------------------------------------------------------------------------------------------
Balance at end of period 13,909 13,636
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RETAINED EARNINGS
Balance at beginning of period 3,271 1,836
Net earnings for the period 730 1,026
- ------------------------------------------------------------------------------------------------------------------------
Balance at end of period 4,001 2,862
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Total stockholders' equity at end of period $20,409 $18,963
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Nine-Months Ended
September 30,
-------------------------
($ in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 730 $ 1,026
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 300 121
Provision for loan loss reserves 605 357
Deferred income tax benefit (142) (11)
Interest expense on debentures 473 167
Gain on sale of mortgage loans (56) -
Compensation expense related to Class B stock warrants 19 36
Amortization of premiums, fees and discounts, net (94) (71)
Increase in accrued interest receivable and other assets (324) (428)
Decrease in official checks outstanding (464) (28)
Increase in other liabilities 631 150
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,678 1,319
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Decrease (increase) in interest-earning deposits with banks 99 (100)
Maturities and calls of securities held to maturity 27,556 32,826
Purchases of securities held to maturity (25,427) (37,841)
Sales of mortgage loans 5,660 -
Originations of loans receivable, net of principal repayments (31,393) (22,947)
Purchases of Federal Reserve Bank stock, net of redemptions (275) -
Purchases of premises and equipment, net (1,081) (291)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (24,861) (28,353)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand, savings, NOW and money-market deposits 21,151 12,095
Net increase in time deposits 5,733 11,794
Net increase in mortgage escrow funds 1,621 1,868
Proceeds from Federal funds purchased 1,325 1,160
Repayments of Federal funds purchased (1,325) (1,160)
Proceeds from sale of convertible debentures, net of issuance costs - 6,523
Proceeds from issuance of common stock, net of issuance costs 47 281
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 28,552 32,561
- ------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 5,369 5,527
Cash and cash equivalents at beginning of period 13,472 9,176
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 18,841 $ 14,703
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 6,204 $ 5,758
Income taxes 819 510
Noncash financing activities:
Issuance of common stock to minority stockholders of Intervest Bank 7 -
Conversion of convertible debentures into common stock 70 -
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Note 1 - General
The condensed consolidated financial statements of Intervest Bancshares
Corporation and Subsidiaries in this report have not been audited except for the
information derived from the audited Consolidated Balance Sheet as of December
31, 1998. The consolidated financial statements include the accounts of
Intervest Bancshares Corporation, a bank holding company (the "Holding
Company"), and its subsidiaries, Intervest Bank and Intervest National Bank (the
"Banks"). The Holding Company and the Banks are hereafter referred to as the
"Company" on a consolidated basis. The Holding Company's primary business
activity is the ownership of the Banks. The financial statements in this report
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, 1998.
Intervest National Bank received its national charter from the Office of the
Comptroller of the Currency and opened for business on April 1, 1999. Intervest
National Bank is a full-service commercial bank with one banking office located
at One Rockefeller Plaza, Suite 300, New York, New York, 10020 and its telephone
number is (212) 218-8383. Intervest Bank is a Florida state-chartered commercial
bank with four banking offices in Clearwater, Florida and one in South Pasadena,
Florida. The principal executive offices of Intervest Bank are located at 625
Court Street, Clearwater, Florida, 33756 and its telephone number is (727)
442-2551.
The Banks primarily focus on providing personalized banking services to
businesses and individuals within their respective market areas. The Banks
originate commercial and multifamily real estate loans and to a lesser extent,
commercial loans to businesses and consumer loans. Intervest National Bank also
provides internet banking at its web site www.intervestnatbank.com.
The following table provides selected information regarding the Holding Company
and the Banks at September 30, 1999.
<TABLE>
<CAPTION>
Intervest
Holding Intervest National
Company Bank Bank Consolidated
($ in thousands)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total assets $28,116 $189,462 $35,458 $230,156
Total cash and cash equivalents 2,115 12,949 5,916 18,841
Total securities held to maturity, net - 77,241 2,927 80,168
Total loans, net of unearned fees and loan loss reserves 4,623 91,611 24,833 121,067
Total deposits - 173,142 26,355 197,351
Total convertible debentures 6,930 - - 6,930
Total stockholders' equity 20,409 12,250 8,509 20,409
Number of full-service branches - 5 1 6
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All material 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 in this report have been made. These adjustments are
of a normal recurring nature. The results of operations for the interim periods
are not necessarily indicative of results that may be expected for the entire
year or any other interim period. 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' presentation.
5
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Note 2 - Loan Impairment and Credit Losses
The Company monitors its loan portfolio to determine the appropriate level of
the allowance for loan loss reserves based on various factors. These factors
include: the type and level of loans outstanding, volume of loan originations;
overall portfolio quality; loan concentrations; specific problem loans,
historical chargeoffs and recoveries; adverse situations which may affect the
borrowers' ability to repay; and management's assessment of the current and
anticipated economic conditions in the Company's lending regions.
No loans were classified as nonaccrual or impaired during the 1999 and 1998
reporting periods in this report.
The table below summarizes the activity in the allowance for loan loss reserves
for the periods indicated:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
For the Quarter Ended For the Nine-Months
September 30, Ended September 30,
--------------------- -------------------
($ in thousands) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $1,997 $1,405 $1,662 $1,173
Provision for loan losses charged to operations 270 127 605 357
Recoveries 1 - 1 2
- -----------------------------------------------------------------------------------------------------------------------------
Balance at end of period $2,268 $1,532 $2,268 $1,532
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 3 - Convertible Debentures
During 1999, convertible debentures in the aggregate principal amount of
$70,000, plus accrued interest, were converted into shares of Class A common
stock at the election of the debenture holders. The conversion price was $10 per
share and 7,554 shares of Class A common stock were issued in connection with
the conversions.
Note 4 - Earnings Per Share (EPS)
Basic EPS is calculated by dividing net earnings by the weighted-average number
of shares of common stock outstanding. Diluted EPS is calculated by dividing
adjusted net earnings by the weighted-average number of shares of common stock
outstanding and dilutive potential common stock shares that may be outstanding
in the future. Potential common stock shares may arise from outstanding dilutive
common stock warrants (as computed by the "treasury stock method") and
convertible debentures (as computed by the "if converted method").
Diluted EPS considers the potential dilution that could occur if the Company's
outstanding stock warrants and convertible debentures were converted into common
stock that then shared in the Company's adjusted earnings (as adjusted for
interest expense, net of taxes, that would no longer occur if the debentures
were converted).
Net earnings applicable to common stock and the weighted-average number of
common shares used for basic and diluted earnings per share computations are
summarized in the table that follows:
6
<PAGE>
<TABLE>
<CAPTION>
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the Quarter Ended For the Nine-Months Ended
September 30, September 30,
----------------------------------------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net earnings:
Earnings before change in accounting principle $ 278,000 $ 393,000 $ 858,000 $1,026,000
Cumulative effect of change in accounting principle - - (128,000) -
- -------------------------------------------------------------------------------------------------------------------------------
Net earnings $278,000 $393,000 $730,000 $1,026,000
- -------------------------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding 2,498,734 2,463,107 2,494,410 2,448,241
Per share amounts:
Earnings before change in accounting principle $0.11 $0.16 $0.34 $0.42
Cumulative effect of change in accounting principle - - (0.05) -
- -------------------------------------------------------------------------------------------------------------------------------
Basic net earnings per share $0.11 $0.16 $0.29 $0.42
- -------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
- -------------------------------------------------------------------------------------------------------------------------------
Adjusted net earnings (1) $278,000 $393,000 $730,000 $1,026,000
- -------------------------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding for dilution:
Shares outstanding 2,498,734 2,463,107 2,494,410 2,448,241
Potential dilutive shares resulting from conversion of warrants 219,860 487,711 455,035 737,825
Potential dilutive shares resulting from conversion of debentures (1) - - - -
----------------------------------------------------
Total average number of common shares outstanding used for dilution 2,718,594 2,950,818 2,949,445 3,186,066
----------------------------------------------------
Per share amount:
Earnings before change in accounting principle $0.10 $0.13 $0.29 $0.32
Cumulative effect of change in accounting principle - - (0.04) -
- -------------------------------------------------------------------------------------------------------------------------------
Diluted net earnings per share $0.10 $0.13 $0.25 $0.32
- -------------------------------------------------------------------------------------------------------------------------------
(1) The convertible debentures were not dilutive and their impact was
excluded from the EPS computations.
</TABLE>
Note 5 - Regulatory Capital
The Banks are required to maintain certain minimum regulatory capital
requirements. The following is a summary at September 30, 1999 of those
regulatory capital requirements and the actual capital of each bank on a
percentage basis:
<TABLE>
<CAPTION>
Actual Minimum To Be Considered
Ratios Requirement Well Capitalized
------ ----------- ----------------
<S> <C> <C> <C>
Intervest Bank
Total capital to risk-weighted assets 11.59% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 10.33% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 6.48% 4.00% 5.00%
Intervest National Bank
Total capital to risk-weighted assets 30.96% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 30.00% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 34.59% 4.00% 5.00%
</TABLE>
7
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Note 6 - Cumulative Effect of Change in Accounting Principle
On January 1, 1999, the Company adopted as required the AICPA's Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities." The SOP
requires that all start-up costs (except for those that are capitalizable under
other generally accepted accounting principles) be expensed as incurred for
financial statement purposes effective January 1, 1999. Previously, a portion of
start-up costs were generally capitalized and amortized over a period of time.
The adoption of this statement resulted in a net charge of $128,000 on January
1, 1999. The charge represents the expensing, net of a tax benefit, of
cumulative start-up costs that had been incurred through December 31, 1998 in
connection with organizing Intervest National Bank.
Note 7 - Recent Accounting Developments
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. In June 1999, the FASB
issued Statement of Financial Accounting Standards No. 137 "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133." SFAS No. 137 delays SFAS No. 133' s effective date
to all fiscal quarters of all fiscal years beginning after June 15, 2000.
The Company is not a party to any derivative instruments or hedging activities,
and does not expect the aforementioned Statements of Financial Accounting
Standards on Derivative Instruments and Hedging Activities to have any impact on
the Company's financial statements when adopted.
Note 8 - Subsequent Event
The Company announced on October 18, 1999 that it has agreed to acquire
Intervest Corporation of New York, a company with assets of approximately
$95,000,000 consisting primarily of a portfolio of mortgages on improved real
property. The combined total assets of the two companies at September 30, 1999
would have been approximately $325,000,000.
The two companies are related in that the same persons serve on their boards and
the holders of all of the shares of Intervest Corporation of New York also own
approximately 48% of the voting shares of the Company.
In the merger, which was approved by both Boards of Directors, Intervest
Corporation of New York shareholders will receive an aggregate of 1,250,000
shares of the Company's Class A common stock in exchange for all Intervest
Corporation of New York's common stock. The merger, which is subject to
regulatory approvals, as well as approval by the shareholders of the Company, is
expected to close before the end of the year.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation
General
- -------
Intervest Bancshares Corporation is the Holding Company for Intervest National
Bank in New York City, New York and Intervest Bank in Clearwater, Florida.
Hereafter, all the entities are referred to as the "Company" on a consolidated
basis.
The Company reported earnings for the third quarter of 1999 of $278,000,
compared to earnings of $186,000 in the second quarter of 1999 and $393,000 in
the third quarter of 1998. Diluted earnings per share amounted to $0.10 in the
third quarter of 1999, compared to $0.07 in the second quarter of 1999 and $0.13
per share in the third quarter of 1998. Earnings for the first nine months of
1999 were $730,000, or $0.25 per diluted share, compared to $1,026,000, or $0.32
per diluted share, for the same period of 1998.
Earnings for the third quarter of 1999 increased $92,000 over the second quarter
of 1999, reflecting growth in the Company's loan portfolio, as well as improving
results from Intervest National Bank, which opened for business on April 1,
1999. At September 30, 1999, Intervest National Bank had total assets, loans and
deposits of approximately $35,000,000, $25,000,000 and $26,000,000,
respectively, more than double the amounts reported at June 30, 1999.
Results for the third quarter and nine months of 1999 were lower than the same
periods of 1998 due to operating and start-up expenses associated with the
opening of Intervest National Bank in April of 1999. In addition, on January 1,
1999, the Company adopted the AICPA's Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities." The SOP requires that all
start-up costs be expensed as incurred for financial statement purposes
effective January 1, 1999. The adoption of this statement resulted in a charge,
net of a tax benefit, of $128,000 on January 1, 1999. The charge represented
cumulative start-up costs incurred through December 31, 1998, associated with
organizing Intervest National Bank.
Excluding Intervest National Bank's operations and the cumulative effect of
adopting the new accounting standard, the Company's consolidated net earnings
would have increased to $404,000 in the 1999 third quarter, from $393,000 in the
same period of 1998. Similarly, net earnings for the first nine months of 1999
would have increased to $1,221,000, from $1,026,000 in the same period of 1998.
The Company also announced on October 18, 1999 that it has agreed to acquire
Intervest Corporation of New York, a company with assets of approximately
$95,000,000, consisting primarily of a portfolio of mortgages on improved real
property. The combined total assets of the two companies at September 30, 1999
would be approximately $325,000,000. The two companies are related in that the
same persons serve on their boards and the holders of all of the shares of
Intervest Corporation of New York also own approximately 48% of the voting
shares of the Company. In the merger, which was approved by both Boards of
Directors, Intervest Corporation of New York shareholders will receive an
aggregate of 1,250,000 shares of the Company's Class A common stock in exchange
for all Intervest Corporation of New York's common stock. The merger, which is
subject to regulatory approvals, as well as approval by the shareholders of the
Company, is expected to close before the end of the year.
9
<PAGE>
Comparison of Financial Condition at September 30, 1999 and December 31, 1998
-----------------------------------------------------------------------------
Overview
- --------
The following table shows selected ratios of the Company at the end of or for
the period indicated:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
At or For the At or For the
Quarter Ended Nine Months Ended
September 30, September 30,
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stockholders' equity to total assets 8.87% 10.24% 8.87% 10.24%
Average stockholders' equity to average assets 9.53% 10.33% 9.86% 9.87%
Return on average assets (1) 0.52% 0.87% 0.48% 0.81%
Return on average equity (1) 5.49% 8.39% 4.86% 7.49%
Average interest-earning assets to
interest-bearing liabilities 1.10x 1.11x 1.11x 1.11x
Net interest margin (1) 2.73% 2.83% 2.70% 2.78%
Noninterest expenses to average assets (1) 1.53% 1.14% 1.50% 1.22%
- ---------------------------------------------------------------------------------------------------------------------
(1) Ratios have been annualized.
</TABLE>
Total assets at September 30, 1999 increased 15% to $230,156,000, from
$200,522,000 at December 31, 1998, primarily reflecting increases in loans
receivable and cash and cash equivalents. These increases were partially offset
by a decline in securities held to maturity.
Total liabilities at September 30, 1999 increased to $209,747,000, from
$180,978,000 at December 31, 1998, or 16%, reflecting growth in deposit
accounts. Stockholders' equity grew 4% to $20,409,000 at September 30, 1999,
from $19,544,000 at year-end 1998. Book value per common share also improved to
$8.17 per share at September 30, 1999, from $7.87 at December 31, 1998.
The Company's balance sheets at the dates indicated were comprised of the
following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
At September 30, 1999 At December 31, 1998
Carrying % of Carrying % of
($ in thousands) Value Total Assets Value Total Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 18,841 8.2% $ 13,472 6.7%
Securities held to maturity, net 80,168 34.8 82,338 41.1
Loans receivable, net 121,067 52.6 96,074 47.9
All other assets 10,080 4.4 8,638 4.3
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $230,156 100.0% $200,522 100.0%
- ------------------------------------------------------------------------------------------------------------------------------
Deposits $197,351 85.7 $170,467 85.0%
Convertible debentures 6,930 3.0 7,000 3.5
Accrued interest payable on debentures 738 0.3 299 0.2
All other liabilities 4,728 2.1 3,212 1.6
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 209,747 91.1 180,978 90.3
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 20,409 8.9 19,544 9.7
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $230,156 100.0% $200,522 100.0%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents increased due to higher investments in overnight Fed
funds. Excess cash has been invested short-term in anticipation of funding loan
commitments in the fourth quarter of 1999.
10
<PAGE>
Securities Held to Maturity
- ---------------------------
Securities held to maturity declined due to net maturities and calls of U.S.
government agency securities. At September 30, 1999, the securities portfolio
consisted of fixed-rate debt obligations of the Federal Home Loan Bank, Federal
Farm Credit Bank, Federal National Mortgage Association, and US Treasury
securities. Most of the securities allow the issuer the right to call or prepay
its obligation without prepayment penalty.
Loans Receivable
- ----------------
Loans receivable increased primarily due to new commercial and multifamily real
estate loan originations exceeding principal repayments. At September 30, 1999
and December 31, 1998, the Company did not have any loans on a nonaccrual status
or classified as impaired.
Allowance for Loan Loss Reserves
- --------------------------------
The Company monitors its loan portfolio to determine the appropriate level of
the allowance for loan loss reserves based on various factors. These factors
include: the type and level of loans outstanding, volume of loan originations;
overall portfolio quality; loan concentrations; specific problem loans,
historical chargeoffs and recoveries; adverse situations which may affect the
borrowers' ability to repay; and management's assessment of the current and
anticipated economic conditions in the Company's lending regions.
At September 30, 1999, the allowance amounted to $2,268,000, compared to
$1,662,000 at year-end 1998. The allowance for loan loss reserves represented
1.84% of total loans outstanding at September 30, 1999, compared to 1.70% at
December 31, 1998. The increase in the allowance primarily reflected the
increased volume of new loan originations.
All Other Assets
- ----------------
All other assets increased primarily due to purchases ($1,081,000) of fixed
assets mostly by Intervest National Bank, and a higher level of deferred tax
benefits ($142,000) generated largely by start-up costs that were expensed by
Intervest National Bank for financial statement purposes.
Deposit Liabilities
- -------------------
Deposit liabilities increased from $170,467,000 at year-end 1998, to
$197,351,000 at September 30, 1999. The increase was attributable to the opening
of Intervest National Bank on April 1, 1999, whose deposit accounts grew to
$26,355,000 at September 30, 1999.
At September 30, 1999, the Company's time deposit accounts totaled $104,766,000
and its demand deposit, savings, NOW and money-market accounts aggregated
$92,585,000. The same categories of deposit accounts totaled $99,033,000 and
$71,434,000, respectively, at December 31, 1998. Time deposits represented 53%
of total deposits at September 30, 1999, compared to 58% at year-end 1998.
11
<PAGE>
Convertible Debentures
- ----------------------
During 1999, convertible debentures (the Debentures) in the aggregate principal
amount of $70,000 plus accrued interest were converted into shares of Class A
common stock at the election of the Debenture holders.
The Holding Company's 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 Holding Company, into shares of Class A common stock of the
Holding Company at the following current conversion prices per share: $10.00
through December 31, 1999, $12.50 in 2000; $14.00 in 2001; $15.00 in 2002;
$16.00 in 2003; $18.00 in 2004; $21.00 in 2005; $24.00 in 2006; $27.00 in 2007
and $30.00 from January 1, 2008 through April 1, 2008. Interest on the
debentures accrues and compounds quarterly and 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. At September 30, 1999, accrued interest on the Debentures totaled
$738,000.
All Other Liabilities
- ---------------------
All other liabilities increased as a result of the Company holding a greater
amount of mortgage escrow funds. Mortgage escrow funds represent advance
payments made by borrowers for taxes and insurance that are remitted by the
Company to third parties. The increase reflects the timing of payments to taxing
authorities as well as the growth in the loan portfolio.
Stockholders' Equity and Regulatory Capital
- -------------------------------------------
Stockholders' equity increased almost entirely as a result of net earnings of
$730,000 and the issuance of 14,864 shares of common stock, which resulted, net
of issuance costs, in a $116,000 aggregate increase in stockholders' equity. The
shares were issued as follows: 7,554 shares of Class A common stock upon the
conversion of convertible debentures; 1,800 shares of Class A common stock upon
the exercise of Class A warrants, 510 shares of Class A common stock in exchange
for the shares of minority shareholders of Intervest Bank, and 5,000 shares of
Class B common stock upon the exercise of Class B stock warrants.
Intervest Bank and Intervest National Bank are both well-capitalized
institutions as defined by FDIC regulations. See note 5 to the condensed
consolidated financial statements in this report for further information and
their respective capital ratios.
Liquidity and Capital Resources
-------------------------------
The Company manages its liquidity position on a daily basis to assure that funds
are available to meet operations, loan and investment funding commitments,
deposit withdrawals and the repayment of borrowed funds. The Company's primary
sources of funds consist of: retail deposits obtained through the Banks'
offices; satisfactions and repayments of loans; the maturities and calls of
securities; and cash provided by operating activities. From time-to-time, the
Company may also borrow funds through the Fed funds market or sale of
debentures. For information about the cash flows from the Company's operating,
investing and financing activities, see the condensed consolidated statements of
cash flows on page 4 of this report. At September 30, 1999, the Company's total
commitment to lend aggregated approximately $19,000,000. Based on its cash flow
projections, the Company believes that it can fund all of its outstanding
commitments from the aforementioned sources of funds.
12
<PAGE>
Interest Rate Risk
------------------
Interest rate risk arises from differences in the repricing of assets and
liabilities within a given time period. The principal objective of the Company's
asset/liability management strategy is to minimize its exposure to changes in
interest rates. The Company uses "gap analysis," which measures the difference
between interest-earning assets and interest-bearing liabilities that mature or
reprice within a given time period, to monitor its interest rate sensitivity. At
September 30, 1999, the Company's one-year negative interest-rate sensitivity
gap was $84,470,000, or 36.7% of total assets, compared to $73,637,000, or
36.7%, at December 31, 1998. In computing the gap, the Company treats its
interest checking, money market and savings deposit accounts as immediately
repricing. For a further discussion of interest rate risk and gap analysis,
including all of the assumptions used in developing the Company's one-year gap
position, see the Company's 1998 Annual Report on Form 10-KSB, pages 26 and 27.
Year 2000 Compliance
--------------------
The Year 2000 issue is the result of computer programs that were written using
two digits rather than four digits to define the applicable year. As a result,
such programs may recognize a date using "00" as the year 1900 instead of the
year 2000, which could result in system failures or miscalculations. The Company
is aware of the many areas affected by the Year 2000 computer issue, as
addressed by the Federal Financial Institutions Examination Council in its
interagency statement, which provided an outline for institutions to effectively
manage the Year 2000 challenges.
The Company has completed its testing phase of mission critical systems and has
determined that these systems are Year 2000 compliant. With regards to
non-mission critical internal systems, the Company has or is in the process of
replacing those systems that tested as being noncompliant. Additionally, the
Company has contingency plans that provide for processing its data from
alternative sites.
The Company also recognizes the importance of its borrowers rectifying any Year
2000 problems in a timely manner to avoid deterioration of the loan portfolio
solely due to this issue. In this regard, the Company has identified material
relationships and questionnaires have been completed to assess the inherent
risks. The Company will work on a one-on-one basis with any borrower who has
been identified as having high Year 2000 risk exposure.
Notwithstanding the above, there can be no assurances that all hardware and
software that the Company uses will function properly on and after January 1,
2000, or that its borrowers and vendors will perform according to their
representations, or that other third parties may cause adverse effects because
of the Year 2000 issue.
Accordingly, there can be no assurance that the failure of others to address the
Year 2000 issue or that the resulting effects will not have an adverse impact on
the Company's business, financial condition, and results of operations. It is
anticipated that the Banks' deposit customers will have increased demands for
cash in the latter part of 1999 and correspondingly, the Banks will maintain
adequate liquidity levels to meet any increased demand.
13
<PAGE>
Comparison of Results of Operations
for the Quarters Ended September 30, 1999 and 1998
--------------------------------------------------
Overview
- --------
The Company reported net earnings for the third quarter of 1999 of $278,000,
compared to $393,000 for the third quarter of 1998. Diluted earnings per share
amounted to $0.10, compared to $0.13 per diluted share in the third quarter of
1998. The decline in earnings was primarily due to a $297,000 increase in
noninterest expenses and a $143,000 increase in the provision for loan loss
reserves. These items were partially offset by an increase in net interest and
dividend income of $156,000 and a $112,000 decline in the provision for income
taxes.
Net Interest and Dividend Income
- --------------------------------
Net interest and dividend income is the Company's primary source of earnings and
is influenced primarily by the amount, distribution and repricing
characteristics of its interest-earning assets and interest-bearing liabilities
as well as by the relative levels and movements of interest rates. The table
that follows sets forth information on average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for the periods indicated. The yields and rates
shown are based on a computation of annualized income/expense for each period
divided by average interest-earning assets/interest-bearing liabilities during
each period. Certain yields and rates shown are adjusted for related fee income
or expense. Average balances are derived from daily balances. Net interest
margin is computed by dividing annualized net interest and dividend income by
the average of total interest-earning assets during each period.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
For the Quarter Ended
------------------------------------------------------------------------
September 30, 1999 September 30, 1998
------------------------------- --------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans $108,769 $2,396 8.81% $ 97,782 $2,260 9.25%
Securities 82,371 1,193 5.79 66,464 1,037 6.24
Other interest-earning assets 12,041 150 4.98% 9,214 123 5.34
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 203,181 $3,739 7.36% 173,460 $3,420 7.89%
- -----------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 9,545 7,952
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $212,726 $181,412
- -----------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Checking deposits $ 7,380 $ 56 3.04% $ 5,785 $ 54 3.74%
Savings deposits 23,363 243 4.16 16,842 207 4.93
Money Market deposits 50,419 568 4.51 23,507 289 4.93
Time deposits 95,864 1,325 5.53 103,123 1,492 5.80
------------------------------------------------------------------------
Total deposit accounts 177,026 2,192 4.95 149,257 2,042 5.47
------------------------------------------------------------------------
Federal funds purchased 214 3 4.77 - - -
Convertible debentures and accrued interest 7,579 160 8.45 7,062 150 8.50
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 184,819 $2,355 5.10% 156,319 $2,192 5.61%
- -----------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 3,685 2,984
Noninterest-bearing liabilities 3,959 3,362
Stockholders' equity 20,263 18,747
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $212,726 $181,412
- -----------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $1,384 2.26% $1,228 2.28%
- -----------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 18,362 2.73% $ 17,141 2.83%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.10x 1.11x
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Net interest and dividend income increased to $1,384,000 in the third quarter of
1999, from $1,228,000 in the 1998 third quarter. The increase was due to growth
in the Company's balance sheet. The Company's net interest margin declined to
2.73%, from 2.83%. The decline in the interest rate margin was due to the yield
on the Company's earning assets declining at a slightly faster pace than the
cost of its funds as well as a slight decline in the ratio of earning-assets to
interest-bearing liabilities.
The Company's yield on earning assets declined by 53 basis points due to several
factors: an increase in the percentage of earning assets held as securities and
short-term investments (securities and short-term investments have lower yields
than the Company's loan portfolio); calls of higher-yielding U.S government
agency securities with the resulting proceeds being invested in securities with
lower rates; and originations of new loans at lower rates and prepayments of
higher-yielding loans caused by the very competitive lending environment.
The Company's cost of funds declined by 51 basis points due to lower rates paid
on deposit accounts as well as a change in the mix of deposits. Lower-cost
deposits held in checking, savings and money-market accounts increased while the
level of time deposits declined.
Provision for Loan Loss Reserves
- --------------------------------
The provision for loan loss reserves is based on management's ongoing assessment
of the adequacy of the allowance for loan loss reserves. The provision amounted
to $270,000 in the third quarter of 1999, compared to $127,000 in the third
quarter of 1998. See page 11 under the Caption for "Allowance for loan Loss
Reserves" for additional discussion of the reserves.
Noninterest Income
- ------------------
Total noninterest income increased to $128,000 in the 1999 third quarter, from
$71,000 in the third quarter of 1998, reflecting an increase in loan fee income
from mortgage lending activities. Such fees include loan application fees and
loan service and maintenance charges.
Noninterest Expenses
- --------------------
Total noninterest expenses increased 57% to $815,000 in the third quarter of
1999, from $518,000 in the third quarter of 1998. The increase was almost
entirely due to the opening of Intervest National Bank on April 1, 1999, which
required the addition of employees and increased occupancy and equipment
expenses.
Provision for Income Taxes
- --------------------------
The provision for income taxes amounted to $149,000 in the third quarter of
1999, compared to $261,000 in the same period of 1998. The Company's effective
tax rate (inclusive of state and local taxes) amounted to 34.9% in the 1999
period, compared to 39.9% in the 1998 period. The decline in the effective tax
rate reflects increased deferred tax benefits generated from Intervest National
Bank's operations.
15
<PAGE>
Comparison of Results of Operations
for the Nine-Months Ended September 30, 1999 and 1998
-----------------------------------------------------
Overview
- --------
The Company's earnings for the nine-months ended September 30, 1999 were
$730,000, or $0.25 per diluted share, compared to $1,026,000, or $0.32 per
diluted share for the same period of 1998. The decline in earnings was primarily
due to a $731,000 increase in noninterest expenses and a $248,000 increase in
the provision for loan loss reserves. These items were partially offset by a
$559,000 increase in net interest and dividend income and a $130,000 increase in
noninterest income. Results for the nine-months ended September 30, 1999 also
included a one-time net charge of $128,000 related to the Company's required
adoption, on January 1, 1999, of the AICPA's Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities."
Net Interest and Dividend Income
- --------------------------------
Net interest and dividend income is the Company's primary source of earnings and
is influenced primarily by the amount, distribution and repricing
characteristics of its interest-earning assets and interest-bearing liabilities
as well as by the relative levels and movements of interest rates. The table
that follows, for the nine-month periods ended September 30, 1999 and 1998, sets
forth the same information that is described above the table on page 14.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
For the Nine-Months Ended
----------------------------------------------------------------------
September 30, 1999 September 30, 1998
------------------ ------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans $ 100,111 $6,580 8.76% $ 87,762 $6,010 9.13%
Securities 84,301 3,674 5.81 66,577 3,075 6.16
Other interest-earning assets 10,044 350 4.65 7,642 302 5.27
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 194,456 $10,604 7.27% 161,981 $9,387 7.73%
- ----------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 8,645 7,678
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $203,101 $169,659
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW deposits $ 7,516 $ 174 3.09% $ 5,286 $ 146 3.69%
Savings deposits 25,396 786 4.13 15,703 572 4.87
Money-market deposits 41,621 1,366 4.38 21,037 767 4.87
Time deposits 93,408 3,855 5.50 101,193 4,352 5.75
----------------------------------------------------------------------
Total deposit accounts 167,941 6,181 4.91 143,219 5,837 5.45
----------------------------------------------------------------------
Federal funds purchased 218 9 5.23 26 1 5.13
Convertible debentures and accrued interest 7,467 473 8.45 2,619 167 8.50
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 175,626 $6,663 5.06% 145,864 $6,005 5.49%
- ----------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 4,023 3,085
Noninterest-bearing liabilities 3,431 2,442
Stockholders' equity 20,021 18,268
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $203,101 $169,659
- ----------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $3,941 2.21% $3,382 2.24%
- ----------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 18,830 2.70% $ 16,117 2.78%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.11x 1.11x
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
Net interest and dividend income increased to $3,941,000 in the nine-month
period ended September 30, 1999, from $3,382,000 in the same period of 1998. The
increase was due to growth in the Company's balance sheet. The Company's net
interest margin declined slightly to 2.70%, from the 2.78% in the same period of
1998. The decline in the margin was essentially due to the same factors
discussed in the comparison of the quarter ended September 30, 1999 versus
September 30, 1998.
Provision for Loan Loss Reserves
- --------------------------------
The provision for loan loss reserves is based on management's ongoing assessment
of the adequacy of the allowance for loan loss reserves. The provision amounted
to $605,000 for the nine-months ended September 30, 1999, compared to $357,000
for the same period of 1998. See page 11 under the Caption for "Allowance for
Loan Loss Reserves" for additional discussion of the reserves.
Noninterest Income
- ------------------
Total noninterest income increased to $351,000 in the nine-months ended
September 30, 1999, from $221,000 for the same period of 1998. The increase was
due to higher fee income from mortgage lending activities. Such fees include
loan application fees and loan service and maintenance charges.
Additionally, noninterest income for the 1999 period included a $56,000 gain
(representing the balance of unearned income) from the sale of four multifamily
real estate loans (with an aggregate principal balance of $5,604,000) by the
Holding Company. The sale was made in order to increase the Holding Company's
liquidity for funding Intervest National Bank's initial capital on April 1,
1999. The loans were sold to Intervest Corporation of New York, a related party,
at estimated fair value.
Noninterest Expenses
- --------------------
Total noninterest expenses increased 47% to $2,285,000 in the nine-month period
ended September 30, 1999, from $1,554,000 in the same period of 1998. The
increase was almost entirely due to the opening of Intervest National Bank on
April 1, 1999, which required the addition of employees and increased occupancy
and equipment expenses.
Provision for Income Taxes
- --------------------------
The provision for income taxes amounted to $544,000 in the nine-month period
ended September 30, 1999, compared to $666,000 in the same period of 1998. The
Company's effective tax rate (inclusive of state and local taxes) amounted to
38.8% in the 1999 period, compared to 39.3% in the 1998 period.
Cumulative Effect of Change in Accounting Principle
- ---------------------------------------------------
The cumulative effect of the change in accounting principle represents the
required adoption, on January 1, 1999, of the AICPA's Statement of Position
(SOP) 98-5, "Reporting on the Costs of Start-Up Activities," which applies to
all companies except as provided for therein. The SOP requires that all start-up
costs (except for those that are capitalizable under other generally accepted
accounting principles) be expensed as incurred for financial statement purposes
effective January 1, 1999. Previously, a portion of start-up costs were
generally capitalized and amortized over a period of time. The adoption of this
statement resulted in the immediate expensing on January 1, 1999 of $193,000 in
start-up costs incurred through December 31, 1998 in connection with organizing
Intervest National Bank. A deferred tax benefit of $65,000 was recorded in
conjunction with this charge.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Not Applicable
ITEM 2. Changes in Securities and Use of Proceeds
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
ITEM 3. Defaults Upon Senior Securities
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
ITEM 5. Other Information
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index (numbered in accordance with Item 601 of Regulation S-B)
27 - Financial Data Schedule (For SEC Purposes only)
(b) No Reports on Form 8-K were filed during the quarter ended September
30, 1999.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
Date: November 9, 1999 By: /s/ Lowell S. Dansker
----------------------------
Lowell S. Dansker,
President and Treasurer
(Chief Financial Officer)
Date: November 9, 1999 By: /s/ Lawrence G. Bergman
------------------------------
Lawrence G. Bergman,
Vice President and Secretary
18
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,210
<INT-BEARING-DEPOSITS> 388
<FED-FUNDS-SOLD> 15,343
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 80,168
<INVESTMENTS-MARKET> 78,744
<LOANS> 123,335
<ALLOWANCE> 2,268
<TOTAL-ASSETS> 230,156
<DEPOSITS> 197,351
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,466
<LONG-TERM> 6,930
0
0
<COMMON> 2,499
<OTHER-SE> 17,910
<TOTAL-LIABILITIES-AND-EQUITY> 230,156
<INTEREST-LOAN> 6,580
<INTEREST-INVEST> 3,674
<INTEREST-OTHER> 350
<INTEREST-TOTAL> 10,604
<INTEREST-DEPOSIT> 6,181
<INTEREST-EXPENSE> 6,663
<INTEREST-INCOME-NET> 3,941
<LOAN-LOSSES> 605
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,285
<INCOME-PRETAX> 1,402
<INCOME-PRE-EXTRAORDINARY> 1,402
<EXTRAORDINARY> 0
<CHANGES> (128)
<NET-INCOME> 730
<EPS-BASIC> .29
<EPS-DILUTED> .25
<YIELD-ACTUAL> 7.27
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,662
<CHARGE-OFFS> 0
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 2,268
<ALLOWANCE-DOMESTIC> 2,268
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
