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 JUNE 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
of incorporation) identification no.)
10 Rockefeller Plaza, Suite 1015
New York, New York 10020-1903
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(Address of principal executive offices)
(212) 218-2800
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(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, 2,193,280 Outstanding at
$1.00 par value per share August 1, 1999
------------------------- --------------
Class B Common Stock, 305,000 Outstanding at
$1.00 par value per share August 1, 1999
------------------------- --------------
- -------------------------------------------------------------------------------
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
FORM 10-QSB
June 30, 1999
TABLE OF CONTENTS
<S> <C>
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 1999 (Unaudited) and December 31, 1998 ................................ 1
Condensed Consolidated Statements of Earnings (Unaudited)
for the Quarter and Six-Months Ended June 30, 1999 and 1998 .......................... 2
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
for the Six-Months Ended June 30, 1999 and 1998....................................... 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Six-Months Ended June 30, 1999 and 1998....................................... 4
Notes to Condensed Consolidated Financial Statements (Unaudited) ........................ 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................... 17
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.................................................................................. 19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
- -----------------------------
ITEM 1. Financial Statements
- ----------------------------
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
($ in thousands, except par value) 1999 1998
---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,712 $ 2,876
Federal funds sold 5,900 6,473
Short-term investments 1,328 4,123
-------- --------
Total cash and cash equivalents 9,940 13,472
Interest-bearing deposits with banks 100 199
Securities held to maturity, net
(estimated fair value of $81,465 and $82,173, respectively) 83,691 82,338
Restricted security, Federal Reserve Bank stock, at cost 519 233
Loans receivable (net of allowance for loan loss reserves of
$1,997 and $1,662, respectively) 98,670 96,074
Accrued interest receivable 1,675 1,800
Premises and equipment, net 5,559 4,917
Deferred income tax asset 682 579
Other assets 1,211 910
- ------------------------------------------------------------------------------- -------- --------
Total assets $202,047 $200,522
- ------------------------------------------------------------------------------- -------- --------
LIABILITIES
Deposits:
Demand deposits $ 3,379 $ 3,027
NOW deposits 7,745 7,955
Savings deposits 25,017 26,823
Money-market deposits 41,126 33,629
Time deposits 92,381 99,033
-------- --------
Total deposits 169,648 170,467
Federal funds purchased 1,325 --
Convertible debentures 6,940 7,000
Accrued interest on convertible debentures 589 299
Mortgage escrow funds 1,590 870
Official checks outstanding 1,108 1,572
Other liabilities 715 747
- ------------------------------------------------------------------------------- -------- --------
Total liabilities 181,915 180,955
- ------------------------------------------------------------------------------- -------- --------
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,
2,193,280 and 2,184,515 shares issued and outstanding, respectively) 2,193 2,184
Class B common stock ($1.00 par value, 700,000 shares authorized,
305,000 and 300,000 issued and outstanding, respectively) 305 300
Additional paid-in-capital, common 13,893 13,789
Retained earnings 3,723 3,271
- ------------------------------------------------------------------------------- -------- --------
Total stockholders' equity 20,114 19,544
- ------------------------------------------------------------------------------- -------- --------
Total liabilities, minority interest and stockholders' equity $202,047 $200,522
- ------------------------------------------------------------------------------- -------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements
1
<PAGE>
<TABLE>
<CAPTION>
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited)
For the For the
Quarter Ended Six-Months Ended
June 30, June 30,
------------- ------------- ------------- ------------
($ in thousands, except per share data) 1999 1998 1999 1998
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
INTEREST AND DIVIDEND INCOME
<S> <C> <C> <C> <C>
Loans receivable $2,043 $1,957 $4,184 $3,750
Securities 1,218 1,009 2,481 2,038
Other interest-earning assets 128 109 200 179
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
Total interest and dividend income 3,389 3,075 6,865 5,967
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
INTEREST EXPENSE
Deposits 1,973 1,958 3,989 3,796
Convertible debentures 164 17 319 17
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
Total interest expense 2,137 1,975 4,308 3,813
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
Net interest and dividend income 1,252 1,100 2,557 2,154
Provision for loan loss reserves 223 130 335 230
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
Net interest and dividend income
after provision for loan loss reserves 1,029 970 2,222 1,924
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
NONINTEREST INCOME
Customer service fees 34 30 66 56
Income from mortgage activities 66 54 156 91
All other - 1 1 3
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
Total noninterest income 100 85 223 150
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
NONINTEREST EXPENSES
Salaries and employee benefits 380 274 730 520
Occupancy and equipment, net 214 107 321 204
Advertising and promotion 4 4 11 12
Professional fees and services 53 60 103 121
Stationery, printing and supplies 42 29 82 56
All other 130 53 223 123
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
Total noninterest expenses 823 527 1,470 1,036
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
Earnings before income taxes & change in accounting principle 306 528 975 1,038
Provision for income taxes 120 203 395 405
Cumulative effect of change in accounting principle (note 6) - - (128) -
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
Net earnings $ 186 $ 325 $ 452 $ 633
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
Basic earnings per share:
Earnings before change in accounting principle $ 0.07 $ 0.13 $ 0.23 $ 0.26
Cumulative effect of change in accounting principle - - (0.05) -
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
Net earnings per share $ 0.07 $ 0.13 $ 0.18 $ 0.26
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
Diluted earnings per share:
Earnings before change in accounting principle $ 0.07 $ 0.10 $ 0.21 $ 0.19
Cumulative effect of change in accounting principle - - (0.05) -
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
Net earnings per share $ 0.07 $ 0.10 $ 0.16 $ 0.19
- -------------------------------------------------------------------- ------------- ------------- ------------- ------------
See accompanying notes to condensed consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
For the Six-Months Ended
June 30,
--------------------------------
($ in thousands)
1999 1998
- -------------------------------------------------------------------------------------- ----------------- --------------
CLASS A COMMON STOCK
<S> <C> <C>
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 6,455 shares upon the conversion of debentures 6 -
Issuance of 1,800 and 33,500 shares, respectively, upon exercise of warrants 2 34
- -------------------------------------------------------------------------------------- ----------------- --------------
Balance at end of period 2,193 2,158
- -------------------------------------------------------------------------------------- ----------------- --------------
CLASS B COMMON STOCK
Balance at beginning of period 300 300
Issuance of 5,000 shares upon the exercise of warrants 5 -
- -------------------------------------------------------------------------------------- ----------------- --------------
Balance at end of period 305 300
- -------------------------------------------------------------------------------------- ----------------- --------------
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 6,455 shares upon the conversion of debentures, net of
issuance costs 46 -
Compensation related to issuance of Class B stock warrants 13 30
Issuance of 5,000 shares upon exercise of Class B stock warrants 28 -
Issuance of 1,800 and 33,500 shares, respectively, upon exercise of Class A
stock warrants 11 201
- -------------------------------------------------------------------------------------- ----------------- --------------
Balance at end of period 13,893 13,591
- -------------------------------------------------------------------------------------- ----------------- --------------
RETAINED EARNINGS
Balance at beginning of period 3,271 1,836
Net earnings for the period 452 633
- -------------------------------------------------------------------------------------- ----------------- --------------
Balance at end of period 3,723 2,469
- -------------------------------------------------------------------------------------- ----------------- --------------
- -------------------------------------------------------------------------------------- ----------------- --------------
Total stockholders' equity at end of period $20,114 $18,518
- -------------------------------------------------------------------------------------- ----------------- --------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
------------------------------------
($ in thousands) 1999 1998
----------------------------------------------------------------------------- ------------------ -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 452 $ 633
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 187 125
Provision for loan loss reserves 335 230
Deferred income tax (benefit) expense (103) 18
Interest expense on debentures 313 16
Gain on sale of mortgage loans (56) -
Compensation expense related to stock warrants 13 30
Amortization of premiums, fees and discounts, net (95) 69
Increase in accrued interest receivable and other assets (181) (374)
(Decrease) increase in official checks outstanding (464) 147
Increase in other liabilities 30 154
----------------------------------------------------------------------------- ------------------ -----------------
Net cash provided by operating activities 431 1,048
----------------------------------------------------------------------------- ------------------ -----------------
INVESTING ACTIVITIES
Decrease (increase) in interest-earning deposits with banks 99 (100)
Maturities and calls of securities held to maturity 24,056 21,576
Purchases of securities held to maturity (25,427) (23,568)
Sales of mortgage loans 5,660 -
Originations of loans receivable, net of principal repayments (8,501) (14,136)
Purchases of Federal Reserve Bank stock (286) -
Purchases of premises and equipment, net (829) (278)
----------------------------------------------------------------------------- ------------------ -----------------
Net cash used by investing activities (5,228) (16,506)
----------------------------------------------------------------------------- ------------------ -----------------
FINANCING ACTIVITIES
Net increase in demand, savings, NOW and money-market deposits 5,833 9,557
Net (decrease) increase in time deposits (6,652) 8,118
Net increase in mortgage escrow funds 720 945
Net increase in Federal funds purchased 1,325 -
Proceeds from sale of convertible debentures - 6,523
Proceeds from issuance of common stock, net of issuance costs 39 235
----------------------------------------------------------------------------- ------------------ -----------------
Net cash provided by financing activities 1,265 25,378
----------------------------------------------------------------------------- ------------------ -----------------
Net (decrease) increase in cash and cash equivalents (3,532) 9,920
Cash and cash equivalents at beginning of period 13,472 9,176
----------------------------------------------------------------------------- ------------------ -----------------
Cash and cash equivalents at end of period $ 9,940 $ 19,096
----------------------------------------------------------------------------- ------------------ -----------------
SUPPLEMENTAL DISCLOSURES Cash paid during the period for:
Interest $ 4,040 $ 3,798
Income taxes 701 229
Noncash financing activities:
Issuance of common stock to minority stockholders of Intervest Bank 7 -
Conversion of convertible debentures into common stock 60 -
----------------------------------------------------------------------------- ------------------ -----------------
</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 ("OCC") and opened for business on April 1, 1999.
Intervest National Bank is a full-service commercial bank and is subject to the
supervision of and examination by the OCC. The principal executive office of
Intervest National Bank is located at One Rockefeller Plaza, Suite 300, New
York, New York, 10020 and its telephone number is (212) 218-8383. The Banks
primarily focus on providing personalized banking services to businesses and
individuals within their respective market areas. The Banks originate mainly
real estate loans (primarily commercial and multifamily) 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 financial information regarding the
Holding Company and the Banks at June 30, 1999.
<TABLE>
<CAPTION>
--------------------------------------------------------- --------------- ------------- -------------- ---------------
Intervest
Holding Intervest National Bank
($ in thousands) Company Bank Consolidated
--------------------------------------------------------- --------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Total assets $27,745 $178,260 $16,768 $202,047
Total cash and cash equivalents 1,359 2,518 6,343 9,940
Total securities held to maturity, net - 80,764 2,927 83,691
Total loans, net of unearned fees and loan loss 5,226 87,475 5,969 98,670
allowance
Total deposits - 162,057 7,967 169,648
Total convertible debentures 6,940 - - 6,940
Total stockholders' equity 20,114 11,829 8,635 20,114
--------------------------------------------------------- --------------- ------------- -------------- ---------------
</TABLE>
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 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 that are discussed
on pages 22 and 23 of the Company's 1998 Annual Report on Form 10-KSB.
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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------- ---------------------------- -- ------------------------------
For the Quarter Ended For the Six -Months Ended
June 30, June 30,
------------------------------
-------------- -------------
($ in thousands) 1999 1998 1999 1998
- --------------------------------------------------------------- -------------- ------------- -- -------------- --------------
<S> <C> <C> <C> <C>
Balance at beginning of period $1,774 $1,274 $1,662 $1,173
Provision for loan losses charged to operations 223 130 335 230
Recoveries - 1 - 2
- --------------------------------------------------------------- -------------- ------------- -- -------------- --------------
Balance at end of period $1,997 $1,405 $1,997 $1,405
- --------------------------------------------------------------- -------------- ------------- -- -------------- --------------
</TABLE>
Note 3 - Convertible Debentures
In the first half of 1999, convertible debentures in the aggregate principal
amount of $60,000, 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.
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 Six-Months Ended
June 30, June 30,
------------- ------------ -------------- ------------
1999 1998 1999 1998
------------- ------------ -------------- ------------
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net earnings applicable to common stockholders:
Earnings before change in accounting principle $186,000 $325,000 $580,000 $633,000
Cumulative effect of change in accounting principle - - (128,000) -
- -------------------------------------------------------------------------- ------------- ------------ -------------- ------------
Net earnings applicable to common stockholders $186,000 $325,000 $452,000 $633,000
- -------------------------------------------------------------------------- ------------- ------------ -------------- ------------
Average number of common shares outstanding 2,494,567 2,453,140 2,492,212 2,440,595
- -------------------------------------------------------------------------- ------------- ------------ -------------- ------------
Per share amount:
Earnings before change in accounting principle $0.07 $0.13 $0.23 $0.26
Cumulative effect of change in accounting principle - - (0.05) -
- -------------------------------------------------------------------------- ------------- ------------ -------------- ------------
Basic net earnings per share $0.07 $0.13 $0.18 $0.26
- -------------------------------------------------------------------------- ------------- ------------ -------------- ------------
DILUTED EARNINGS PER SHARE
Adjusted net earnings applicable to common stockholders:
Net earnings applicable to common stockholders $186,000 $325,000 $452,000 $633,000
Adjustment to net earnings from assumed conversion of debentures (1) - 9,000 - 9,000
- -------------------------------------------------------------------------- ------------- ------------ -------------- ------------
Adjusted net earnings for diluted earnings per share computation $186,000 $334,000 $452,000 $642,000
- -------------------------------------------------------------------------- ------------- ------------ -------------- ------------
Average number of common shares outstanding:
Common shares outstanding 2,494,567 2,453,140 2,492,212 2,440,595
Potential dilutive shares from conversion of warrants 346,866 862,456 330,844 839,291
Potential dilutive shares resulting from conversion of debentures (1) - 67,037 - 33,518
- -------------------------------------------------------------------------- ------------- ------------ -------------- ------------
Total average number of common shares outstanding used for dilution 2,841,433 3,382,633 2,823,056 3,313,404
- -------------------------------------------------------------------------- ------------- ------------ -------------- ------------
Per share amount:
Earnings before change in accounting principle $0.07 $0.10 $0.21 $0.19
Cumulative effect of change in accounting principle - - (0.05) -
- -------------------------------------------------------------------------- ------------- ------------ -------------- ------------
Diluted net earnings per share $0.07 $0.10 $0.16 $0.19
- -------------------------------------------------------------------------- ------------- ------------ -------------- ------------
(1) The convertible debentures were not diluted for the 1999 periods and their impact was excluded from the EPS
computations.
Note 5 - Regulatory Capital
The Banks are required to maintain certain minimum regulatory capital
requirements. The following is a summary at June 30, 1999 of the regulatory
capital requirements and actual capital of each bank on a percentage basis:
Actual Minimum To Be Considered
Intervest Bank Ratios Requirement Well Capitalized
--------- ------------ -----------------
<S> <C> <C> <C>
Total capital to risk-weighted assets 11.77% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 10.51% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 6.36% 4.00% 5.00%
Actual Minimum To Be Considered
Intervest National Bank Ratios Requirement Well Capitalized
--------- ------------ -----------------
Total capital to risk-weighted assets 96.93% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 95.85% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 79.24% 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 associated with organizing Intervest National Bank
that had been incurred through December 31, 1998.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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 second quarter of 1999 of $186,000,
compared to $325,000 for the second quarter of 1998. Diluted earnings per share
were $0.07, compared to $0.10 per diluted share in the second quarter of 1998.
Earnings for the first six months of 1999 were $452,000, or $0.16 per diluted
share, compared to $633,000, or $0.19 per diluted share for the same period of
1998.
Results for both periods of 1999 were reduced by operating and start-up expenses
associated with Intervest National Bank. Intervest National Bank is a nationally
chartered commercial bank that opened for business on April 1, 1999. It is
located at One Rockefeller Plaza in New York City and it provides full
commercial banking services, including internet banking. At June 30, 1999,
Intervest National Bank had total assets, loans and deposits of approximately
$17,000,000, $6,000,000 and $8,000,000, respectively.
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 costs that can be capitalized
under other generally accepted accounting principles) 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.
Absent the change in accounting principle and the net operating loss from
Intervest National Bank, the Company's consolidated net earnings would have
increased to $359,000 in the 1999 second quarter, from $325,000 in the same
period of 1998, and to $817,000 in the first half of 1999 from $633,000 in the
first half of 1998. The Company expects that its net earnings will continue to
be reduced in the near term due to the start up of Intervest National Bank.
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 Six-Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
----------------------------------------------- -------------- ---------------- ------ ----------------- -----------------
<S> <C> <C> <C> <C>
Stockholders' equity to total assets 9.96% 10.42% 9.96% 10.42%
Average stockholders' equity to average assets 10.11% 10.81% 10.03% 10.98%
Return on average assets (1) 0.38% 0.77% 0.46% 0.77%
Return on average equity (1) 3.71% 7.12% 4.54% 7.02%
Average interest-earning assets to
interest-bearing liabilities 1.11x 1.11x 1.11x 1.11x
Net interest margin (1) 2.66% 2.74% 2.69% 2.75%
Noninterest expenses to average assets (1) 1.66% 1.25% 1.48% 1.26%
- ------------------------------------------------------------------------------------------------------------------------------
(1) Ratios have been annualized.
</TABLE>
9
<PAGE>
Comparison of Financial Condition at June 30, 1999 and December 31, 1998
------------------------------------------------------------------------
Overview
- --------
Total assets at June 30, 1999 increased to $202,047,000, from $200,522,000 at
December 31, 1998, reflecting increases in loans receivable and investments in
securities held to maturity, largely offset by a decline in cash and cash
equivalents. Total liabilities increased from $180,978,000 at December 31, 1998,
to $181,933,000 at June 30, 1999. Stockholders' equity grew 3% to $20,114,000 at
June 30, 1999. Book value per common share was $8.05 at June 30, 1999.
The Company's balance sheet was comprised of the following:
<TABLE>
<CAPTION>
-------------------------------------------- -------------------------------- -------- ----------------------------------
At June 30, 1999 At December 31, 1998
-------------------------------- ----------------------------------
Carrying % of Carrying % of
($ in thousands) Value Total Assets Value Total Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 9,940 4.9% $ 13,472 6.7%
Securities held to maturity, net 83,691 41.4 82,338 41.1
Loans receivable, net 98,670 48.9 96,074 47.9
All other assets 9,746 4.8 8,638 4.3
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $202,047 100.0% $200,522 100.0%
- ------------------------------------------------------------------------------------------------------------------------------
Deposits $169,648 84.0% $170,467 85.0%
Federal funds purchased 1,325 0.7 -- --
Convertible debentures 6,940 3.4 7,000 3.5
All other liabilities 4,020 1.9 3,511 1.8
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 181,933 90.0 180,978 90.3
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 20,114 10.0 19,544 9.7
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $202,047 100.0% $200,522 100.0%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents declined primarily due to the deployment of funds into
loans and government agency security investments. At June 30, 1999, Intervest
National Bank had $5,900,000 of cash temporarily invested in Federal funds sold
in anticipation of funding new loan originations in the third quarter of 1999.
Securities Held to Maturity
- ---------------------------
Securities held to maturity increased due to purchases of U.S. government agency
securities, partially offset by maturities and calls of securities.
Loans Receivable
- ----------------
Loans receivable increased due to new commercial and multifamily real estate
loan originations exceeding principal repayments and sales of loans. In the
first quarter of 1999, four multifamily real estate loans (with an aggregate
principal balance of $5,604,000) held by the Holding Company were sold in order
to increase its 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 of par. At June 30, 1999 and December 31,
1998, the Company did not have any loans on a nonaccrual status or classified as
impaired.
10
<PAGE>
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 that are discussed
on pages 22 and 23 of the Company's 1998 Annual Report on Form 10-KSB. At June
30, 1999, the allowance amounted to $1,997,000, compared to $1,662,000 at
year-end 1998. The increase reflected management's intent to maintain the
allowance at a level it believes to be adequate. The allowance represented 1.98%
of total loans outstanding at June 30, 1999, compared to 1.70% at December 31,
1998.
All Other Assets
- ----------------
All other assets increased primarily due to purchases of fixed assets by
Intervest National Bank, and a higher level of deferred tax benefits generated
largely by start-up costs that were expensed by Intervest National Bank for
financial statement purposes.
Deposit Liabilities
- -------------------
Deposit liabilities declined slightly due to offsetting factors. Intervest
Bank's deposits declined from approximately $170,400,000 at year-end 1998, to
$162,000,000 at June 30, 1999, which management attributes to a more competitvie
interest rate environment for deposits. This decline was substantially offset by
the opening of Intervest National Bank on April 1, 1999, whose deposit
liabilities have grown to approximately $8,000,000 at June 30, 1999.
At June 30, 1999, total time deposit accounts amounted to $92,381,000 and demand
deposit, savings, NOW and money-market accounts aggregated $77,267,000. This
compared to deposits of $99,033,000 and $71,434,000, respectively, at December
31, 1998. Time deposits represented 54% of total deposits at June 30, 1999,
compared to 58% at year-end 1998.
Federal Funds Purchased
- -----------------------
Intervest Bank, from time to time, obtains funds through Federal funds
purchases. During the second quarter of 1999, Intervest Bank utilized this
funding source. At June 30, 1999, Federal funds purchased totaled $1,325,000.
Convertible Debentures
- ----------------------
In the first half of 1999, convertible debentures in the aggregate principal
amount of $60,000 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. For a further discussion of the debentures, see the Company's
1998 Annual Report on Form 10-KSB, page 25.
All Other Liabilities
- ---------------------
All other liabilities increased largely due the Company holding a greater amount
of mortgage escrow funds, which represent advance payments by borrowers for
taxes and insurance, and an increase in accrued interest payable on convertible
debentures outstanding.
11
<PAGE>
Stockholders' Equity and Regulatory Capital
- -------------------------------------------
Stockholders' equity increased almost entirely as a result of net income of
$452,000, the issuance of 6,455 shares of Class A common stock upon the
conversion of convertible debentures and 1,800 shares upon the exercise of Class
A stock warrants, 510 Class A shares issued in exchange for the shares of
minority shareholders of Intervest Bank, and 5,000 Class B shares issued upon
the exercise of Class B stock warrants. The issuance of all these shares
resulted in, net of issuance costs, a $105,000 aggregate increase in
stockholders' equity.
Intervest Bank and Intervest National Bank are well-capitalized institutions as
defined by FDIC regulations. See note 5 to the condensed consolidated financial
statements in this report for further information.
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' branch
offices; amortization, 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. For additional 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 June 30, 1999, the Company's total commitment to lend aggregated $13,717,000.
Based on its cash flow projections, the Company believes that it can fund all of
its outstanding commitments and future capital expenditures from the
aforementioned sources of funds.
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
June 30, 1999, the Company's one-year negative interest-rate sensitivity gap was
$83,080,000, or 41.1% of total assets, compared to $73,637,000, or 36.7%, at
December 31, 1998. In computing the gap, the Company treats its checking, money
market and savings deposit accounts as immediately repricing. For a further
discussion of interest rate risk and gap analysis, including all 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.
12
<PAGE>
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 the costs of making modifications to correct any Year 2000
issues will not materially affect reported operating results. The Company's
contingency plan relative to Year 2000 issues has been finalized and tested.
Based on testing results, the Company's mission critical systems have been
deemed to be Year 2000 compliant and, therefore, a contingency plan has not been
developed with respect to those systems. With regards to non-mission critical
internal systems, the Company's contingency plans are to replace those systems
that test as being noncompliant. Alternatively, some systems could be handled
manually on an interim basis. Should outside service providers not be able to
provide compliant systems, the Company will terminate those relationships and
transfer to Year 2000 compliant vendors.
The Company also recognizes the importance of determining that its borrowers are
facing the Year 2000 problem in a timely manner to avoid deterioration of the
loan portfolio solely due to this issue. All material relationships have been
identified and questionnaires have been completed to assess the inherent risks.
Deposit customers have received statement stuffers and informational material in
this regard. The Company plans to work on a one-on-one basis with any borrower
who has been identified as having high Year 2000 risk exposure.
Although management believes that the Company will not incur material costs
associated with the Year 2000 issue, there can be no assurances that all
hardware and software that the Company will use will be Year 2000 compliant.
Management cannot predict the amount of financial difficulties it may incur due
to the Company's customers and vendors inability to perform according to their
agreements with the Company or the effects that other third parties may cause as
a result of this issue. Therefore, there can be no assurance that the failure or
delay of others to address the Year 2000 issue or that the costs involved in
such process will not have a material adverse effect 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 Company will
maintain its liquidity levels to meet any increased demand.
Comparison of Results of Operations for
the Quarters Ended June 30, 1999 and 1998
-----------------------------------------
Overview
- --------
The Company reported net earnings for the second quarter of 1999 of $186,000,
compared to $325,000 for the second quarter of 1998. Diluted earnings per share
amounted to $0.07, compared to $0.10 per diluted share in the second quarter of
1998. The decline in earnings was primarily due to a $296,000 increase in
noninterest expenses and a $93,000 increase in the provision for loan loss
reserves. These items were partially offset by higher net interest and dividend
income of $152,000 and a $83,000 decline in the provision for income taxes.
13
<PAGE>
Net Interest and Dividend Income
- --------------------------------
Net interest and dividend income is the Company's primary source of earnings and
is influenced primarily by the amount, distribution and repricing
characteristics of its interest-earning assets and interest-bearing liabilities
as well as by the relative levels and movements of interest rates. The table
that follows sets forth information on average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for the periods indicated. The yields and rates
shown are based on a computation of annualized income/expense for each period
divided by average interest-earning assets/interest-bearing liabilities during
each period. Certain yields and rates shown are adjusted for related fee income
or expense. Average balances are derived from daily balances. Net interest
margin is computed by dividing annualized net interest and dividend income by
the average of total interest-earning assets during each period.
<TABLE>
<CAPTION>
- ------------------------------------------------- -----------------------------------------------------------------------------
For the Quarter Ended
-----------------------------------------------------------------------------
June 30, 1999 June 30, 1998
------------------------------------ ------------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans $ 93,878 $2,043 8.70% $ 86,271 $1,957 9.07%
Securities 83,819 1,218 5.81 65,870 1,009 6.13
Other interest-earning assets 10,938 128 4.68 8,241 109 5.29
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 188,635 $3,389 7.19% 160,382 $3,075 7.67%
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 9,452 8,591
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $198,087 $168,973
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW deposits $ 7,848 $ 62 3.17% $ 5,211 $ 48 3.69%
Savings deposits 25,986 265 4.09 15,824 192 4.87
Money-market deposits 38,272 411 4.31 21,567 262 4.87
Time deposits 89,997 1,235 5.50 101,509 1,456 5.75
-------------- ----------- --------- --- ------------- ----------- ----------
Total deposit accounts 162,103 1,973 4.88 144,111 1,958 5.44
-------------- ----------- --------- --- ------------- ----------- ----------
Federal funds purchased 440 6 5.05 - - -
Convertible debentures and accrued interest 7,473 158 8.49 801 17 8.49
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 170,016 $2,137 5.03% 144,912 $1,975 5.45%
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 4,276 2,960
Noninterest-bearing liabilities 3,761 2,838
Stockholders' equity 20,034 18,263
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $198,087 $168,973
- -------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $1,252 2.16% $1,100 2.22%
- -------------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 18,619 2.66% $ 15,470 2.74%
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.11x 1.11x
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net interest and dividend income increased to $1,252,000 in the second quarter
of 1999, from $1,100,000 in the 1998 second quarter. The increase was entirely
due to growth in the Company's balance sheet. The Company's net interest margin
declined slightly to 2.66%, from the 2.74% in the second quarter of 1998,
primarily reflecting a lower interest rate spread.
The decline in the interest rate spread was due to the yield on the Company's
earning assets declining at a slightly faster pace than the cost of its funds.
The yield on earning assets declined by 48 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 and maturities of higher-yielding
securities with the resulting proceeds being invested in securities with lower
rates; originations of new loans at lower rates; and downward rate resets on the
loan portfolio due to the lower interest rate environment.
14
<PAGE>
The Company's cost of funds declined by 42 basis points due to lower rates paid
on deposit accounts as well as an increase in lower-cost deposits held in
checking, savings and money-market accounts, and a decline in time deposits.
These factors were partially offset by the higher-cost funds obtained through
the sale of convertible debentures in June 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 $223,000 in the second quarter of 1999, compared to $130,000 in the second
quarter of 1998.
Noninterest Income
- ------------------
Total noninterest income increased to $100,000 in the 1999 second quarter, from
$85,000 in the second quarter of 1998, reflecting an increase in fee income from
mortgage activities.
Noninterest Expenses
- --------------------
Total noninterest expenses increased 56% to $823,000 in the second quarter of
1999, from $527,000 in the second quarter of 1998. The increase over last year's
period was almost entirely due to the opening of Intervest National Bank on
April 1, 1999, which resulted in the addition of staff and operating and
start-up expenses.
Provision for Income Taxes
- --------------------------
The provision for income taxes amounted to $120,000 in the second quarter of
1999, compared to $203,000 in the same period of 1998. The Company's effective
tax rate (inclusive of state and local taxes) amounted to 39.2% in the 1999
period, compared to 38.5% in the 1998 period.
Comparison of Results of Operations for
the Six-Months Ended June 30, 1999 and 1998
-------------------------------------------
Overview
- --------
The Company's earnings for the first six months of 1999 were $452,000, or $0.16
per diluted share, compared to $633,000, or $0.19 per diluted share for the same
period of 1998. The decline in earnings was primarily due to a $434,000 increase
in noninterest expenses, a net charge of $128,000 (or $0.05 per share) from the
adoption of a new accounting standard and a $105,000 increase in the provision
for loan loss reserves. These items were partially offset by a $403,000 increase
in net interest and dividend income and a $73,000 increase in noninterest
income.
Results for the 1999 first half were reduced by a one-time charge 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." The SOP
requires that all start-up costs (except for those that are capitalizable under
other generally accepted accounting principles) be expensed as incurred
effective January 1, 1999. Previously, a portion of start-up costs were
generally capitalized and amortized over a period of time for financial
statement purposes. The adoption of this statement resulted in a net charge of
$128,000 on January 1, 1999.
15
<PAGE>
Net Interest and Dividend Income
- --------------------------------
Net interest and dividend income is the Company's primary source of earnings and
is influenced primarily by the amount, distribution and repricing
characteristics of its interest-earning assets and interest-bearing liabilities
as well as by the relative levels and movements of interest rates. The table
that follows sets forth the same information that is described above the table
on page 14 for the six-month periods ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
For the Six-Months Ended
---------------------------------------------------------------------------
June 30, 1999 June 30, 1998
---------------------------------- ------------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans $ 95,684 $4,184 8.75% $ 82,667 $3,750 9.07%
Securities 85,214 2,481 5.82 66,622 2,038 6.12
Other interest-earning assets 8,990 200 4.45 7,238 179 4.95
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 189,888 $6,865 7.23% 156,527 $5,967 7.62%
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 8,397 7,661
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $198,285 $164,188
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW deposits $ 7,590 $ 118 3.14% $ 5,032 $ 91 3.65%
Savings deposits 26,462 544 4.15 15,128 366 4.88
Money-market deposits 37,192 798 4.33 19,782 478 4.87
Time deposits 92,160 2,529 5.53 100,216 2,861 5.76
------------ ----------- --------- --- ------------- ----------- ----------
Total deposit accounts 163,404 3,989 4.92 140,158 3,796 5.46
Federal funds purchased 219 6 5.07 -- -- --
Convertible debentures and accrued interest 7,412 313 8.45 426 17 8.44
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 171,035 $4,308 5.04% 140,584 $3,813 5.42%
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 4,215 2,989
Noninterest-bearing liabilities 3,139 2,585
Stockholders' equity 19,896 18,030
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $198,285 $164,188
- -------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $2,557 2.19% $2,154 2.20%
- -------------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 18,853 2.69% $ 15,943 2.75%
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.11x 1.11x
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net interest and dividend income increased to $2,557,000 in the first half of
1999, from $2,154,000 in the 1998 first half. The increase was entirely due to
growth in the Company's balance sheet. The Company's net interest margin
declined slightly to 2.69%, from the 2.75% in the first half of 1998. The
decline was essentially due to the same factors discussed in the comparison of
the quarter ended June 30, 1999 versus June 30, 1998.
16
<PAGE>
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 $335,000 in the first six months of 1999, compared to $230,000 in the first
six months of 1998.
Noninterest Income
- ------------------
Total noninterest income increased to $223,000 in the 1999 first half, from
$150,000 in the first half of 1998. The 1999 amount included a $56,000 gain from
the sale of mortgage loans, which represented the balance of unearned income on
these loans (see page 10 under the caption "Loans Receivable" for a further
discussion).
Noninterest Expenses
- --------------------
Total noninterest expenses increased 42% to $1,470,000 in the first half of
1999, from $1,036,000 in the first half of 1998. The increase over last year's
period was almost entirely due to the opening of Intervest National Bank on
April 1, 1999, which resulted in the addition of staff and operating and
start-up expenses.
Provision for Income Taxes
- --------------------------
The provision for income taxes amounted to $395,000 in the first half of 1999,
compared to $405,000 in the same period of 1998. The Company's effective tax
rate (inclusive of state and local taxes) amounted to 40.5% in the 1999 period,
compared to 39.0% in the 1998 period.
Cumulative Effect of Change in Accounting Principle
- ---------------------------------------------------
The cumulative effect of 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.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
For a discussion of the Company's asset and liability management strategy, the
fair value of its financial instruments as well as the effects of interest rate
risk, see pages 26 through 29 and 51 and 52 of the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998. At June 30, 1999, the
Company's one-year negative interest-rate sensitivity gap was $83,080,000, or
41.1% of total assets, compared to $73,637,000, or 36.7%, at December 31, 1998.
There has been no significant change in the market value of the Company's
financial instruments at June 30, 1999, from December 31, 1998.
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) The Annual Meeting of Stockholders was held on May 4, 1999.
(b) Pursuant to the Company's charter and bylaws, one-third of the
directors are elected by the holders of Class A common stock and
two-thirds are elected by holders of Class B common stock. On all other
matters, Class A and Class B common stockholders vote together as a
single class. Each of the persons named in the Proxy Statement dated
April 1, 1999 as a nominee for Director was elected for one year terms
expiring on the date of the next annual meeting (see Item 4-C).
(c) The table that follows summarizes the voting results on the matter that
was submitted to the Company's common stockholders:
<TABLE>
<CAPTION>
----------------------------------------- ------------------ ----------------------- ---------------------
For Against or Withheld Abstained
----------------------------------------- ------------------ ----------------------- ---------------------
<S> <C> <C> <C>
Election of Directors - Class A
Michael A. Callen 1,957,074 8,000 -
Milton F. Gidge 1,957,074 8,000 -
William F. Holly 1,957,074 8,000 -
Election of Directors - Class B
Lawrence G. Bergman 305,000 - -
Jerome Dansker 305,000 - -
Lowell S. Dansker 305,000 - -
Edward J. Merz 305,000 - -
Thomas E. Willett 305,000 - -
David J. Willmott 305,000 - -
Wesley T. Wood 305,000 - -
----------------------------------------- ------------------ ----------------------- ---------------------
</TABLE>
(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 June 30,
1999.
18
<PAGE>
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: August 10, 1999 By: /s/ Lowell S. Dansker
----------------------------
Lowell S. Dansker,
President and Treasurer
(Chief Financial Officer)
Date: August 10, 1999 By: /s/ Lawrence G. Bergman
------------------------------
Lawrence G. Bergman,
Vice President and Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,712
<INT-BEARING-DEPOSITS> 1,428
<FED-FUNDS-SOLD> 5,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 83,691
<INVESTMENTS-MARKET> 81,465
<LOANS> 100,667
<ALLOWANCE> 1,997
<TOTAL-ASSETS> 202,047
<DEPOSITS> 169,648
<SHORT-TERM> 1,325
<LIABILITIES-OTHER> 4,020
<LONG-TERM> 6,940
0
0
<COMMON> 2,498
<OTHER-SE> 17,616
<TOTAL-LIABILITIES-AND-EQUITY> 202,047
<INTEREST-LOAN> 4,184
<INTEREST-INVEST> 2,481
<INTEREST-OTHER> 200
<INTEREST-TOTAL> 6,865
<INTEREST-DEPOSIT> 3,989
<INTEREST-EXPENSE> 4,308
<INTEREST-INCOME-NET> 2,557
<LOAN-LOSSES> 335
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,470
<INCOME-PRETAX> 975
<INCOME-PRE-EXTRAORDINARY> 975
<EXTRAORDINARY> 0
<CHANGES> (128)
<NET-INCOME> 452
<EPS-BASIC> .18
<EPS-DILUTED> .16
<YIELD-ACTUAL> 7.23
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,662
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,997
<ALLOWANCE-DOMESTIC> 1,997
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
