As filed with the Securities and Exchange Commission on April 28, 2000
Registration No. 333-64177
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Post-Effective Amendment No. 2 to
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INTERVEST BANCSHARES CORPORATION
(Name of Small Business Issuer in Its charter)
Delaware 6060
(State or Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
13-3699013
(IRS Employer Indentification No.)
10 Rockefeller Plaza (Suite 1015), New York, New York 10020-1903, (212)218-2800
(Address and Telephone Number of Principal Executive Offices)
10 Rockefeller Plaza (Suite 1015), New York, New York 10020-1903
(Address of Principal Place of Business)
Lawrence G. Bergman, Vice President
Intervest Bancshares Corporation
10 Rockefeller Plaza (Suite 1015)
New York, New York 10020-1903
(Name, Address and Telephone Number of Agent For Service)
-----------------
with copies to:
Thomas E. Willett, Esq.
Harris Beach & Wilcox
130 East Main Street
Rochester, New York 14604
Approximate Date of Proposed Sale to the Public: As soon as practicable.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. ______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |X| ______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. ___
- ------------------
As permitted by Rule 429(a) of the Securities Act, the Prospectus included
herein also relates to: a Registration Statement on Form SB-2 (No. 333-5013)
with respect to shares of Class A Common Stock issuable upon conversion of
debentures; a Registration Statement on Form SB-2 (No. 333-82246) with respect
to 675,000 Warrants and 675,000 shares of Class A Common Stock; a Registration
Statement on Form SB-2 (No. 333-3522) with respect to 613,500 Warrants and
613,500 shares of Class A Common Stock; a Registration Statement on Form SB-2
(No. 333-26583) with respect to 240,165 Warrants, 240,165 shares of Class A
Common Stock and 150,000 shares of Class B Common Stock; and a Registration
Statement on Form SB-2 (No. 333-33419) related to 965,683 Warrants and 965,683
shares of Class A Common Stock.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date the Commission, acting pursuant to said Section 8(a) may
determine.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED April 28, 2000
PROSPECTUS
INTERVEST BANCSHARES CORPORATION
(A Bank Holding Company for Intervest Bank and Intervest National Bank)
This prospectus covers shares of our Class A Common Stock and Class B
Common Stock that we may issue whenever someone exercises warrants that we
previously issued. We have issued warrants which currently entitle the holders
to purchase up to 2,464,218 shares of Class A Common Stock and up to 195,000
shares of Class B Common Stock. This prospectus also covers shares of Class A
Common Stock that we may issue upon conversion of debentures. We have issued
convertible debentures which allow the holders to currently convert them into up
to 638,240 shares of our Class A Common Stock.
Our Class A Common Stock is listed on the Nasdaq SmallCap Market under
the symbol "IBCA."
Please see "Risk Factors" beginning on page 7 to read about certain
factors you should consider.
-----------------
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Underwriting
Discounts and Proceeds to
Price to Public Commissions(1) Company(2)
--------------- -------------- -----------
Per Share(2) (3) $0 (3)
Per Warrant(2)(4) --- $0 ---
Total(2) $23,568,151.00 $0 $23,568,151.00
(1) The Company will not use brokers or dealers in connection with this
offering.
(2) Before deducting expenses estimated at $40,000. The Company will not
receive any proceeds in connection with the conversion of its
debentures.
(3) Warrants related to 1,379,815 shares of Class A Common Stock are at an
exercise price of $6.67 per share; Warrants related to 122,000 shares
of Class A Common Stock are at an exercise price of $15.00 per share;
and the remaining Class A Warrants are at an exercise price of $11.50
per share. Warrants related to 145,000 shares of Class B Common Stock
are at an exercise price of $6.67 per share and Warrants related to
50,000 shares of Class B Common Stock are at an exercise price of
$10.00 per share.
(4) The Company has attributed no value to the Warrants.
The date of this Prospectus is ___________, 2000
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission Under the Securities Exchange Act. We also
have filed a registration statement, including exhibits, which contains more
information on our company and the securities offered in this prospectus. You
may read and copy this information at the public reference facilities maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's regional offices located at 7 World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can also be
obtained at prescribed rates by writing to the Securities and Exchange
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a website that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of that site is:
"http://www.sec.gov".
We will furnish annual reports to our shareholders which contain
audited financial statements certified by our independent public accountants. We
may distribute unaudited quarterly reports and other interim reports to our
shareholders as we deem appropriate.
We will provide without charge to each person to whom a Prospectus is
delivered, upon written or oral request of such person, a copy of any or all
documents referred to above that have been incorporated into this Prospectus by
reference. Written or oral requests for such copies should be directed to: Mr.
Lawrence G. Bergman, Intervest Bancshares Corporation, 10 Rockefeller Plaza, New
York, New York 10020; (212) 218-2800.
2
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements, including the notes to those statements,
appearing elsewhere in this Prospectus.
The Company
Intervest Bancshares Corporation is a bank holding company (the
"Holding Company") incorporated under the laws of the State of Delaware whose
wholly-owned subsidiaries at December 31, 1999 were Intervest Bank, a Florida
state-chartered bank and Intervest National Bank, a nationally-chartered bank.
At December 31, 1999, the Company had consolidated assets and deposits of $247.8
million and $207.2 million, respectively, and stockholders' equity of $21.5
million.
Intervest Bank is a community-oriented, full service, commercial bank
serving the Clearwater area of the State of Florida. Intervest National Bank is
a newly chartered full-service commercial bank with its office in the borough of
Manhattan in New York City. It opened for operations on April 1, 1999. Unless
the context otherwise requires, references in this prospectus to the Company
include Intervest Bancshares Corporation and its subsidiaries. Intervest Bank
and Intervest National Bank are sometimes referred to as the "Banks."
The principal business of the Banks is to attract deposits and to loan
or invest those deposits on profitable terms. Each Bank offers a variety of
deposit accounts which are insured by the Federal Deposit Insurance Corporation
("FDIC") up to $100,000 per depositor. The lending of the Banks consists
primarily of real estate loans, commercial loans and consumer loans. Each of the
Banks is one of several providers of funds for such purposes in its market area,
and their lending policies, deposit products and related services are intended
to meet the needs of individuals and businesses in their market area.
In March of 2000, the Company completed its acquisition of Intervest
Corporation of New York, a company with assets of approximately $99 million,
consisting of a portfolio of mortgages on improved real property and short term
investments, primarily certificates of deposit and U.S. government agency notes.
The combined total assets of the two entities, if they had merged at December
31, 1999, would have been approximately $340 million.
The Offering
Securities Offered..................... 2,464,218 shares of Class A Common Stock
issuable upon exercise of Warrants and
195,000 shares of Class B Common Stock
issuable upon exercise of Warrants, and
638,240 shares of Class A Common Stock
currently issuable upon conversion of
debentures. See "Description of Capital
Stock" and "Description of Debentures."
Shares of Class A Common
Stock currently outstanding......... 3,535,629(1)
Shares of Class A Common
Stock outstanding after
Exercise of Class A Warrants
and conversion of Debentures...... 6,638,087
Shares of Class B Common
Stock currently outstanding.......... 355,000
Shares of Class B Common
Stock outstanding after
Exercise of Class B Warrants....... 550,000
Class A Common Stock............... The Class A Common Stock is listed on
the Nasdaq Stock Market's SmallCap
Market under the symbol "IBCA."
3
<PAGE>
Use of Proceeds........................ We intend to apply the net proceeds of
this 0ffering to our capital for general
corporate purposes, including the
financing of the expansion of our
operations through the infusion of
capital to our subsidiaries. See "Use of
Proceeds."
Investment Considerations............. Investors should consider the
information discussed under the heading
"Risk Factors."
(1) Does not include: (i) 355,000 shares of Class A Common stock issuable upon
the conversion of issued and outstanding shares of Class B Common Stock; (ii)
2,464,218 shares of Class A Common Stock issuable upon exercise of Warrants for
Class A Common Stock; (iii) 195,000 shares of Class A Common Stock issuable upon
conversion of Class B Common Stock issuable upon exercise of Warrants for Class
B Common Stock; and (iv) 638,240 shares of Class A Common Stock issuable upon
conversion of the Company's Convertible Subordinated Debentures.
4
<PAGE>
Selected Financial Data
The table below presents selected consolidated financial data. This data should
be read in conjunction with, and are qualified in their entirety by, the
Consolidated Financial Statements and the Notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this report.
<TABLE>
At or For The Year Ended December 31,
-------------------------------------
($ in thousands, except per share amounts) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Financial Condition Data:
<S> <C> <C> <C> <C> <C>
Total Assets $247,829 $200,522 $150,755 $105,196 $68,942
Cash and cash equivalents 7,329 13,472 9,176 6,320 8,551
Loans receivable, net of deferred fees 149,647 97,736 76,825 60,310 37,058
Securities, net 83,132 82,338 58,821 34,507 19,630
Deposits 207,168 170,467 131,167 93,447 58,601
Federal funds purchased 6,955 - - - -
Convertible debentures 6,930 7,000 - - -
Stockholders' equity 21,464 19,544 17,620 9,747 9,189
Nonaccrual loans - - - - -
Allowance for loan loss reserves 2,493 1,662 1,173 811 593
Loan chargeoffs - - - 65 30
Loan recoveries 1 10 10 33 21
Operations Data:
Interest and dividend income $ 15,058 $ 12,934 $ 9,347 $ 6,381 $ 4,190
Interest expense 9,478 8,297 5,894 3,745 2,225
Net interest and dividend income 5,580 4,637 3,453 2,636 1,965
Provision for loan loss reserves 830 479 352 250 233
Net interest and dividend income after
provision for loan loss reserves 4,750 4,158 3,101 2,386 1,732
Noninterest income 456 349 136 106 89
Noninterest expenses 3,165 2,133 1,906 1,551 1,415
Earnings before income taxes and change
in accounting principle 2,041 2,374 1,331 941 406
Provision for income taxes 718 939 487 383 136
Cumulative effect of accounting change(1) 128 - - - -
Net earnings $ 1,195 $ 1,435 $ 844 $ 558 $ 270
Per Share Data:
Basic earnings per share $ 0.48 $ 0.58 $ .049 $ 0.34 $ 0.16
Diluted earnings per share 0.43 0.46 0.41 0.34 0.16
Common book value per share 8.30 7 .87 7.27 5.91 5.57
Dividends per share - - - - -
Other Data and Ratios:
Common shares outstanding 2,586,879 2,484.515 2,424,415 1,650,000 1,650,000
Average common shares used to calculate:
Basic earnings per share 2,510,293 2,457,113 1,712,292 1,650,000 1,650,000
Diluted earnings per share 2,770,118 3,473,516 2,072,459 1,650,000 1,650,000
Adjusted net earnings for diluted earnings
per share $1,195 $ 1,607 $ 844 $558 $270
Full-service banking offices 6 5 5 4 4
Return on average assets 0.56% 0.81% 0.68% 0.67% 0.51%
Return on average equity 5.89% 7.74% 7.53% 5.91% 3.01%
Loans, net of unearned income to deposits 72.23% 57.33% 58.57% 64.54% 63.24%
Allowance for loan losses to total net loans 1.67% 1.70% 1.53% 1.34% 1.60%
Average stockholders' equity to average
total assets 9.50% 10.49% 8.96% 11.29% 16.89%
Stockholders' equity to total assets 8.66% 9.75% 11.69% 9.27% 13.32%
<FN>
(1) Represents a cumulative charge, net of applicable taxes, resulting from the
adoption on January 1, 1999 of the AICPA's Statement of Position 98-5,
"Accounting for Start-Up Costs."
</FN>
</TABLE>
5
<PAGE>
The Company and the Banks
Intervest Bancshares Corporation
Intervest Bancshares Corporation (the "Holding Company"), is a Delaware
corporation organized in 1993 as a bank holding company registered under the
Bank Holding Company Act of 1956, as amended (the "BHCA"). The principal
executive offices of the Holding Company are located at 10 Rockefeller Plaza
(Suite 1015), New York, New York 10020, and its telephone number is (212)
218-2800. The Holding Company's primary business is the ownership and operation
of Intervest Bank, Intervest National Bank and Intervest Corporation of New
York. Intervest Bank and Intervest National Bank are collectively referred to in
this prospectus as the "Banks". Unless the context otherwise requires,
references in this prospectus to the Company include Intervest Bancshares
Corporation and its subsidiaries. The Holding Company, through its ownership of
the Banks, is engaged in the commercial banking business and its primary source
of earnings is derived from income generated by its ownership and operation of
the Banks. In March of 2000, the Holding Company completed the acquisition of
Intervest Corporation of New York. As of December 31, 1999, the Company, on a
consolidated basis (but not including Intervest Corporation of New York), had
total assets of $247.8 million, net portfolio loans of $149.6 million, total
deposits of $207.2 million, and stockholders' equity of $21.5 million.
The Holding Company is a legal entity, separate and distinct from the
Banks and Intervest Corporation of New York. There are various legal limitations
with respect to the Banks' financing or otherwise supplying funds to the Holding
Company. In particular, under federal banking law, the Banks may not declare a
dividend that exceeds undivided profits. In addition, the approval of the
Federal Reserve Bank of Atlanta (the "Atlanta FRB"), as well as the Florida
Department of Banking and Finance, is required if the total amount of all
dividends declared by Intervest Bank in any calendar year exceeds that Bank's
net profits for that year, combined with its retained net profits for the
proceeding two years. The Atlanta FRB also has the authority to limit further
the payment of dividends by Intervest Bank under certain circumstances. In
addition, federal banking laws prohibit or restrict the Banks from extending
credit to the Holding Company under certain circumstances.
Intervest Bank
Intervest Bank is a Florida chartered banking corporation, which was
organized in December, 1987. Intervest Bank engages in commercial banking from
five offices, four of which are located in Clearwater, Florida and one of which
is in South Pasadena, Florida. The principal executive offices of Intervest Bank
are located at 625 Court Street, Clearwater, Florida 33756, and its telephone
number is (727) 442-2551. In addition to its principal office, Intervest Bank
has three branch offices in Clearwater, Florida, located at: (i) 2575 Ulmerton
Road; (ii) 2175 Nursery Road; and (iii) 1875 Belcher Road North, Clearwater, and
has a fourth branch in South Pasadena, Florida at 6750 Gulfport Blvd.
Intervest National Bank
Intervest National Bank is a national bank which received its charter from
the Office of the Comptroller of the Currency ("OCC") and opened for operations
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 market area. The Banks originate
commercial loans to businesses, collateralized and uncollaterized consumer
loans, and real estate loans (primarily commercial and multifamily real estate
loans). The Banks' income is derived principally from interest and fees earned
in connection with their lending activities, interest and dividends on
securities, short-term investments and other services. Provisions for loan loss
reserves also affect the Banks' income. Their principal expenses are interest
paid on deposits and operating expenses. The Banks' operations are also
significantly affected by local economic and competitive conditions in their
market areas. Changes in market interest rates, government legislation and
policies concerning monetary and fiscal affairs, and the attendant actions of
the regulatory authorities all have an impact on the Banks' operations.
The Banks are subject to examination and comprehensive regulation by the
Federal Reserve Board (the "FRB") and their deposits are insured by the Federal
Deposit Insurance Corporation (the "FDIC") to the extent permitted by law. The
Banks are members of the Federal Reserve Banking System. Intervest Bank is also
6
<PAGE>
subject to the supervision of and examination by the Florida Department of
Banking and Finance, while Intervest National Bank is subject to the supervision
of and examination of the OCC.
Intervest Corporation of New York
In March of 2000, the Holding Company completed its acquisition of
Intervest Corporation of New York, a company with assets of approximately $99
million, consisting of a portfolio of mortgages on improved real property and
short term investments, primarily certificates of deposit and U.S. government
agency notes. The combined total assets of the two entities, if they had merged
at December 31, 1999, would have been approximately $340 million.
INVESTMENT CONSIDERATIONS AND RISK FACTORS
A prospective investor should review and consider carefully the following
risk factors, together with the other information contained in this prospectus
in evaluating an investment. The prospectus contains certain forward-looking
statements and actual results could differ materially from those projected in
the forward-looking statements as a result of numerous factors, including those
set forth below and elsewhere in the prospectus.
Management's Broad Discretion Over Proceeds
None of the proceeds of the Offering have yet been committed to specific
applications. All determinations concerning the use and investment of the
proceeds will be made by management of the Company.
Dividends
Since its inception, the Holding Company has not paid any dividends on its
common stock and there is no immediate prospect or contemplation of the payment
of such dividends.
Dividends paid by the Holding Company are subject to the financial
conditions of both the Banks and the Holding Company as well as other business
considerations. In addition, banking regulations limit the amount of dividends
that may be paid by the Banks to the Holding Company without prior regulatory
approval. The amount of allowable dividends which could be payable by the
Holding Company are in substance limited to net profits earned by the Holding
Company, less any earnings retention consistent with the Holding Company's
capital needs, asset quality and overall financial condition. Distributions paid
by the Holding Company to shareholders will be taxable to the shareholders as
dividends, to the extent of the Holding Company's accumulated current earnings
and profits.
The payment of dividends by the Banks to the Holding Company is regulated
by various state and federal laws and by regulations promulgated by the FRB and
the OCC, which restrict the payment of dividends under certain circumstances. In
addition, such regulations also impose certain minimum capital requirements
which affect the amount of cash available for the payment of dividends by
regulated banking institutions such as the Banks. Even if the Banks are able to
generate sufficient earnings to pay dividends, there is no assurance that the
Board of Directors might not decide or be required to retain a greater portion
of the Banks' earnings in order to maintain or achieve the capital deemed
necessary or appropriate. The occurrence of any of these events would decrease
the amount of funds potentially available for the payment of dividends by the
Banks to the Holding Company. In addition, in some cases, the Banks' regulators
could take the position that it has the power to prevent one or both of the
Banks from paying dividends if, in its view, such payments would constitute
unsafe or unsound banking practices. Further, the determination of whether
dividends are paid and their frequency and amount will depend upon the financial
condition and performance of the Banks and the Company, and other factors deemed
appropriate by the Boards of Directors of the Banks and of the Holding Company.
Accordingly, there can be no assurance that any dividends will be paid in the
future by the Banks or the Holding Company.
Adequacy of Allowance For Loan Losses
There is a risk that losses may be experienced in the Company's loan
portfolio. The risk of loss will vary with, among other things, general economic
conditions, the type of loan being made, the creditworthiness of the borrower
over the term of the loan and, in the case of a collateralized loan, the quality
of the collateral for the loan. Management maintains an allowance for loan
losses which is established through a provision for loan losses charged to
operations. Loans are charged against the allowance for loan losses when
management believes that the collectability of the principal is unlikely.
Subsequent recoveries are added to the allowance. The allowance is an amount
7
<PAGE>
that management believes will be adequate to absorb possible losses inherent in
existing loans and loan commitments, based on evaluations of collectability and
prior loss experience. Management evaluates the adequacy of the allowance
monthly, or more frequently if considered necessary. The evaluation takes into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, loan concentrations, specific problem
loans and commitments and current and anticipated economic conditions that may
affect the borrower's ability to repay.
As of December 31, 1999, the Company had a loan portfolio of $149.6
million and the allowance for loan losses was $2.5 million, which represented
1.67% of the total amount of loans. At December 31, 1999, there were no non-
performing assets. The Banks actively manage their nonperforming loans in an
effort to minimize credit losses and monitors its asset quality to maintain an
adequate loan loss allowance. Although management believes that its allowance
for loan losses is adequate, there can be no assurance that the allowance will
prove sufficient to cover future loan losses. Further, although management uses
the best information available to make determinations with respect to the
allowance for loan losses, future adjustments may be necessary if economic
conditions differ substantially from the assumptions used or adverse
developments arise with respect to the Banks' nonperforming or performing loans.
Material additions to the Banks' allowances for loan losses would result in a
decrease of the Company's net income, and possibly its capital, and could result
in the inability to pay dividends, among other adverse consequences. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Asset Quality and Loan Impairment and Losses."
Supervision and Regulation
Bank holding companies and banks operate in a highly regulated environment
and are subject to the supervision and examination by several federal and state
regulatory agencies. The Company is subject to the BHCA and to regulation and
supervision by the FRB. Intervest Bank is also subject to the regulation and
supervision of the FDIC and the Florida Department of Banking and Finance and
Intervest National Bank is subject to the regulation and supervision of the OCC.
Federal and state laws and regulations govern matters ranging from the
regulation of certain debt obligations, changes in control of bank holding
companies, and the maintenance of adequate capital for the general business
operations and financial condition of the Banks, including permissible types,
amounts and terms of loans and investments, the amount of reserves against
deposits, restrictions on dividends, establishment of branch offices, and the
maximum rate of interest that may be charged by law. The FRB also possesses
cease and desist powers over bank holding companies to prevent or remedy unsafe
or unsound practices or violations of law. These and other restrictions limit
the manner by which the Banks and the Company may conduct their business and
obtain financing. Furthermore, the commercial banking business is affected not
only by general economic conditions, but also by the monetary policies of the
FRB. These monetary policies have had and/or are expected to continue to have
significant effects on the operating results of commercial banks. Although the
Company believes that it is in compliance in all material respects with
applicable state and federal laws, rules and regulations, there can be no
assurance that more restrictive laws, rules and regulations will not be adopted
in the future which could make compliance more difficult or expensive, or
otherwise affect the ability of the Banks to attract deposits and make loans.
See "Supervision and Regulation."
Competition
Competition in the banking and financial services industry is intense. In
their primary market areas, the Banks compete with other commercial banks,
savings and loan associations, credit unions, finance companies, mutual funds,
insurance companies and brokerage and investment banking firms operating locally
and elsewhere. Most of these competitors have substantially greater resources
and lending limits than the Banks and may offer certain services that the Banks
do not provide at this time. The profitability of the Company depends upon the
Banks' ability to compete in their market areas. See "Business - Competition."
Local Economic Conditions
The success of the Company and the Banks is dependent to a certain extent
upon the general economic conditions in geographic markets served by the Banks
which focuses, in the case of Intervest Bank, on Pinellas County, Florida and
the immediate surrounding areas. That Bank's primary market area is particularly
dependent on the economic conditions within Clearwater, Florida. Although the
Company expects economic conditions will continue to improve in this market
area, there is no assurance that favorable economic development will occur or
that Intervest Bank's expectation of corresponding growth will be achieved. In
the case of Intervest National Bank, its primary market area is New York City
and, more particularly, the borough of Manhattan. Adverse changes in their
geographic markets would likely impair the Banks' ability to collect loans and
could otherwise have a negative effect on the financial condition of the
Company. See "Business - Market Area."
8
<PAGE>
Lack of Diversification
The primary business activity of the Holding Company consists of its
ownership and control of the capital stock of the Banks and Intervest
Corporation of New York. As a result, the Company presently lacks
diversification as to business activities and market areas, and any event
affecting either Bank will have a direct impact on the Company. See "Business."
Dependence on Key Personnel
The Company and the Banks are dependent upon the services of their
principal officers. If the services of any of these persons were to become
unavailable for any reason, the operation of the Company and the Bank might be
adversely affected in a material manner. Intervest Bank presently has written
employment agreements with its President, its Vice President and its Cashier.
Neither the Company nor either Bank maintains key man life insurance policies on
executives and do not have any immediate plans to obtain such policies. The
successful development of the Company's business will depend, in part, on its
and the Banks' ability to attract or retain qualified officers and employees.
See "Management."
Voting Control
As of the date of this Prospectus, the three original shareholders of the
Company and a related party own 2,217,000 shares of Class A Common Stock or
approximately 63% of the issued and outstanding shares of Class A Common Stock
of the Company. These same persons own all of the issued and outstanding shares
of Class B Common Stock. See "Management -- Security Ownership of Certain
Beneficial Owners and Management." The shares of Class B Common Stock, as a
separate class, are entitled to elect two-thirds of the directors of the
Company. As a result, voting control will continue to rest with the three
persons.
Interest Rates
The principal source of income for the Company is its net interest income,
which is affected by movements in interest rates. Although the Banks monitor
their interest rate sensitivity and attempt to reduce the risk of the
significant decrease in net interest income caused by a change in interest
rates, rising interest rates could nevertheless adversely affect the Banks'
results of operations.
USE OF PROCEEDS
The net proceeds to the Company will depend upon the number of Warrants
actually exercised and cannot be determined at this time. However, assuming all
of the Warrants were to be exercised, the net proceeds to the Company would be
approximately $23.6 million.
The net proceeds of the Offering will become a part of the Company's
capital funds to be used for general corporate purposes, including, without
limitation, the financing of the expansion of the Company's or the Banks'
business through acquisitions, the establishment of new branches or
subsidiaries, and the infusion of capital to the Banks and any future
subsidiaries of the Company. Neither the Company nor its subsidiaries currently
have any plans, understandings, arrangements or agreements, written or oral,
with respect to the establishment of any branches or subsidiaries, or with
respect to any specific acquisition prospect, and they are not presently
negotiating with any party with respect thereto.
The actual application of the net proceeds will depend on the capital
needs of the Holding Company's subsidiaries, the Company's own financial
requirements and available business opportunities. None of the uses described
herein constitute a commitment by the Company to expend the proceeds in a
particular manner. The Company reserves the right to make shifts in the
allocation of the proceeds from this offering if future events, including
changes in the economic climate or the Company's planned operations, make such
shifts necessary or desirable. In such events, proceeds may be applied to the
working capital requirements of the Company or the Banks. Pending their ultimate
application, the net proceeds will be invested in such relatively short-term
investments or otherwise applied as management may determine.
9
<PAGE>
MARKET FOR SECURITIES
The Company's Class A common stock is traded over the counter and quoted on
the NASDAQ SmallCap Market under the symbol: IBCA. At December 31, 1999, there
were approximately 800 holders of record of the Company's Class A common stock,
which includes persons or entities who hold their stock in nominee form or in
street name through various brokerage firms. At December 31, 1999, there were
four holders of record of Class B common stock.
There is no public-trading market for the Class B common stock. The high and low
sales prices (as obtained from NASDAQ) for the Class A common stock by calendar
quarter for 1998 and 1999 are as follows:
1999 1998
High Low High Low
---- --- ---- ---
First quarter $11.00 $7.63 $15.25 $11.00
Second quarter $19.00 $7.81 $16.00 $11.25
Third quarter $ 9.75 $7.44 $13.00 $ 8.25
Fourth quarter $ 9.00 $5.06 $10.00 $ 8.00
DIVIDENDS
Holders of the Holding Company's Class A and Class B common stock are
entitled to receive dividends when and if declared by the Board of Directors out
of funds legally available therefor. The Holding Company has not paid any cash
dividends on its capital stock and there is no immediate prospect or
contemplation of the payment of dividends on its stock. The Holding Company's
ability to pay dividends is generally limited to earnings from the prior year,
although retained earnings and dividends from its subsidiaries may also be used
to pay dividends under certain circumstances. The primary source of funds for
dividends payable by the Holding Company to its shareholders is the dividends
payable to it by the Banks.
The payment of dividends by the Banks is subject to a determination by
each Bank's Board of Directors and is dependent upon a number of factors,
including capital requirements, regulatory limitations, the particular Bank's
results of operations and financial condition, tax considerations of the Banks
and the Holding Company, the number of outstanding shares of stock, and general
economic conditions. There are various legal limitations with respect to the
Banks financing or otherwise supplying funds to the Holding Company. In
particular, under Federal banking law, the Banks may not declare a dividend that
exceeds undivided profits. In addition, the approval of the FRB, the OCC (in the
case of Intervest National Bank) and the Florida Department of Banking and
Finance (in the case of Intervest Bank), is required if the total amount of all
dividends declared in any calendar year exceeds the Bank's net profits for that
year, combined with its retained net profits for the proceeding two years. The
FRB also has the authority to limit further the payment of dividends by the
Banks under certain circumstances. In addition, Federal banking laws prohibit or
restrict each Bank from extending credit to the Holding Company under certain
circumstances. The FRB and the OCC have established certain financial and
capital requirements that affect the ability of banks to pay dividends and also
have the general authority to prohibit banks from engaging in unsafe or unsound
practices in conducting business. Depending upon the financial condition of
either Bank, the payment of cash dividends could be deemed to constitute such an
unsafe or unsound practice.
The FRB and Florida Department of Banking and Finance have publicly stated
their view that it is generally an unsafe and unsound practice to pay cash
dividends except out of current operating earnings. Under FRB policy, a bank
holding company is expected to act as a source of financial strength to its
subsidiary banks and to commit resources to support each such bank. Consistent
with this policy, the FRB has stated that, as a matter of prudent banking, a
bank holding company generally should not pay cash dividends unless the
available net earnings of the bank holding company is sufficient to fully fund
the dividends, and the prospective rate of earnings retention appears to be
consistent with a holding company's capital needs, asset quality and overall
financial condition.
The ability of the Banks and the Holding Company to pay cash dividends is
currently, and in the future influenced by regulatory policies or agreements and
by capital guidelines. Accordingly, the actual amount, if any, and timing of
future dividends will depend on, among other things, future earnings, the
financial condition of the Banks and the Holding Company, the amount of cash on
hand at the Holding Company level, outstanding debt obligations and the
requirements imposed by regulatory authorities.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1999, and as adjusted at that date after giving effect to the
receipt of the estimated net proceeds from the exercise of all of the Warrants
and conversion of Debentures.
<TABLE>
Actual As Adjusted(1)
------ --------------
(Dollars in thousands)
Stockholders' Equity:
<S> <C> <C>
Class A Common Stock, $1.00 par value, 7,500,000
shares authorized, 2,281,879
shares issued
and outstanding(2)............................................ $2,282 $5,384
Class B Common Stock, $1.00 par value, 700,000
shares authorized, 305,000 shares issued and outstanding(3).. 305 500
Additional Paid-in Capital...................................... 14,411 42,660
Retained Earnings............................................... 4,466 4,466
------ ------
Total Stockholders' Equity....................................... $21,464 $53,010
====== ======
- -------------------------
<FN>
(1) Reflects the 2,464,218 shares of Class A Common Stock and 195,000 shares of
Class B Common Stock issuable upon exercise of the Warrants, and the
638,240 shares of Class A Common Stock currently issuable upon conversion
of debentures.
(2) Does not include: shares of Class A Common Stock issuable upon conversion
of Class B Common Stock; and 1,250,000 shares issued in connection with the
acquisition of Intervest Corporation of New York in March, 2000.
(3) Does not include 50,000 shares of Class B Common Stock issued in March,
2000.
</FN>
</TABLE>
11
<PAGE>
Selected Financial Data
The table below presents selected consolidated financial data. This data should
be read in conjunction with, and are qualified in their entirety by, the
Consolidated Financial Statements and the Notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this report.
<TABLE>
<CAPTION>
- ------------------------------------------------------ -------------------------------------------------------------------
At or For The Year Ended December 31,
------------- ------------ ------------- ------------- ------------
($ in thousands, except per share amounts) 1999 1998 1997 1996 1995
- ------------------------------------------------------ ------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Financial Condition Data:
Total assets $247,829 $200,522 $150,755 $105,196 $68,942
Cash and cash equivalents 7,329 13,472 9,176 6,320 8,551
Loans receivable, net of deferred fees 149,647 97,736 76,825 60,310 37,058
Securities, net 83,132 82,338 58,821 34,507 19,630
Deposits 207,168 170,467 131,167 93,447 58,601
Federal funds purchased 6,955 - - - -
Convertible debentures 6,930 7,000 - - -
Stockholders' equity 21,464 19,544 17,620 9,747 9,189
Nonaccrual loans - - - - -
Allowance for loan loss reserves 2,493 1,662 1,173 811 593
Loan chargeoffs - - - 65 30
Loan recoveries 1 10 10 33 21
- ------------------------------------------------------ ------------- ------------ ------------- ------------- ------------
Operations Data:
Interest and dividend income $15,058 $12,934 $9,347 $ 6,381 $ 4,190
Interest expense 9,478 8,297 5,894 3,745 2,225
------------- ------------ ------------- ------------- ------------
Net interest and dividend income 5,580 4,637 3,453 2,636 1,965
Provision for loan loss reserves 830 479 352 250 233
------------- ------------ ------------- ------------- ------------
Net interest and dividend income after
provision for loan loss reserves 4,750 4,158 3,101 2,386 1,732
Noninterest income 456 349 136 106 89
Noninterest expenses 3,165 2,133 1,906 1,551 1,415
------------- ------------ ------------- ------------- ------------
Earnings before income taxes and change
in accounting principle 2,041 2,374 1,331 941 406
Provision for income taxes 718 939 487 383 136
Cumulative effect of accounting change (1) 128 - - - -
------------- ------------ ------------- ------------- ------------
Net earnings $ 1,195 $ 1,435 $ 844 $ 558 $ 270
- ------------------------------------------------------ ------------- ------------ ------------- ------------- ------------
Per Share Data:
Basic earnings per share $ 0.48 $ 0.58 $0.49 $0.34 $ 0.16
Diluted earnings per share 0.43 0.46 0.41 0.34 0.16
Common book value per share 8.30 7.87 7.27 5.91 5.57
Dividends per share - - - - -
- ------------------------------------------------------ ------------- ------------ ------------- ------------- ------------
Other Data and Ratios:
Common shares outstanding 2,586,879 2,484,515 2,424,415 1,650,000 1,650,000
Average common shares used to calculate:
Basic earnings per share 2,510,293 2,457,113 1,712,292 1,650,000 1,650,000
Diluted earnings per share 2,770,118 3,473,516 2,072,459 1,650,000 1,650,000
Adjusted net earnings for diluted earnings per share $1,195 $1,607 $844 $558 $270
Full-service banking offices 6 5 5 4 4
Return on average assets 0.56% 0.81% 0.68% 0.67% 0.51%
Return on average equity 5.89% 7.74% 7.53% 5.91% 3.01%
Loans, net of unearned income to deposits 72.23% 57.33% 58.57% 64.54% 63.24%
Allowance for loan losses to total net loans 1.67% 1.70% 1.53% 1.34% 1.60%
Average stockholders' equity to average total assets 9.50% 10.49% 8.96% 11.29% 16.89%
Stockholders' equity to total assets 8.66% 9.75% 11.69% 9.27% 13.32%
- ------------------------------------------------------ ------------- ------------ ------------- ------------- ------------
<FN>
(1) Represents a cumulative charge, net of applicable taxes, resulting from the
adoption on January 1, 1999 of the AICPA's Statement of Position 98-5,
"Accounting for Start-Up Costs."
</FN>
</TABLE>
12
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
Management's discussion and analysis of financial condition and results of
operations that follows should be read in conjunction with the Consolidated
Financial Statements and Notes thereto beginning on page 34.
Intervest Bancshares Corporation's principal assets are its 100% ownership
interest in Intervest Bank and Intervest National Bank's outstanding capital
stock. Intervest Bancshares Corporation (referred to by itself as the "Holding
Company") and Intervest Bank and Intervest National Bank (referred to together
as the "Banks") are referred to collectively as the "Company" on a consolidated
basis.
Intervest National Bank is a full-service commercial bank located at One
Rockefeller Plaza, Suite 300, New York, New York, 10020. It received its
national charter from the OCC and opened for business on April 1, 1999.
Intervest Bank is a Florida state-chartered commercial bank with four banking
offices in Clearwater, Florida and one in South Pasadena, Florida.
The Holding Company's primary business is the operation of the Banks. It does
not engage in any other substantial business activities other than a limited
amount of real estate mortgage lending. As a result, the Company's consolidated
results of operations are dependent largely upon the Banks' results of
operations. Each Bank conducts a full-service commercial banking business, which
consists of attracting deposits from the general public and investing those
funds, together with other source of funds, primarily through the origination of
commercial and multifamily real estate loans, and through the purchase of
security investments. Intervest National Bank also provides Internet banking
services through its Web Site: www.intervestnatbank.com.
The Company's profitability depends primarily on net interest income, which is
the difference between interest income generated from its interest-earning
assets less the interest expense incurred on its interest-bearing liabilities.
Net interest income is dependent upon the interest-rate spread, which is the
difference between the average yield earned on interest-earning assets and the
average rate paid on interest-bearing liabilities. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income. The interest rate spread is impacted
by interest rates, deposit flows and loan demand. Additionally, the Company's
profitability is affected by such factors as the level of its noninterest income
and expenses, the provision for loan loss reserves, and the Company's effective
income tax rate. Noninterest income consists primarily of loan and other banking
fees. Noninterest expense consists of compensation and benefits, occupancy and
equipment related expenses, data processing expenses, advertising expense,
deposit insurance premiums and other operating expenses. The Company's
profitability is also significantly affected by general economic and competitive
conditions, changes in market interest rates, government policies and actions of
regulatory authorities.
In late 1999, Intervest Bancshares Corporation announced that it had agreed to
acquire Intervest Corporation of New York, a company with assets of
approximately $99,000,000, consisting of a portfolio of mortgages on improved
real property and short-term investments, primarily certificates of deposit and
U.S. government agency notes. The combined total assets of the two entities if
they had merged at December 31, 1999 would have been approximately $340,000,000.
The two entities 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 Intervest Bancshares Corporation. The
merger was approved by both Boards of Directors, the shareholders of both the
Company and Intervest Corporation of New York, and the Federal Reserve Bank of
Atlanta. In the merger, Intervest Corporation of New York shareholders received
an aggregate of 1,250,000 shares of the Company's Class A common stock in
exchange for all of Intervest Corporation of New York's capital stock. The
merger became effective in March 2000 and will be accounted for at historical
cost similar to the pooling-of-interests method of accounting.
13
<PAGE>
Results of Operations
Comparison of Results of Operations for the Years Ended December 31, 1999 and
1998.
General
Consolidated earnings for the year ended December 31, 1999 were $1,195,000, or
$0.43 per diluted share, compared to $1,435,000, or $0.46 per diluted share for
1998. The decline in earnings was due to the opening of Intervest National Bank.
The new bank recorded a net loss from operations of $507,000, which included
$444,000 allocated to its initial provision for loan loss reserves as well as a
one-time net charge of $128,000 related to 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." The aforementioned items were almost entirely offset by
continued earnings growth from Intervest Bank, whose net earnings rose to
$1,642,000 in 1999, from $1,149,000 in 1998. The Holding Company had net
earnings of $60,000 in 1999, compared to $286,000 in 1998. The decrease was
attributable to the funding of Intervest National Bank's initial capital.
Net Interest and Dividend Income
Net interest and dividend income increased to $5,580,000 in 1999, from
$4,637,000 in 1998. The increase was due to growth in the Company's
interest-earning assets and a slight improvement in the net interest rate spread
from 2.20% in 1998, to 2.25% in 1999. Average interest-earning assets grew by
$35,902,000, reflecting the opening of Intervest National Bank.
The Company's net interest margin was 2.73% in 1999, compared to 2.75% in 1998.
The slight decline in the margin was due to a decrease in the ratio of the
Company's average earning-assets to average interest-bearing liabilities from
1.11 in 1998 to 1.10 in 1999, offset almost entirely by a 5 basis point
improvement in the net interest rate spread.
The Company's yield on earning assets declined by 31 basis points primarily due
to the following factors: the very competitive lending environment during 1999
which resulted in originations of new loans at lower rates as well as
prepayments of higher-yielding loans; calls of higher-yielding U.S government
agency securities with the resulting proceeds being invested in securities with
lower rates; and lower rates earned on short-term investments.
The Company's cost of funds declined by 36 basis points due to lower average
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 in 1999, while the level of higher-cost time deposits declined. The
decline in the cost of deposits was offset to some degree by the higher-cost
funds obtained through the sale of convertible subordinated debentures by the
Holding Company in June 1998.
The table that follows sets forth information on the Company's average assets,
liabilities and stockholders' equity; yields earned on interest-earning assets;
and rates paid on interest-bearing liabilities for 1999 and 1998. The yields and
rates shown are based on a computation of income/expense for each year divided
by average interest-earning assets/interest-bearing liabilities during each
year. 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 net interest and dividend income by the average of total
interest-earning assets during each year.
14
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1999 1998
----------------------------------- ------------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
-------------------------------------------------- ------------ ----------- ---------- ------------- ----------- ----------
Assets
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $110,006 $ 9,691 8.81% $ 90,470 $8,278 9.15%
Securities 83,914 4,873 5.81 69,508 4,224 6.08
Other interest-earning assets 10,304 494 4.79 8,344 432 5.18
-------------------------------------------------- ------------ ----------- ---------- ------------- ----------- ----------
Total interest-earning assets 204,224 $15,058 7.37% 168,322 $12,934 7.68%
-------------------------------------------------- ------------ ----------- ---------- ------------- ----------- ----------
Noninterest-earning assets 9,453 8,395
-------------------------------------------------- ------------ ----------- ---------- ------------- ----------- ----------
Total assets $213,677 $176,717
-------------------------------------------------- ------------ ----------- ---------- ------------- ----------- ----------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Money market and checking (NOW) deposits $ 52,105 $ 2,222 4.26% $ 28,756 $1,324 4.60%
Savings deposits 25,321 1,066 4.21 17,210 832 4.83
Certificates of deposits 99,482 5,524 5.55 101,547 5,821 5.73
------------ ----------- ---------- ------------- ----------- ----------
Total deposit accounts 176,908 8,812 4.98 147,513 7,977 5.41
Federal funds purchased 517 29 5.61 20 1 5.00
Convertible debentures 7,531 637 8.45 3,777 319 8.45
-------------------------------------------------- ------------ ----------- ---------- ------------- ----------- ----------
Total interest-bearing liabilities 184,956 $ 9,478 5.12 151,310 $8,297 5.48%
-------------------------------------------------- ------------ ----------- ---------- ------------- ----------- ----------
Noninterest-bearing deposits 4,436 3,096
Noninterest-bearing liabilities 3,980 3,782
Stockholders' equity 20,305 18,529
-------------------------------------------------- ------------ ----------- ---------- ------------- ----------- ----------
Total liabilities and stockholders' equity $213,677 $176,717
-------------------------------------------------- ------------ ----------- ---------- ------------- ----------- ----------
Net interest and dividend income/spread $ 5,580 2.25% $4,637 2.20%
-------------------------------------------------- ------------ ----------- ---------- ------------- ----------- ----------
Net interest-earning assets/margin $ 19,268 2.73% $ 17,012 2.75%
-------------------------------------------------- ------------ ----------- ---------- ------------- ----------- ----------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.10x 1.11x
-------------------------------------------------- ------------ ----------- ---------- -- ------------- ----------- ----------
</TABLE>
The table that follows provides information regarding changes in interest and
dividend income and interest expense. For each category of interest-earning
assets and interest-bearing liabilities, information is provided on changes
attributable to (1) changes in rate (change in rate multiplied by prior volume),
(2) changes in volume (change in volume multiplied by prior rate) and (3)
changes in rate-volume (change in rate multiplied by change in volume).
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999 vs. 1998
Increase (Decrease) Due To Change In:
($ in thousands) Rate Volume Rate/Volume Total
--------------------------------------------------------- ------------- ------------- --------------- -----------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $(308) $1,788 $(67) $1,413
Securities (188) 875 (38) 649
Other interest-earning assets (32) 101 (7) 62
--------------------------------------------------------- ------------- ------------- --------------- -----------
Total interest-earning assets (528) 2,764 (112) 2,124
--------------------------------------------------------- ------------- ------------- --------------- -----------
Interest-bearing liabilities:
Money market and checking (NOW )deposits (112) 1,087 (77) 898
Savings deposits (107) 392 (51) 234
Certificates of deposit (182) (118) 3 (297)
------------- ------------- --------------- -----------
Total deposit accounts (401) 1,361 (125) 835
Federal funds purchased - 25 3 28
Convertible debentures - 318 - 318
--------------------------------------------------------- ------------- ------------- --------------- -----------
Total interest-bearing liabilities (401) 1,704 (122) 1,181
--------------------------------------------------------- ------------- ------------- --------------- -----------
Net change in interest and dividend income $(127) $1,060 $10 $ 943
--------------------------------------------------------- ------------- ------------- --------------- -----------
</TABLE>
15
<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, which takes into
consideration a number of factors, including the level of outstanding loans. The
provision amounted to $830,000 in 1999, compared to $479,000 in 1998. The 1999
provision included $444,000 recorded by Intervest National Bank as its initial
provision for loan loss reserves in conjunction with approximately $42,000,000
of new loan originations. See the section "Comparison of Financial Condition at
December 31, 1999 and December 31, 1998," for additional discussion of the
allowance for loan loss reserves. At December 31, 1999 and 1998, the Company did
not have any nonaccrual or impaired loans.
Noninterest Income
Total noninterest income increased to $456,000 in 1999, from $349,000 in 1998.
The increase was due to higher loan fee income from mortgage lending activities.
Such fees include loan prepayment fees, fees earned on expired commitments, and
loan service, inspection and maintenance charges.
Noninterest Expenses
Noninterest expenses increased to $3,165,000 in 1999, from $2,133,000 in 1998.
The increase was almost entirely due to the opening of Intervest National Bank
on April 1, 1999, which increased compensation expense (due to additional staff)
and occupancy and equipment expenses (due to the leasing of new office space and
fixed asset depreciation).
Provision for Income Taxes
The provision for income taxes decreased to $718,000 in 1999, from $939,000 in
1998, due to lower pre-tax earnings. The Company's effective tax rate (inclusive
of state and local taxes) amounted to 35.3% in 1999, compared to 39.6% in 1998.
The decline in the rate was due to increased tax benefits from Intervest
National Bank's taxable loss in 1999. The new bank has a higher effective tax
rate resulting from New York State and City taxes. The Company files a
consolidated Federal income tax return, while the Holding Company and Intervest
National Bank file consolidated New York State and City income tax returns.
Intervest Bank files a state income tax return in Florida.
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.
Comparison of Results of Operations for the Years Ended December 31, 1998 and
1997.
General
Net earnings for the year ended December 31, 1998 were $1,435,000, compared to
$844,000 for the year ended December 31, 1997. On a diluted per share basis, net
earnings was $0.46 for 1998, compared to $0.41 for 1997. The increase in net
earnings was primarily due to a $1,184,000 increase in net interest and dividend
income and a $213,000 increase in noninterest income. These increases were
partially offset by a higher income tax provision of $452,000, a $227,000
increase in noninterest expenses and an increase in the provision for loan loss
reserves of $127,000.
16
<PAGE>
Net Interest and Dividend Income
The Company's net interest and dividend income increased to $4,637,000 in 1998,
from $3,453,000 in 1997. The increase was due to growth in the Company's
interest-earning assets, partially offset by a decline in the net interest
margin from 2.92% in 1997 to 2.75% in 1998.
The decline in the margin was a function of a lower interest rate spread caused
by a decline in the yield on the Company's earning assets and an increase in its
cost of funds. The yield on earning assets declined by 22 basis points largely
due to a decline in the yield on the loan portfolio as well as an increase in
securities and short-term investments. Securities and short-term investments
have a lower yield than the Company's loan portfolio. The Company's cost of
funds increased by 4 basis points due to higher-cost funds obtained through sale
of the Debentures, partially offset by a slight decline in the average cost for
deposit accounts. The effect of the decrease in the interest rate spread
described above was partially offset by an increase of $7,007,000 in net average
interest-earning assets. This increase was largely due to the investment of the
proceeds from the issuance of common stock as well as the reinvestment of
earnings generated from operations. The table that follows, for the years end
December 31, 1998 and 1997, sets forth the same information that is described
above the table on page 17.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1998 1997
------------- ----------- --------- ------------- ----------- ----------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- -------------------------------------------------- ------------- ----------- --------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans $90,470 $8,278 9.15% $68,711 $6,415 9.34%
Securities 69,508 4,224 6.08 42,763 2,632 6.15
Other interest-earning assets 8,344 432 5.18 6,913 300 4.34
- -------------------------------------------------- ------------- ----------- --------- ------------- ----------- ----------
Total interest-earning assets 168,322 $12,934 7.68% 118,387 $9,347 7.90%
- -------------------------------------------------- ------------- ----------- --------- ------------- ----------- ----------
Noninterest-earning assets 8,395 6,619
- -------------------------------------------------- ------------- ----------- --------- ------------- ----------- ----------
Total assets $176,717 $125,006
- -------------------------------------------------- ------------- ----------- --------- ------------- ----------- ----------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Money market and checking (NOW) deposits $28,756 $1,324 4.60% $ 18,087 $816 4.51%
Savings deposits 17,210 832 4.83 9,128 446 4.89
Certificates of deposit 101,547 5,821 5.73 81,149 4,631 5.71
------------- ----------- --------- ------------- ----------- ----------
Total deposit accounts 147,513 7,977 5.41 108,364 5,893 5.44
Federal funds purchased 20 1 5.00 18 1 5.56
Convertible debentures 3,777 319 8.45 - - -
- -------------------------------------------------- ------------- ----------- --------- ------------- ----------- ----------
Total interest-bearing liabilities 151,310 $8,297 5.48% 108,382 $5,894 5.44%
- -------------------------------------------------- ------------- ----------- --------- ------------- ----------- ----------
Noninterest-bearing deposits 3,096 2,325
Noninterest-bearing liabilities 3,782 3,088
Stockholders' equity 18,529 11,211
- -------------------------------------------------- ------------- ----------- --------- ------------- ----------- ----------
Total liabilities and stockholders' equity $176,717 $125,006
- -------------------------------------------------- ------------- ----------- --------- ------------- ----------- ----------
Net interest and dividend income/spread $4,637 2.20% $3,453 2.46%
- -------------------------------------------------- ------------- ----------- --------- ------------- ----------- ----------
Net interest-earning assets/margin $17,012 2.75% $ 10,005 2.92%
- -------------------------------------------------- ------------- ----------- --------- ------------- ----------- ----------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.11x 1.09x
- -------------------------------------------------- ------------- ----------- --------- ------------- ----------- ----------
</TABLE>
The table that follows provides information regarding changes in interest and
dividend income and interest expense. For each category of interest-earning
assets and interest-bearing liabilities, information is provided on changes
attributable to (1) changes in rate (change in rate multiplied by prior volume),
(2) changes in volume (change in volume multiplied by prior rate) and (3)
changes in rate-volume (change in rate multiplied by change in volume).
17
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998 vs. 1997
Increase (Decrease) Due To Change In:
($ in thousands) Rate Volume Rate/Volume Total
--------------------------------------------------------- ------------- ------------- --------------- -----------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $(131) $2,032 $(38) $1,863
Securities (30) 1,645 (23) 1,592
Other interest-earning assets 58 62 12 132
--------------------------------------------------------- ------------- ------------- --------------- -----------
Total interest-earning assets (103) 3,739 (49) 3,587
--------------------------------------------------------- ------------- ------------- --------------- -----------
Interest-bearing liabilities:
Money market and checking (NOW) deposits 16 481 11 508
Savings deposits (5) 395 (4) 386
Certificates of deposit 16 1,165 9 1,190
------------- ------------- --------------- -----------
Total deposit accounts 27 2,041 16 2,084
Convertible debentures - - 319 319
--------------------------------------------------------- ------------- ------------- --------------- -----------
Total interest-bearing liabilities 27 2,041 335 2,403
--------------------------------------------------------- ------------- ------------- --------------- -----------
Net change in interest and dividend income $(130) $1,698 $(384) $1,184
--------------------------------------------------------- ------------- ------------- --------------- -----------
</TABLE>
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, which takes into
consideration a number of factors, including the level of outstanding loans. The
provision amounted to $479,000 in 1998, compared to $352,000 in 1997. The
increase reflected primarily a higher level of loan originations. See the
section "Comparison of Financial Condition at December 31, 1999 and December 31,
1998," for additional discussion of the allowance for loan loss reserves. At
December 31, 1998 and 1997, the Company did not have any nonaccrual or impaired
loans.
Noninterest Income
Total noninterest income increased to $349,000 in 1998, from $136,000 in 1997.
The increase primarily reflected an increase in service charge fee income as
well as a higher level of loan prepayment fees.
Noninterest Expenses
Noninterest expenses increased to $2,133,000 in 1998, from $1,906,000 in 1997.
The increase was largely due to higher salaries and employee benefits, as well
as an increase in professional fees and services, resulting primarily from the
Company's growth, need for additional staff and normal merit increases.
Provision for Income Taxes
The provision for income taxes increased to $939,000 in 1998, from $487,000 in
1997, largely due to higher pre-tax earnings. The Company's effective tax rate
(inclusive of state and local taxes) amounted to 39.6% in 1998, compared to
36.6% in 1997. The higher rate for 1998 reflects an increase in the earnings of
the Holding Company, which has a higher state income tax rate than Intervest
Bank.
Financial Condition
Comparison of Financial Condition at December 31, 1999 and December 31, 1998.
Overview
Total assets increased to $247,829,000 at December 31, 1999, from $200,522,000
at December 31, 1998. Total liabilities increased to $226,365,000 at December
31, 1999, from $180,978,000 at December 31, 1998. The increases were due to the
opening of Intervest National Bank, which resulted in new loan originations and
deposit liabilities. Stockholders' equity grew to $21,464,000 at year-end 1999,
from $19,544,000 at December 31, 1998, reflecting an increase in retained
earnings and the exercise of common stock warrants.
18
<PAGE>
The Company's balance sheet was comprised of the following:
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
-------------------- --------------------
Carrying % of Carrying % of
($ in thousands) Value Total Assets Value Total Assets
--------------------------------------------- -------------- ---------------- -- ------------- ------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 7,329 3.0% $13,472 6.7%
Securities held to maturity, net 83,132 33.5 82,338 41.1
Federal Reserve Bank stock 508 0.2 233 0.1
Loans receivable, net of loan loss reserves 147,154 59.4 96,074 47.9
All other assets 9,706 3.9 8,405 4.2
--------------------------------------------- -------------- ---------------- -- ------------- ------------------
Total assets $247,829 100.0% $200,522 100.0%
--------------------------------------------- -------------- ---------------- -- ------------- ------------------
Deposits $207,168 83.6% $170,467 85.0%
Federal funds purchased 6,955 2.8 - -
Convertible debentures payable 6,930 2.8 7,000 3.5
All other liabilities 5,312 2.1 3,511 1.8
--------------------------------------------- -------------- ---------------- -- ------------- ------------------
Total liabilities 226,365 91.3 180,978 90.3
--------------------------------------------- -------------- ---------------- -- ------------- ------------------
Stockholders' equity 21,464 8.7 19,544 9.7
--------------------------------------------- -------------- ---------------- -- ------------- ------------------
Total liabilities and stockholders' equity $247,829 100.0% $200,522 100.0%
--------------------------------------------- -------------- ---------------- -- ------------- ------------------
</TABLE>
Cash and Cash Equivalents
Cash and cash equivalents decreased due to the deployment of funds into loans
and security investments.
Securities
The Company invests in securities after satisfying its liquidity objectives and
lending commitments. The Company has historically only purchased securities that
are issued by the U.S. government or one of its agencies. Accordingly, the
Company's investments in securities carry lower yields, but also have a
significantly lower credit risk than its loan portfolio. To manage interest rate
risk, the Company normally purchases securities that have adjustable rates or
securities with fixed rates that have short- to intermediate-maturity terms.
Securities for which the Company has the intent and ability to hold to maturity
are classified as held to maturity and carried at amortized cost. Securities
held to maturity totaled $83,132,000 at December 31, 1999, compared to
$82,338,000 at December 31, 1998. The estimated fair value of the
held-to-maturity portfolio was $79,882,000 at December 31, 1999, compared to
$82,173,000 at December 31, 1998. The decline in estimated fair value is
reflective of the higher interest rate environment in the latter part of 1999.
At December 31, 1999, the securities portfolio consisted of fixed-rate debt
obligations of the Federal Home Loan Bank, Federal Farm Credit Bank and Federal
National Mortgage Association. The securities have terms that allow the issuer
the right to call or prepay its obligation without prepayment penalty.
From time to time, the Banks may also maintain a securities available-for-sale
account to provide flexibility in the management of asset/liability strategies.
During 1999 and 1998, there were no securities classified as available for sale.
The Company does not engage in trading activities.
The investment in the capital stock of the Federal Reserve Bank, which pays a
dividend, is required in order for the Banks to be members of the Federal
Reserve Banking System. The amount of the investment, which fluctuates based on
certain criteria, was $508,000 at December 31, 1999, compared to $233,000 at
December 31, 1998. The increase reflected the opening of Intervest National Bank
on April 1, 1999.
19
<PAGE>
Loans Receivable
Loans receivable, before the allowance for loan loss reserves, increased to
$149,647,000 at December 31, 1999, from $97,736,000 at December 31, 1998, due to
new originations of commercial real estate and multifamily loans, partially
offset by 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 the outstanding principal balance plus accrued interest.
At December 31, 1999, the loan portfolio consisted of $92,748,000 of fixed-rate
loans and $57,815,000 of adjustable-rate loans. New mortgage loans on commercial
real estate and multifamily properties are normally originated for terms of no
more than 20 years with interest rates that are predominantly variable rate,
based on the prime rate. Additionally, many loans have an interest rate floor
which resets upward along with any increase in the loan's interest rate. This
feature reduces the loan's interest rate exposure to periods of declining
interest rates.
Commercial real estate and multifamily real estate properties collateralize
almost all of the loans in the Company's loan portfolio. As of December 31,
1999, 97% of the loan portfolio was concentrated in loans collateralized by such
properties, compared to 94% at December 31, 1998. Loan concentrations are
defined as amounts loaned to a number of borrowers engaged in similar
activities, which would cause them to be similarly impacted by economic or other
conditions.
Credit risk, which represents the possibility of the Company not recovering
amounts due from its borrowers, is significantly related to local economic
conditions as well as the Company's underwriting standards. Economic conditions
affect the income levels of borrowers and the market value of the underlying
collateral. In addition, although commercial real estate and multifamily loans
typically bear higher interest rates than 1-4 family residential loans, they
entail certain risks not normally found in 1-4 family residential mortgage
lending. Commercial real estate and multifamily loans usually involve larger
loans to single borrowers. In addition, satisfactory payment experience on loans
secured by income-producing properties (such as office buildings, shopping
centers and rental and cooperative apartment buildings) is largely dependent on
high levels of occupancy. Thus, these loans are more subject to adverse
conditions in the real estate market and economy or specific conditions at or in
the vicinity of the property's location.
The following table sets forth information concerning the Company's loan
portfolio by type of loan:
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
-------------------- --------------------
# of % of # of % of
($ in thousands) loans Amount Total loans Amount Total
--------------------------------------- ----------- -------------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial real estate loans 101 $78,425 52.1% 95 $68,828 70.1%
Residential multifamily loans 96 67,478 44.8 51 23,707 24.1
Residential 1-4 family loans 44 2,311 1.5 47 2,627 2.7
Commercial loans 42 2,107 1.4 49 2,875 2.9
Consumer loans 24 242 0.2 17 184 0.2
--------------------------------------- ----------- -------------- ----------- ------------ ------------- -----------
Total gross loans receivable 307 150,563 100.0% 259 98,221 100.0%
Deferred loan fees (916) (485)
--------------------------------------- ----------- -------------- ----------- ------------ ------------- -----------
Loans, net of deferred fees 149,647 97,736
Allowance for loan loss reserves (2,493) (1,662)
--------------------------------------- ----------- -------------- ----------- ------------ ------------- -----------
Loans receivable, net $147,154 $96,074
--------------------------------------- ----------- -------------- ----------- ------------ ------------- -----------
</TABLE>
20
<PAGE>
The following table shows the scheduled contractual principal repayments by
period of the Company's loan portfolio:
<TABLE>
<CAPTION>
At December 31,
---------------
($ in thousands) 1999 1998
--------------------------------------------------- ---------------- -----------------
<S> <C> <C>
Within one year $ 22,749 $15,674
Over one to five years 100,585 69,416
Over five years 27,229 13,131
--------------------------------------------------- ---------------- -----------------
$150,563 $98,221
--------------------------------------------------- ---------------- -----------------
</TABLE>
At December 31, 1999, $44,631,000 of loans with adjustable rates and $83,182,000
of loans with fixed rates were due after one year.
The following table sets forth the activity in the loan portfolio:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
($ in thousands) 1999 1998
--------------------------------------------------- ---------------- -----------------
<S> <C> <C>
Loans receivable, net, at beginning of year $96,074 $75,652
Loans originated and purchased 80,477 33,222
Principal repayments (22,504) (12,237)
Loans sold (5,604) -
Recoveries 1 10
Increase in unearned loan fees (459) (84)
Increase in allowance for loan loss reserves (831) (489)
--------------------------------------------------- ---------------- -----------------
Loans receivable, net, at end of year $147,154 $96,074
--------------------------------------------------- ---------------- -----------------
</TABLE>
Nonaccrual Loans
During 1999 and 1998, the Company did not have any loans on a nonaccrual status.
The Company's policy is to discontinue the accrual of interest income and
classify a loan as nonaccrual when principal or interest is past due 90 days or
more and the loan is not adequately collateralized and in the process of
collection, or when in the opinion of the Company's management, principal or
interest is not likely to be paid in accordance with the terms of the loan.
Allowance for Loan Loss Reserves
The allowance for loan loss reserves is established through a provision for loan
loss reserves charged to operations. Loans are charged against the allowance for
loan loss reserves when management believes that the collectability of the
principal is unlikely. Subsequent recoveries are added to the allowance. The
adequacy of the allowance is evaluated monthly or more frequently when necessary
with consideration given to: the nature and volume of the loan portfolio;
overall portfolio quality; loan concentrations; specific problem loans and
commitments and estimates of fair value thereof; historical chargeoffs and
recoveries; adverse situations which may affect the borrowers' ability to repay;
and management's perception of the current and anticipated economic conditions
in the Company's lending areas. Although management believes it uses the best
information available to make determinations with respect to the allowance for
loan loss reserves, future adjustments may be necessary if economic conditions,
or other factors, differ from those assumed in the determination of the level of
the allowance.
In addition, SFAS No. 114, as amended by SFAS No. 118, specifies the manner in
which the portion of the allowance for loan loss reserves related to impaired
loans is computed. A loan is normally deemed impaired when, based upon current
information and events, it is probable the Company will be unable to collect
both full principal and interest due according to the contractual terms of the
loan agreement. Impairment for larger balance loans such as commercial real
estate and multifamily loans are measured based on: the present value of
expected future cash flows, discounted at the loan's effective interest rate; or
the observable market price of the loan; or the estimated fair value of the
21
<PAGE>
loan's collateral, if payment of the principal and interest is dependent upon
the collateral. When the fair value of the property is less than the recorded
investment in the loan, this deficiency is recognized as a valuation allowance
within the overall allowance for loan loss reserves and a charge through the
provision for loan loss reserves. The Company normally charges off any portion
of the recorded investment in the loan that exceeds the fair value of the
collateral. The net carrying amount of an impaired loan does not at any time
exceed the recorded investment in the loan.
The Company considers a variety of factors in determining whether a loan is
impaired, including (i) any notice from the borrower that the borrower will be
unable to repay all principal and interest amounts contractually due under the
loan agreement, (ii) any delinquency in the principal and/or interest payments
other than minimum delays or shortfalls in payments, and (iii) other information
known by management that would indicate the full repayment of principal and
interest is not probable. In evaluating loans for impairment, management
generally considers delinquencies of 60 days or less to be minimum delays, and
accordingly does not consider such delinquent loans to be impaired in the
absence of other indications. Impaired loans normally consist of loans on
nonaccrual status.
Management evaluates all commercial real estate, residential mortgage loans and
commercial loans for impairment on a loan-by-loan basis. For smaller balance
homogeneous loans, such as consumer loans, evaluations for impairment is done on
an aggregate basis. The Company utilizes its own historical charge-off
experience as well as the charge off experience of its peer group and industry
statistics to evaluate the adequacy of the allowance for loan loss reserves for
consumer loans. Lastly, the Company's regulators, as an integral part of their
examination process, periodically review the allowance for loan loss reserves.
Accordingly, the Company may be required to take certain chargeoffs and/or
recognize additions to the allowance based on the regulators' judgment
concerning information available to them during their examination.
At December 31, 1999, the Company's allowance for loan loss reserves amounted to
$2,493,000, compared to $1,662,000 at year-end 1998. The increase reflected the
growth in the loan portfolio. During 1999 and 1998, the Company did not have any
loans on a nonaccrual status or classified as impaired. At December 31, 1999 and
1998, the allowance for loan loss reserves was predominately allocated to
commercial real estate and multifamily loans.
The following table sets forth certain information with respect to the Company's
allowance for loan loss reserves:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
($ in thousands) 1999 1998
------------------------------------------------------- ----------------- ------------------
<S> <C> <C>
Allowance at beginning of year $ 1,662 $ 1,173
Provision charged to operations 830 479
Recoveries 1 10
------------------------------------------------------- ----------------- ------------------
Allowance at end of year $ 2,493 $ 1,662
------------------------------------------------------- ----------------- ------------------
Ratio of allowance to total loans, net of deferred fees 1.67% 1.70%
Total loans, net of deferred fees $149,647 $97,736
Average loans during the year $110,006 $90,470
------------------------------------------------------- ----------------- ------------------
</TABLE>
Foreclosed Real Estate
During 1999 and 1998, the Company did not have any foreclosed real estate.
22
<PAGE>
All Other Assets
The following table shows the composition of all other assets:
<TABLE>
<CAPTION>
At December 31,
---------------
($ in thousands) 1999 1998
------------------------------------------- -------------- ---------------
<S> <C> <C>
Accrued interest receivable $1,836 $1,800
Premises and equipment, net 5,767 4,917
Deferred income tax asset 912 579
Deferred debenture offering costs 479 522
All other 712 587
------------------------------------------- -------------- ---------------
$9,706 $8,405
------------------------------------------- -------------- ---------------
</TABLE>
All other assets increased due to purchases of fixed assets, primarily by
Intervest National Bank, and an increase in the Company's deferred tax asset.
The tax asset relates primarily to the unrealized tax benefit on the Company's
allowance for loan loss reserves and organizational start-up costs. These
charges have been expensed for financial statement purposes, but are not all
currently deductible for income tax purposes. The ultimate realization of the
deferred tax asset is dependent upon the generation of sufficient taxable income
by the Company during the periods in which these temporary differences become
deductible for tax purposes. Management believes that it is more likely than not
that the Company's deferred tax asset will be realized and accordingly, a
valuation allowance for deferred tax assets was not maintained at any time
during 1999 and 1998.
Deposits
Deposit liabilities increased to $207,168,000 at December 31, 1999, from
$170,467,000 at December 31, 1998. The increase was attributable to the opening
of Intervest National Bank on April 1, 1999, whose deposit accounts grew to
approximately $47,000,000 at year-end 1999. At December 31, 1999, time deposit
accounts totaled $122,794,000 and demand deposits and savings and checking
accounts aggregated $84,374,000. The same categories of deposit accounts totaled
$99,033,000 and $71,434,000, respectively, at December 31, 1998. Certificates of
deposit accounts represented 59% of total deposits at December 31, 1999,
compared to 58% at year-end 1998.
The Company believes it does not have a concentration of deposits from any one
source. Management believes that a large portion of the Company's depositors are
residents in its primary market areas, although there has been growth in
deposits from outside the primary areas resulting from Intervest National Bank's
deposit-gathering activities through its Web Site on the Internet:
www.intervestnatbank.com. The Company does not accept brokered deposits.
The following table shows the distribution of deposit accounts by type:
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
($ in thousands) Amount % of Total Amount % of Total
--------------------------------- ---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Demand deposits $ 4,347 2.1% $ 3,027 1.8%
NOW deposits 6,636 3.2 7,955 4.7
Money market deposits 54,302 26.2 33,629 19.7
Savings deposits 19,089 9.2 26,823 15.7
Certificates of deposit 122,794 59.3 99,033 58.1
--------------------------------- ---------------- --------------- --------------- ----------------
Total deposit accounts (1) $207,168 100.0% $170,467 100.0%
--------------------------------- ---------------- --------------- --------------- ----------------
<FN>
(1) Includes individual retirement accounts totaling $11,483,000 and
$7,986,000 at December 31, 1999 and 1998, respectively, almost all of
which are in the form of certificates of deposit.
</FN>
</TABLE>
23
<PAGE>
The following table presents certificates of deposits by maturity for the
periods indicated:
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
-------------------- --------------------
Wtd-Avg Wtd-Avg
($ in thousands) Amount Stated Rate Amount Stated Rate
----------------------------- -------------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
Within one year $75,815 5.56% $55,130 5.36%
Over one to two years 18,992 5.77 17,052 5.90
Over two to three years 12,148 6.03 10,153 6.00
Over three to four years 5,288 5.84 10,576 6.06
Over four years 10,551 6.32 6,122 5.85
----------------------------- -------------- --------------- ----------- --------------
$122,794 5.72% $99,033 5.62%
----------------------------- -------------- --------------- ----------- --------------
</TABLE>
The following table shows the maturities of certificates of deposit in
denominations of $100,000 or more:
<TABLE>
<CAPTION>
At December 31,
---------------
($ in thousands) 1999 1998
--------------------------------------------------- ------------- -------------
<S> <C> <C>
Due within three months or less $3,276 $1,800
Due over three months to six months 2,337 1,757
Due over six months to one year 6,974 3,796
Due over one year 5,653 3,609
--------------------------------------------------- ------------- -------------
$18,240 $10,962
--------------------------------------------------- ------------- -------------
As a percentage of total deposits 8.8% 6.4%
--------------------------------------------------- ------------- -------------
</TABLE>
The following table shows net deposit flows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
($ in thousands) 1999 1998
---------------------------------------- -------------------- ----------------
<S> <C> <C>
Net increase before interest credited $27,989 $31,323
Net interest credited 8,712 7,977
---------------------------------------- -------------------- ----------------
Net deposit increase $36,701 $39,300
---------------------------------------- -------------------- ----------------
</TABLE>
Federal Funds Purchased
From time to time, the Banks purchase Federal funds to manage liquidity needs.
At December 31, 1999, $6,955,000 of Federal funds purchased were outstanding.
Convertible Debentures
In June 1998, the Holding Company sold $7,000,000 of Convertible Subordinated
Debentures (the "Debentures") in a public offering. The proceeds from the sale,
net of underwriting discounts, commissions and other fees, amounted to
approximately $6,500,000. The Debentures are due July 1, 2008 and are
convertible at the option of the holders at any time prior to April 1, 2008,
unless previously redeemed by the Holding Company, into shares of Class A common
stock of the Holding Company at various conversion prices. The Holding Company
also has the option at any time to call all or any part of the Debentures for
payment and redeem the same at any time prior to maturity thereof. During 1999,
Debentures in the aggregate principal amount of $70,000 plus accrued interest
were converted into shares of Class A common stock at the election of the
Debenture holders.
Interest on the Debentures accrues and compounds each calendar quarter at 8% and
is payable at the maturity whether by acceleration, redemption or otherwise. Any
debenture holder may, on or before July 1 of each year commencing July 1, 2003,
elect to be paid all accrued interest and to thereafter receive payments of
interest quarterly. For a further discussion of conversion prices and redemption
premiums, see note 7 to the consolidated financial statements.
24
<PAGE>
All Other Liabilities
The following table shows the composition of all other liabilities:
<TABLE>
<CAPTION>
At December 31,
---------------
($ in thousands) 1999 1998
------------------------------------------- -------------- ---------------
<S> <C> <C>
Accrued interest payable on debentures $ 892 $ 299
Accrued interest payable on deposits 461 386
Mortgage escrow funds payable 1,521 870
Official checks outstanding 1,821 1,572
All other 617 384
------------------------------------------- -------------- ---------------
$5,312 $3,511
------------------------------------------- -------------- ---------------
</TABLE>
All other liabilities increased primarily due to: an increase in accrued
interest payable on the Debentures (see page 26 for additional discussion); an
increase in official checks outstanding; and an increase in mortgage escrow
funds payable.
Mortgage escrow funds payable represent advance payments made by borrowers for
property 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
Stockholders' equity increased due to net earnings of $1,195,000 and the
issuance of 102,364 shares of common stock, which resulted, net of issuance
costs, in a $699,000 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; 89,300 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.
Asset and Liability Management
The Company's primary objective in managing interest-rate risk is to minimize
the adverse impact of changes in interest rates on the Company's net interest
income and capital, while adjusting the Company's asset/liability structure to
maximize the net yield on that structure. The Company relies primarily on its
asset-liability strategy to control interest rate risk. This strategy is
overseen in part through the direction of the Asset and Liability Committee
("ALCO") of the Board of Directors of each Bank, which establishes policies and
monitors results to control interest rate sensitivity. ALCO examines the extent
to which assets and liabilities are "interest-rate sensitive" and monitors the
interest-rate sensitivity "gap." An asset or liability is normally considered to
be interest-rate sensitive if it will reprice or mature within one year or less.
The interest-rate sensitivity gap is the difference between interest-earning
assets and interest-bearing liabilities scheduled to mature or reprice within a
one year time period. A gap is considered positive when the amount of interest
rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities.
Conversely, a gap is considered negative when the opposite is true.
During a period of rising interest rates, a negative gap would tend to adversely
affect net interest income, while a positive gap would tend to result in an
increase in net interest income. During a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive gap would tend to adversely affect net interest income. If the
repricing of the Company's assets and liabilities were equally flexible and
moved concurrently, the impact of any increase or decrease in interest rates on
net interest income would be minimal. A simple interest rate "gap" analysis by
itself may not be an accurate indicator of how net interest income will be
affected by changes in interest rates due to the following reasons. Income
associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
25
<PAGE>
although certain assets and liabilities may have similar maturities or periods
of repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in market rates. In addition, certain assets,
such as adjustable-rate mortgage loans, may have features generally referred to
as "interest rate caps," which limit changes in interest rates on a short-term
basis and over the life of the asset. In the event of a change in interest
rates, asset prepayment and early deposit withdrawal levels also could deviate
significantly from those assumed in calculating the interest-rate gap. The
ability of many borrowers to service their debts also may decrease in the event
of an interest-rate increase, and the behavior of depositors may be different
than those assumed in the gap analysis.
For purposes of creating the gap analysis on page 29, deposits with no stated
maturities are treated as readily accessible accounts. Given this assumption,
the Company's negative one-year interest rate sensitivity gap was 29.7% at
December 31, 1999 and 36.7% at December 31, 1998. However, if those deposits
were treated differently in the gap analysis, then the interest-rate sensitivity
gap would be lower. The behavior of core depositors may not necessarily result
in the immediate withdrawal of funds in the event deposit rates offered by the
Company did not change as quickly and uniformly as changes in general market
rates. For example, if only 25% of deposits with no stated maturity were assumed
to be readily accessible, the Company's negative one-year gap would have been
5.5% at year-end 1999, compared to 11.1% at year-end 1998.
The Company has a "floor," or minimum rate, on many of its floating-rate loans.
The floor for each specific loan is determined in relation to the prevailing
market rates on the date of origination and most adjust upwards in the event of
increases in the loan's interest rate. Notwithstanding the aforementioned, there
can be no assurances that a sudden and substantial increase in interest rates
may not adversely impact the Company's earnings, to the extent that the interest
rates borne by assets and liabilities do not change at the same speed, to the
same extent, or on the same basis.
The following table summarizes information relating to the Company's
interest-earning assets and interest-bearing liabilities as of December 31,
1999, that are scheduled to mature or reprice within the periods shown.
<TABLE>
<CAPTION>
0-3 4-12 Over 1-4 Over 4
($ in thousands) Months Months Years Years Total
---------------------------------------- ------------ ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Loans (1) $ 20,733 $ 56,173 $ 60,627 $13,030 $150,563
Securities (2) 3,988 3,919 44,015 31,210 83,132
Federal funds sold 3,900 - - - 3,900
Short-term investments 291 - - - 291
Federal Reserve Bank stock - - - 508 508
Interest-bearing deposits 100 - - - 100
---------------------------------------- ------------ ------------- ------------- ------------- -------------
Total rate-sensitive assets $ 29,012 $ 60,092 $104,642 $44,748 $238,494
---------------------------------------- ------------ ------------- ------------- ------------- -------------
Deposit accounts (3):
Checking (NOW) deposits $ 6,636 $ - $ - $ - $ 6,636
Savings deposits 19,089 - - - 19,089
Money market deposits 54,302 - - - 54,302
Certificates of deposit 19,832 55,983 36,428 10,551 122,794
------------ ------------- ------------- ------------- -------------
Total deposits 99,859 55,983 36,428 10,551 202,821
Federal funds purchased 6,955 - - - 6,955
Convertible subordinated debentures - - - 6,930 6,930
Accrued interest on debentures - - 892 - 892
---------------------------------------- ------------ ------------- ------------- ------------- -------------
Total rate-sensitive liabilities $ 106,814 $ 55,983 $ 37,320 $17,481 $217,598
---------------------------------------- ------------ ------------- ------------- ------------- -------------
---------------------------------------- ------------ ------------- ------------- ------------- -------------
GAP (repricing differences) $ (77,802) $ 4,109 $ 67,322 $27,267 $ 20,896
---------------------------------------- ------------ ------------- ------------- ------------- -------------
Cumulative GAP $ (77,802) $(73,693) $ (6,371) $20,896 $ 20,896
---------------------------------------- ------------ ------------- ------------- ------------- -------------
Cumulative GAP to total assets -31.4% -29.7% -2.6% 8.4% 8.4%
---------------------------------------- ------------ ------------- ------------- ------------- -------------
26
<PAGE>
Assumptions used in preparing the table above:
<FN>
(1) Adjustable-rate loans are included in the period in which their
interest rates are next scheduled to adjust rather than in the period
in which the loans mature. Fixed-rate loans are scheduled, including
repayments, according to their contractual maturities; (2) securities
are scheduled according to their contractual maturity dates, which does
not take into consideration the effects of possible prepayments that
may result from the issuer's right to call a security before its
contractual maturity date; (3) money market, NOW and savings deposits
are regarded as ready accessible withdrawable accounts; and
certificates of deposit are scheduled through their maturity dates.
</FN>
</TABLE>
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 Bank branch
offices and through the mail; amortization, satisfactions and repayments of
loans; the maturities and calls of securities; and cash provided by operating
activities. For additional information concerning the cash flows from the
Company's operating, investing and financing activities, see the consolidated
statements of cash flows included in the financial statements.
At December 31, 1999, the Company's total commitment to lend aggregated
$27,921,000. Based on its cash flow projections, the Company believes that it
can fund all of its outstanding lending commitments from the aforementioned
sources of funds.
Intervest Bank has agreements with correspondent banks whereby it may borrow up
to $8,000,000 on an unsecured basis. There were no outstanding borrowings under
these agreements at December 31, 1999 or 1998.
The Banks are subject to various regulatory capital requirements administered by
the Federal banking agencies. The FDIC Improvement Act of 1991, among other
matters, established five capital categories ranging from well capitalized to
critically undercapitalized. Such classifications are used by the FDIC and other
bank regulatory agencies to determine various matters, including prompt
corrective action and each institution's FDIC deposit insurance premium
assessments. The capital categories involve quantitative measures of a bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Banks' capital amounts and classifications
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
the regulators that, if undertaken, could have a direct material effect on the
Company's consolidated financial statements.
The Banks are required to maintain, for regulatory compliance and reporting
purposes, regulatory defined minimum leverage and Tier 1 and total risk-based
capital ratio levels of at least 4%, 4% and 8%, respectively. At December 31,
1999, management believes that the Banks met their capital adequacy
requirements. The Banks are well-capitalized institutions as defined in the
regulations, which require minimum Tier 1 leverage and Tier 1 and total
risk-based ratios of 5%, 6% and 10%, respectively. Management believes that
there are no current conditions or events outstanding which would change the
Banks' designations as well-capitalized institutions.
27
<PAGE>
Information regarding the Banks' regulatory capital and related ratios is
summarized below:
<TABLE>
<CAPTION>
Intervest Bank Intervest National Bank
At December 31, At December 31,
--------------- ---------------
($ in thousands) 1999 1998 1999 1998
- ------------------------------------------------------------ --------------- ---------------- --------------- ----------------
<S> <C> <C> <C>
Tier 1 Capital:
Common stockholders' equity $ 12,746 $ 11,104 $ 8,493 -
Less disallowed portion of deferred tax asset (570) (412) (213) -
- ------------------------------------------------------------ --------------- ---------------- --------------- ----------------
Total Tier 1 capital 12,176 10,692 8,280 -
- ------------------------------------------------------------ --------------- ---------------- --------------- ----------------
Tier 2 Capital:
Allowable portion of allowance for loan loss reserves 1,561 1,354 444 -
- ------------------------------------------------------------ --------------- ---------------- --------------- ----------------
Total risk-based capital $ 13,737 $ 12,046 $ 8,724 -
- ------------------------------------------------------------ --------------- ---------------- --------------- ----------------
Net risk-weighted assets $ 124,389 $ 108,050 $ 45,860 -
Average assets for regulatory purposes $ 189,069 $ 177,148 $ 50,838 -
Tier 1 capital to average regulatory assets 6.44% 6.04% 16.29% -
Tier 1 capital to risk-weighted assets 9.79% 9.90% 18.06% -
Total capital to risk-weighted assets 11.04% 11.15% 19.02% -
- ------------------------------------------------------------ --------------- ---------------- --------------- ----------------
</TABLE>
Recent Accounting Pronouncements
Refer to note 1 to the notes to the consolidated financial statements for a
discussion of this topic as well as page 18 for a discussion of the new
accounting principle related to start-up costs.
Impact of Inflation and Changing Prices
The financial statements and related financial data concerning the Company
presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation. The primary
impact of inflation on the operations of the Company is reflected in increased
operating costs. Unlike most industrial companies, virtually all of the assets
and liabilities of a financial institution are monetary in nature. As a result,
changes in interest rates have a more significant impact on the performance of a
financial institution than do the effects of changes in the general rate of
inflation and changes in prices. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services.
Market Risk
Market risk is the risk of loss that can occur from adverse changes in market
prices and rates. The Company's market risk arises primarily from interest rate
risk inherent in its lending and deposit gathering activities. To that end,
management actively monitors and manages its interest rate risk exposure. The
measurement of market risk associated with financial instruments is meaningful
only when all related and offsetting on-and off-balance sheet transactions are
aggregated, and the resulting net positions are identified. Disclosures about
the fair value of financial instruments as of December 31, 1999 and 1998, which
reflect changes in market prices and rates, can be found in Note 19 of the notes
to consolidated financial statements.
The Company's primary objective in managing interest-rate risk is to minimize
the adverse impact of changes in interest rates on the Company's net interest
income and capital, while adjusting the Company's asset/liability structure to
maximize the net yield on that structure. The Company relies primarily on its
asset-liability strategy to control interest rate risk. This strategy is
overseen in part through the direction of the Asset and Liability Committees of
the Board of Directors of each Bank, which establishes policies and monitors
results to control interest rate sensitivity. For a further discussion, of asset
and liability management, see page 28.
28
<PAGE>
Year 2000 Issue
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. Prior to
January 1, 2000, the Company had completed all upgrades necessary to ensure that
its operating and financial systems were Year 2000 compliant. The Company has
not determined what effect, if any, the Year 2000 issue has had on its customers
and vendors. To date, the Company has not experienced any problems as a result
of the Year 2000 issue. Expenses incurred by the Company related to the Year
2000 issue have not been material.
BUSINESS
General
Private Securities Litigation Reform Act Safe Harbor Statement
The Company is making this statement in order to satisfy the "Safe Harbor"
provision contained in the Private Securities Litigation Reform Act of 1995. The
statements contained in this report on Form 10-KSB that are not statements of
historical fact may include forward-looking statements that involve a number of
risks and uncertainties. Such forward-looking statements are made based on
management's expectations and beliefs concerning future events impacting the
Company and are subject to uncertainties and factors relating to the Company's
operations and economic environment, all of which are difficult to predict and
many of which are beyond the control of the Company, that could cause actual
results of the Company to differ materially from those matters expressed in or
implied by forward-looking statements. The following factors are among those
that could cause actual results to differ materially from the forward-looking
statements: changes in general economic, market and regulatory conditions, the
development of an interest rate environment that may adversely affect the
Company's interest rate spread, other income or cash flow anticipated from the
Company's operations, investment and lending activities; and changes in laws and
regulations affecting banks and bank holding companies.
Intervest Bancshares Corporation
Intervest Bancshares Corporation is a registered bank holding company (the
"Holding Company") incorporated in 1993 under the laws of the State of Delaware.
Its principal office is located at 10 Rockefeller Plaza, Suite 1015, New York,
New York 10020, and its telephone number is 212-218-2800. The Holding Company's
Class A common stock was approved for listing on the NASDAQ SmallCap Market
(Symbol: IBCA) in November 1997. Prior to then, there had been no established
trading market for the securities of the Holding Company. At December 31, 1999,
the Holding Company owned 100% of the outstanding capital stock of Intervest
Bank and Intervest National Bank. Hereafter, the Holding Company and Intervest
Bank and Intervest National Bank are referred to collectively as the "Company,"
on a consolidated basis. Intervest Bank and Intervest National Bank may be
referred to collectively as the "Banks."
At December 31, 1999, the Company had total assets of $247,829,000, deposits of
$207,168,000, convertible debentures of $6,930,000, and stockholders' equity of
$21,464,000. At December 31, 1998, the Company had total assets of $200,522,000,
deposits of $170,467,000, convertible debentures of $7,000,000 and stockholders'
equity of $19,544,000.
The Holding Company's primary business is the operation of the Banks. It does
not engage in any other substantial business activities other than a limited
amount of real estate mortgage lending. In 1998, the Holding Company also sold
convertible subordinated debentures in the aggregate principal amount of
$7,000,000 for working capital purposes.
Intervest Bank and Intervest National Bank
Intervest Bank is a Florida state-chartered commercial bank that provides a wide
range of banking services to small and middle-market businesses and individuals
29
<PAGE>
through its banking offices located in Pinellas County, Florida. The principal
executive offices of Intervest Bank are located at 625 Court Street, Clearwater,
Florida 33756. In addition, Intervest Bank has four branches; three in
Clearwater, Florida and one in South Pasadena, Florida.
At December 31, 1999, Intervest Bank had total assets of $189,477,000, deposits
of $166,969,000, and stockholders' equity of $12,746,000, compared to total
assets of $184,460,000, deposits of $170,467,000 and stockholders' equity of
$11,104,000, at December 31, 1998.
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 provides full commercial banking services, including Internet
banking through its Web Site: www.intervestnatbank.com. At December 31, 1999,
Intervest National Bank had total assets of $57,562,000, deposits of $47,475,000
and stockholder's equity of $8,493,000
The Holding Company and Intervest Bank are subject to examination and regulation
by the Federal Reserve Board (the "FRB") and the Banks' deposits are insured by
the Federal Deposit Insurance Corporation (the "FDIC") to the extent permitted
by law. Intervest Bank is also subject to the supervision of and examination by
the Florida Department of Banking and Finance, while Intervest National Bank is
subject to the supervision and regulation of the Office of the Comptroller of
the Currency (the "OCC").
The Banks conduct a personalized commercial and consumer banking business, which
consists of attracting deposits from the areas served by their banking offices.
Intervest National Bank also uses the Internet for attracting its deposits,
which can attract deposit customers from within as well as outside its primary
market area. The deposits, together with funds derived from other sources, are
used to originate a variety of real estate, commercial and consumer loans and to
purchase investment securities. The Banks' emphasize multifamily and commercial
residential real estate lending. Commercial loans include both collateralized
and uncollateralized loans for: working capital (including inventory,
receivables and business expansion); real estate acquisitions and improvements;
and purchases of equipment and machinery. Consumer loans include collateralized
and uncollateralized loans for financing automobiles, boats, home improvements
and personal investments.
As is the case with banking institutions generally, the Banks' operations are
significantly influenced by general economic conditions and by related monetary
and fiscal policies of banking regulatory agencies, including the FRB, FDIC, OCC
and Florida Department of Banking and Finance. Deposit flows and the rates paid
thereon are influenced by interest rates on competing investments and general
market rates of interest. Lending activities are affected by the demand for
financing of real estate and other types of loans, which in turn is affected by
the interest rates at which such financing may be offered and other factors
affecting local demand and availability of funds. The Banks face strong
competition in the attraction of deposits and in the origination of loans.
The revenues of the Banks are primarily derived from interest on, and fees
received in connection with, loans and from interest and dividends from
securities and other short-term investments. The principal sources of funds for
the Banks' lending activities are deposits, repayment of loans, maturities and
calls of securities and cash flow generated from operating activities. The
Banks' principal expenses are interest paid on deposits and operating and
general and administrative expenses.
Merger
In late 1999, Intervest Bancshares Corporation announced that it had agreed to
acquire Intervest Corporation of New York, a company with assets of
approximately $99,000,000, consisting of a portfolio of mortgages on improved
real property and short-term investments, primarily certificates of deposit and
U.S. government agency notes. The combined total assets of the two entities if
they had merged at December 31, 1999 would have been approximately $340,000,000.
30
<PAGE>
The two entities 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 Intervest Bancshares Corporation. The
merger was approved by both Boards of Directors, the shareholders of both the
Company and Intervest Corporation of New York, and the Federal Reserve Bank of
Atlanta. In the merger, Intervest Corporation of New York shareholders received
an aggregate of 1,250,000 shares of the Company's Class A common stock in
exchange for all of Intervest Corporation of New York's capital stock. The
merger became effective in March 2000 and will be accounted for at historical
cost similar to the pooling-of-interests method of accounting.
Market Area
Intervest Bank's facilities are located in Pinellas County, which is its primary
market area and is the most populous county in the Tampa Bay area of Florida,
with an estimated resident population of over 800,000 people. The area has many
more seasonal residents. The Tampa Bay area is located on the West Coast of
Florida, midway up the Florida peninsula. The major cities in the area are Tampa
(Hillsborough County) and St. Petersburg and Clearwater (Pinellas County).
Intervest Bank's deposit gathering and lending markets are concentrated in the
communities surrounding its offices in Clearwater and South Pasadena, Florida.
Management believes that its offices are located in an area serving small and
mid-sized businesses and serving middle and upper income residential
communities.
Intervest National Bank's facilities are located in Rockefeller Center in New
York City and its primary deposit gathering and lending market area is the New
York City metropolitan region, and Manhattan in particular. Its deposit
gathering market also includes its Web Site on the Internet:
www.intervestnatbank.com, which attracts deposit customers from both within and
outside the Bank's primary market area. The New York City metropolitan area
economy during the last three years has shown increased growth as evidenced by
local employment growth statistics. Improvement can also be seen in the local
real estate market as reflected in increased existing home sales and real estate
values during the past few years.
The Holding Company's direct lending activities are concentrated in the New York
City metropolitan region. It also considers Connecticut, Florida, New Jersey,
Pennsylvania and Washington D.C. as its primary lending market.
Competition
The deregulation of the banking industry and the widespread enactment of state
laws that permit multi-bank holding companies, as well as an increasing level of
interstate banking, have created a highly competitive environment for commercial
banking. In one or more aspects of their business, the Banks compete with other
commercial banks, savings and loan associations, credit unions, finance
companies, mutual funds, insurance companies, brokerage and investment banking
companies, and other financial intermediaries. Most of these competitors, some
of which are affiliated with large bank holding companies, have substantially
greater resources and lending limits, and may offer services that the Banks do
not currently provide. In addition, many of the Banks' non-bank competitors are
not subject to the same extensive Federal regulations that govern bank holding
companies and Federally insured banks.
Competition among financial institutions is based upon interest rates offered on
deposit accounts, interest rates charged on loans and other credit and service
charges, the quality and scope of the services rendered, the convenience of
banking facilities and, in the case of loans to commercial borrowers, relative
lending limits. Management believes that a community bank is better positioned
to establish personalized banking relationships with both commercial customers
and individual households. The Banks' community commitment and involvement in
their primary market areas, as well as their commitment to quality and
personalized banking services are factors that contribute to each Bank's
competitiveness. Management believes a locally-based bank is often perceived by
the local business community as possessing a clearer understanding of local
commerce and their needs. Consequently, management believes that the Banks can
compete successfully in their primary market areas by making prudent lending
decisions quickly and more efficiently than their competitors, without
<PAGE>
compromising asset quality or profitability, although no assurances can be given
that such factors will assure success. In addition, management believes a
personalized service approach enables the Banks to attract and retain core
deposits.
Asset Quality
Management seeks to maintain a high level of asset quality. The Banks seek to
maintain diversification when considering investments in securities and the
originations of loans. In originating loans, emphasis is placed on the
borrower's ability to generate cash flow to support its debt obligations and
other cash related expenses. Lending activities are conducted pursuant to
written policies and defined lending limits. Depending on their type and size,
certain loans must be reviewed and approved by a Loan Committee comprised of
certain members of the Board of Directors prior to being originated. As part of
its loan portfolio management strategy, the Banks typically limit their loans to
a maximum of 80% of the value of the underlying real estate as determined by an
appraisal. In addition, physical inspections of properties being considered for
mortgage loans are made as part of the approval process.
Each Bank's Loan Committee concentrates its efforts and resources, as well as
their senior management and lending officers, on loan review and underwriting
procedures. Internal controls include ongoing reviews of loans made to monitor
documentation and ensure the existence and valuations of collateral. Each Bank
also has in place a review process with the objective of quickly identifying,
evaluating and initiating necessary corrective actions for any problem loans.
The goal of this loan review process is to address any classified loans as early
as possible.
Management maintains a cautious outlook in anticipating the potential effects of
uncertain economic conditions (both locally and nationally) and the possibility
of more stringent regulatory standards. Management believes that its policies
and procedures reduce the Company's exposure to the risks associated with a
downturn in real estate values. However, there can be no assurance that a
downturn in real estate values, as well as other economic factors, would not
have an adverse impact on the Company's profitability.
At December 31, 1999 and 1998, the Company did not have any nonperforming assets
or impaired loans.
Lending Activities
The Company's lending activities include real estate loans and commercial and
consumer loans. Real estate loans include primarily the origination of loans for
commercial and multifamily properties. While the Company's lending activities
include single-family residential mortgages, such lending has not been
emphasized. Commercial loans are originated for working capital funding.
Consumer loans include those for the purchase of automobiles, boats, home
improvements and investments.
At December 31, 1999, the Company's loan portfolio amounted to $149,647,000,
compared to $98,221,000 at December 31, 1998. At December 31, 1999 and 1998, the
loan portfolio consisted predominantly of real estate mortgage loans.
Real Estate Mortgage Lending
The Company offers real estate loans secured by commercial and residential real
estate. A substantial portion of the Company's loan portfolio is comprised of
loans secured by commercial and multifamily real estate, including apartment
buildings, office buildings and retail shopping centers. The properties are
located mostly in the Company's primary market areas.
Commercial and multifamily mortgage lending generally involves greater risk than
1-4 family residential lending. Such lending typically involves larger loan
balances to single borrowers and repayment of loans secured by income producing
properties is typically dependent upon the successful operation of the
underlying real estate.
32
<PAGE>
The Company's underwriting procedures require mortgage title insurance, hazard
insurance and an appraisal of the property securing the loan to determine the
property's adequacy as security. Loan-to-value ratios (the ratio that the
original principal amount of the loan bears to the lower of the purchase price
or appraised value of the property securing the loan at the time of origination)
on new loans originated by the Company typically do not exceed 80%.
New mortgage loans on commercial real estate and multifamily properties are
normally originated for terms of no more than 20 years with interest rates that
are predominantly variable rate, based on the prime rate. Additionally, many
loans have an interest rate floor which resets upward along with any increase in
the loan's interest rate. This feature reduces the loan's interest rate exposure
to periods of declining interest rates.
Commercial Lending
The Banks offer a variety of commercial loan services including term loans,
lines of credit and equipment financing. Short-to-medium term commercial loans,
both collateralized and uncollateralized, are made available to businesses for
working capital needs (including those secured by inventory, receivables and
other assets), business expansion (including acquisitions of real estate and
improvements), and the purchase of equipment and machinery. The purpose of a
particular loan generally determines its structure. The Banks' commercial loans
primarily are underwritten in each Bank's primary market area on the basis of
the borrower's ability to service such debt from income. As a general practice,
the Banks take as collateral a lien on any available real estate, equipment, or
other assets. Working capital loans are primarily collateralized by short-term
assets, whereas term loans are primarily collateralized by longer-term assets.
Intervest National Bank did not originate any commercial loans in 1999.
Unlike 1-4 family residential mortgage loans, (which generally are made on the
basis of the borrower's ability to make repayment from their employment and
other income and which are collateralized by real property whose value tends to
be more readily ascertainable) commercial loans typically are underwritten on
the basis of the borrower's ability to make repayment from the cash flow of
their business and generally are collateralized by business assets, such as
accounts receivable, equipment and inventory. As a result, the availability of
funds for the repayment of commercial loans may be substantially dependent on
the success of the business itself. Further, the collateral underlying the loans
may depreciate over time, cannot be appraised with as much precision as
residential real estate, and may fluctuate in value based on the success of the
business.
Consumer Lending
Consumer loans offered by the Banks include those for: the purchase of
automobiles, recreation vehicles and boats; second mortgages; home improvements;
home equity lines of credit; and personal loans (both collateralized and
uncollateralized). Consumer loans typically have a short term and carry higher
interest rates than that charged on other types of loans. In addition, consumer
loans pose additional risks of collectability when compared to traditional types
of loans granted by commercial banks such as residential mortgage loans. In many
instances, the Banks are required to rely on the borrower's ability to repay the
loan from personal income sources, since the collateral may be of reduced value
at the time of collection. Intervest National Bank did not originate any
consumer loans in 1999.
Loan Solicitation and Processing
Loan originations are derived from: direct solicitation by the Company's
officers; existing customers and borrowers; advertising; walk-in customers; and
referrals from brokers. Upon receipt of a loan application from a prospective
borrower, a credit report and other verifications are obtained to substantiate
specific information relating to the applicant's employment income and credit
standing. An appraisal, where required, of any real estate intended to
collateralize the proposed loan is undertaken by an appraiser approved by the
Company. In addition, physical inspections of properties being considered for
mortgage loans are made as part of the approval process.
33
<PAGE>
Investment Activities
The Banks' investment policies and strategies are reviewed and approved by their
respective Board of Directors and Investment Committees. The Banks have
historically only purchased securities that are issued directly by the U.S.
government or one of its agencies. Accordingly, the Banks' investments in
securities carry a significantly lower credit risk than their loan portfolios.
To manage interest rate risk, the Banks normally purchase securities that have
adjustable rates or securities with fixed rates that have short- to
intermediate-maturity terms. Securities held to maturity totaled $83,132,000 at
December 31, 1999, compared to $82,338,000 at December 31, 1998.
From time to time, the Banks may also maintain a securities available-for-sale
account to provide flexibility in the management of asset/liability strategies.
During 1999 and 1998, there were no securities classified as available for sale.
The Company does not engage in trading activities.
The Company also invests in various money-market instruments, including
overnight and term Federal funds. These investments are used to invest the
Company's available funds resulting from deposit-taking operations and normal
cash flow and to help satisfy both internal liquidity needs and regulatory
liquidity requirements.
Deposit Activities
The Banks' primary sources of funds consist of: retail deposits obtained through
their branch offices and through the mail; amortization, satisfactions and
repayments of loans; the maturities and calls of securities; and cash provided
by operating activities.
Deposits are the major source of the Bank's funds for lending and other
investment purposes. The majority of deposit accounts are solicited from
individuals, small businesses and professional firms located throughout the
Banks' primary market areas through the offering of a broad variety of deposit
services. Intervest National Bank's deposit gathering market also includes its
Web Site on the Internet: www.intervestnatbank.com, which attracts deposit
customers from both within and outside its primary market area. Intervest
National Bank advertises its products and services on various Web sites such as
Bank Rate Monitor.
Deposit services include: certificates of deposit (including jumbo certificates
in denominations of $100,000 or more); individual retirement accounts (IRAs);
other time deposits; checking and other demand deposit accounts; negotiable
order of withdrawal (NOW) accounts, savings accounts and money-market accounts.
Transaction accounts and certificates of deposit accounts are tailored to the
principal market area of each Bank at rates competitive to those in each area.
In addition, the determination of rates and terms also considers the Banks'
liquidity requirements, growth goals, capital levels and Federal regulations.
Maturity terms, service fees and withdrawal penalties on deposit products are
reviewed and established by the Banks on a periodic basis. The Banks also offer
ATM services with access to local, state and national networks, wire transfers,
direct deposit of payroll and social security checks and automated drafts for
various accounts. In addition, Intervest Bank offers safe deposit boxes to its
customers, while Intervest National Bank provides internet banking services. The
Banks periodically review the scope of the banking products and services they
offer in order to determine whether to add to or modify them, consistent with
market opportunities and available resources. At December 31, 1999, deposit
liabilities totaled $207,168,000, compared to $170,467,000 at December 31, 1998.
Other Sources of Funds
From time to time, the Banks purchase Federal funds to manage liquidity needs.
At December 31, 1999, $6,955,000 of overnight Federal funds purchased were
outstanding. Intervest Bank has agreements with correspondent banks whereby it
may borrow up to $8,000,000 on an unsecured basis. There were no outstanding
borrowings under these agreements at December 31, 1999 or 1998. In June 1998,
the Holding Company sold $7,000,000 of convertible subordinated debentures for
net proceeds of approximately $6,500,000. The funds were used to fund the
initial capital of Intervest National Bank. For a further discussion of the
debentures, see page 26.
34
<PAGE>
Employees
At December 31, 1999, the Company employed 36 full-time employees and 4
part-time employees. The employees are not covered by a collective bargaining
agreement and the Company believes its employee relations are good.
Federal and State Taxation
The Holding Company and the Banks file a consolidated Federal income tax return
on a calendar year basis. Consolidated returns have the effect of eliminating
intercompany distributions, including dividends, from the computation of
consolidated taxable income for the taxable year in which the distributions
occur. Banks and bank holding companies are subject to Federal and state income
taxes in the same manner as other corporations. In accordance with an income tax
sharing agreement, income tax charges or credits are, for financial reporting
purposes, allocated to the Holding Company and its subsidiaries on the basis of
their respective taxable income or taxable loss included in the consolidated
income tax return.
Although the Banks' income tax liability is determined under provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), which is applicable to
all taxpayers, Sections 581 through 597 of the Code apply specifically to
financial institutions. The two primary areas in which the treatment of
financial institutions differs from the treatment of other corporations under
the Code are in the areas of bond gains and losses and bad debt deductions. Bond
gains and losses generated from the sale or exchange of portfolio instruments
are generally treated for financial institutions as ordinary gains and losses as
opposed to capital gains and losses for other corporations, as the Code
considers bond portfolios held by banks to be inventory in a trade or business
rather than capital assets. Banks are allowed a statutory method for calculating
a reserve for bad debt deductions. Based on the asset size of the bank, a bank
is permitted to maintain a bad debt reserve calculated on an experience method,
based on chargeoffs and recoveries for the current and preceding five years, or
a "grandfathered" base year reserve, if larger.
The Holding Company files state income tax returns in New Jersey and a franchise
tax return in Delaware. The Holding Company and Intervest National Bank file
consolidated state and city income tax returns in New York. Intervest Bank files
a state income tax return in Florida. Florida taxes banks under primarily the
same provisions as other corporations. The Holding Company's activities, other
than Intervest Bank's operations, are taxable in the State of New York.
Generally, New York State and City taxable income is calculated under applicable
Code sections with some modifications required by state law.
Investment in Subsidiaries
<TABLE>
At December 31, 1999
----------------------------------------- Holding Company's Share
($ in thousands) % of Equity in of Earnings (Loss) for the
Voting Total Underlying Years Ended December 31,
Subsidiary Stock Investment Net Assets 1999 1998 1997
- --------------------------- ------- ---------- ---------- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Intervest Bank 100% $12,746 $12,746 $1,642 $1,149 $ 753
Intervest National Bank 100 8,493 8,493 (507) - -
</TABLE>
There were no dividends paid to the Holding Company by its subsidiaries in 1999,
1998 or 1997.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both Federal
and state laws and regulations that are intended to protect depositors, not
stockholders. To the extent that the following information describes statutory
and regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in the applicable law
or regulation may have a material effect on the business and prospects of the
Holding Company and its subsidiaries.
35
<PAGE>
Bank Holding Company Regulation
As a bank holding company registered under the Bank Holding Company Act of 1956
(BHCA), the Holding Company is subject to the regulation and supervision of the
FRB. The Holding Company is required to file with the FRB periodic reports and
other information regarding its business operations and those of its
subsidiaries. Under the BHCA, the Holding Company's activities and those of its
subsidiaries are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries or engaging in any other
activity which the FRB determines to be so closely related to banking or
managing or controlling banks as to be properly incident thereto.
As a bank holding company, the Holding Company is required to obtain the prior
approval of the FRB before acquiring direct or indirect ownership or control of
more than 5% of the voting shares of a bank or bank holding company. The FRB
will not approve any acquisition, merger or consolidation that would have a
substantial anti-competitive result, unless the anti-competitive effects of the
proposed transaction are outweighed by a greater public interest in meeting the
needs and convenience of the public. The FRB also considers managerial, capital
and other financial factors in acting on acquisition or merger applications. A
bank holding company may not engage in, or acquire direct or indirect control of
more than 5% of the voting shares of any company engaged in any non-banking
activity, unless such activity has been determined by the FRB to be closely
related to banking or managing banks. The FRB has identified by regulation
various non-banking activities in which a bank holding company may engage with
notice to, or prior approval by, the FRB.
It is the policy of the FRB that bank holding companies should pay cash
dividends on common stock only out of income available over the past year and
only if prospective earnings retention is consistent with the organization's
expected future needs and financial condition. The policy provides that bank
holding companies should not maintain a level of cash dividends that undermines
the bank holding company's ability to serve as a source of strength to its
banking subsidiaries. In addition, the Federal regulatory agencies are
authorized to prohibit a banking institution or bank holding company from
engaging in an unsafe or unsound banking practice. Depending upon the
circumstances, the agencies could take the position that paying a dividend would
constitute an unsafe or unsound banking practice. Under FRB policy, a bank
holding company is expected to act as a source of financial strength to its
banking subsidiaries and to commit resources to their support. Such support may
be required at times when, absent this FRB policy, a holding company may not be
inclined to provide it. As discussed below, a bank holding company in certain
circumstances could be required to guarantee the capital plan of an
undercapitalized banking subsidiary.
The FRB monitors the capital adequacy of bank holding companies and has adopted
risk-based capital adequacy guidelines to evaluate bank holding companies on a
consolidated basis. The guidelines require a ratio of "Tier 1" or Core Capital
(generally, common stockholders' equity, perpetual noncumulative preferred stock
and minority interests in consolidated subsidiaries, less goodwill, other
disallowed intangibles and disallowed deferred tax assets, among other items) to
total risk-weighted assets of at least 4% and a ratio of total capital to
risk-weighted assets of at least 8%. At December 31, 1999, the Company's
consolidated ratio of total capital to risk-weighted assets was 13.18% and its
risk-based Tier 1 capital ratio was 11.93%. The FRB also uses a leverage ratio
to evaluate the capital adequacy of bank holding companies. The leverage ratio
applicable to the Holding Company requires a ratio of Tier 1 capital to adjusted
total average assets of not less than 3%, although most organizations are
expected to maintain leverage ratios that are 100-200 basis points above this
minimum ratio. The Holding Company's leverage ratio at December 31, 1999, was
8.46%.
The Federal banking agencies' risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to operate
with capital positions well above the minimum ratios. The FRB guidelines also
36
<PAGE>
provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets. In addition, the regulations of the FRB provide that concentration of
credit risk and certain risk arising from nontraditional activities, as well as
an institution's ability to manage these risks, are important factors to be
taken into account by regulatory agencies in assessing an organization's overall
capital adequacy.
The FRB and the other Federal banking agencies have adopted amendments to their
risk-based capital regulations to provide for the consideration of interest rate
risk in the agency's determination of a banking institution's capital adequacy.
The amendments require such institutions to effectively measure and monitor
their interest rate risk and to maintain capital adequate for that risk.
Bank Regulation
Intervest Bank is a state-chartered banking corporation subject to the
supervision of and examination by the FRB, the Florida Department of Banking and
Finance and the FDIC. Intervest National Bank, as a national banking
association, is subject to primary supervision, examination and regulation by
the OCC, as well as the FRB and FDIC. These regulators have the power to: enjoin
"unsafe or unsound practices;" require affirmative action to correct any
conditions resulting from any violation or practice; issue an administrative
order that can be judicially enforced; direct an increase in capital; restrict
the growth of a bank; assess civil monetary penalties; and remove officers and
directors.
The operations of the Banks are subject to numerous statutes and regulations.
Such statutes and regulations relate to required reserves against deposits,
investments, loans, mergers and consolidations, issuance of securities, payment
of dividends, establishment of branches, and other aspects of the Banks'
operations. Various consumer laws and regulations also affect the operations of
the Banks, including state usury laws, laws relating to fiduciaries, consumer
credit and equal credit, and fair credit reporting.
The Banks are subject to Sections 23A and 23B of the Federal Reserve Act, which
governs certain transactions, such as loans, extensions of credit, investments
and purchases of assets between member banks and their affiliates, including
their parent holding companies. These restrictions limit the transfer of funds
to the Holding Company, as defined in the statute, in the form of loans,
extensions of credit, investment or purchases of assets ("Transfers"), and they
require that the Banks' transactions with the Holding Company be on terms no
less favorable to the Banks than comparable transaction between the Banks and
unrelated third parties. Transfers by the Banks to the Holding Company are
limited in amount to 10% of each Bank's capital and surplus, and transfers to
all affiliates are limited in the aggregate to 20% of each Bank's capital and
surplus. Furthermore, such loans and extensions of credit are also subject to
various collateral requirements. These regulations and restrictions may limit
the Holding Company's ability to obtain funds from the Banks for its cash needs,
including funds for acquisitions, and the payment of dividends, interest and
operating expenses.
The Banks are prohibited from engaging in certain tying arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services. For example, the Banks may not generally require a customer to
obtain other services from the Banks or the Holding Company, and may not require
the customer to promise not to obtain other services from a competitor as a
condition to an extension of credit. The Banks are also subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to
executive officers, directors, principal stockholders or any related interest of
such persons. Extensions of credit (i) must be made on substantially the same
terms (including interest rates and collateral) as, and following credit
underwriting procedures that are not less stringent than those prevailing at the
time for, comparable transactions with persons not covered above and who are not
employees and (ii) must not involve more than the normal risk of repayment or
present other unfavorable features. In addition, extensions of credit to such
persons beyond limits set by FRB regulations must be approved by the Board of
Directors. The Banks are also subject to certain lending limits and restrictions
on overdrafts to such persons. A violation of these restrictions may result in
37
<PAGE>
the assessment of substantial civil monetary penalties on the Banks or any
officer, director, employee, agent or other person participating in the conduct
of the affairs of the Banks or the imposition of a cease and desist order.
Applicable law provides the Federal banking agencies with broad powers to take
prompt corrective action to resolve problems of insured depository institutions.
The extent of those powers depends upon whether the institution in question is
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized." The Federal banking
agencies have issued uniform regulations defining such capital levels. Under the
regulations, a bank is considered "well capitalized" if it has (i) a total
risk-based capital ratio of 10% or greater, (ii) a Tier 1 risk-based capital
ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv) is not
subject to any order or written directive to meet and maintain a specific
capital level for any capital measure. An "adequately capitalized" bank is
defined as one that has (i) a total risk-based capital ratio of 8% or greater,
(ii) a Tier 1 risk-based capital ratio of 4% or greater, and (iii) a leverage
ratio of 4% or greater (or 3% or greater in the case of a bank with a composite
CAMELS rating of 1). A bank is considered (a) "undercapitalized " if it has (i)
a total risk-based capital ratio of less than 8%, (ii) a Tier 1 risk-based
capitalized ratio of less than 4%, or (iii) a leverage ratio of less than 4% (or
3% in the case of a bank with a composite CAMELS rating of 1); (b)
"significantly undercapitalized" if a bank has (i) a total risk-based capital
ratio of less than 6%, (ii) a Tier 1 risk-based Capital ratio of less than 3% or
(iii) a leverage ratio of less than 3%, and (c) "critically undercapitalized" if
a bank has a ratio of tangible equity to total assets equal to or less than 2%.
At December 31, 1999 and 1998, each Bank met the definition of a
well-capitalized institution.
The deposits of the Banks are insured by the FDIC through the Bank Insurance
Fund (the "BIF") to the extent provided by law. Under the FDIC's risk-based
insurance system, BIF-insured institutions are currently assessed premiums of
between zero and $0.27 per $100 of eligible deposits, depending upon the
institutions capital position and other supervisory factors. Congress has
enacted legislation that, among other things, provides for assessments against
BIF insured institutions that will be used to pay certain financing corporation
("FICO") obligations. In addition to any BIF insurance assessments, BIF-insured
banks are expected to make payments for the FICO obligations equal to an
estimated $0.024 per $100 of eligible deposits each year.
Regulations promulgated by the FDIC pursuant to the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("1991 Banking Law") place limitations on
the ability of certain insured depository institutions to accept, renew or
rollover deposits by offering rates of interest which are significantly higher
than the prevailing rates of interest on deposits offered by other depository
institutions having the same type of charter in such depository institutions
normal market area. Under these regulations, well-capitalized institutions may
accept, renew or rollover such deposits without restriction, while adequately
capitalized institutions may accept, renew or rollover such deposits with a
waiver from the FDIC (subject to certain restrictions on payment of rates).
Undercapitalized institutions may not accept, renew or rollover such deposits.
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), a depository institution insured by the FDIC can be held liable for
any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC-insured institution in danger of default. "Default" is defined generally as
the appointment of a conservator or receiver and "in danger of Default" is
defined generally as the existence of certain conditions indicating that a
"default" is likely to occur in the absence of regulatory assistance. The
Federal Community Reinvestment Act of 1977 ("CRA"), among other things, allows
regulators to withhold approval of an acquisition or the establishment of a
branch unless the applicant has performed satisfactorily under the CRA.
Satisfactory performance means adequately meeting the credit needs of the
communities the institution serves, including low and moderate income areas. The
applicable Federal regulators now regularly conduct CRA examinations to assess
the performance of financial institutions. Intervest Bank has received a
"satisfactory" rating in its most recent CRA examination. Intervest National
Bank will be initially examined for CRA compliance in 2000. The Federal
regulators have adopted regulations and examination procedures promoting the
38
<PAGE>
safety and soundness of individual institutions by specifically addressing,
among other things: (i) internal controls; information systems and internal
audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest
rate exposure; (v) asset growth; (vi) ratio of classified assets to capital;
(vii) minimum earnings; and (viii) compensation and benefits standards for
management officials.
The FRB, OCC and other Federal banking agencies have broad enforcement powers,
including the power to terminate deposit insurance, and impose substantial fines
and other civil and criminal penalties and appoint a conservator or receiver.
Failure to comply with applicable laws, regulations and supervisory agreements
could subject the Holding Company or its banking subsidiaries, as well as
officers, directors and other institution-affiliated parties of these
organizations, to administrative sanctions and potentially civil monetary
penalties. In addition, the Florida Department of Banking and Finance possesses
certain enumerated enforcement powers to address violations of the Florida State
Law by state-chartered banks and to preserve safety and soundness, including, in
the most severe cases, the authority to take possession of a state bank.
Interstate Banking and Other Recent Legislation
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, enacted
in 1994, facilitates the interstate expansion and consolidation of banking
organizations by permitting bank holding companies that are adequately
capitalized and managed to acquire banks located in states outside their home
states regardless of whether such acquisitions are authorized under the law of
the host state. The Act also permits interstate mergers of banks, with some
limitations and the establishment of new branches on an interstate basis
provided that such action is authorized by the law of the host state. The
Gramm-Leach-Bliley Act was signed by the President on November 12, 1999. This
new legislation will permit banks, securities firms and insurance companies to
affiliate under a common holding company structure. In addition to allowing new
forms of financial services combinations, this Act clarifies how financial
services conglomerates will be regulated by the different federal and state
regulators. Additional legislative and regulatory proposals have been made and
others can be expected. These include proposals designed to improve the overall
the financial stability of the United States Banking System, and to provide for
other changes in the bank regulatory structure, including proposals to reduce
regulatory burdens and baking organizations and to expand the nature of products
and services banks and bank holding companies may offer. It is not possible to
predict whether or in what form these proposals may be adopted in the future
and, if adopted, what their effect will be on the Company.
Monetary Policy and Economic Control
The commercial banking business in which the Company engages is affected not
only by general economic conditions, but also by the monetary policies of the
FRB. Changes in the discount rate on member bank borrowing, availability of
borrowing at the "discount window," open market operations, the imposition of
changes in reserve requirements against member banks' deposits and assets of
foreign branches and the imposition of and changes in reserve requirements
against certain borrowings by banks and their affiliates are some of the
instruments of monetary policy available to the FRB. These monetary policies are
used in varying combinations to influence overall growth and distributions of
bank loans, investments and deposits, and this use may affect interest rates
charged on loans or paid on deposits. The monetary policies of the FRB have had
a significant effect on the operating results of commercial banks and are
expected to continue to do so in the future. The monetary policies of these
agencies are influenced by various factors, including inflation, unemployment,
short-term and long-term changes in the international trade balance and in the
fiscal policies of the United States Government. Future monetary policies and
the effect of such policies on the future business and earnings of the Company
cannot be predicted.
Description of Properties
The office of the Holding Company is located in leased premises at 10
Rockefeller Plaza, New York, N.Y, 10020. Intervest Bank maintains its principal
39
<PAGE>
office at 625 Court Street, Clearwater, Florida, 33756. In addition, Intervest
Bank operates four branch offices; three of which are in Clearwater, Florida, at
1875 Belcher Road North, 2175 Nursery Road and 2575 Ulmerton Road, and one is at
6750 Gulfport Blvd, South Pasadena, Florida. With the exception of the Belcher
Road office, which is leased through June 2007, all of the offices of Intervest
Bank are owned by Intervest Bank. The office at 625 Court Street consists of a
two-story building containing approximately 22,000 sq. ft. Intervest Bank
occupies the ground floor (approximately 8,500 sq. ft.) and leases the 2nd floor
to a single commercial tenant. The branch office at 1875 Belcher Road is a
two-story building in which Intervest Bank leases approximately 5,100 sq. ft. on
the ground floor. The branch office at 2175 Nursery Road is a one-story building
containing approximately 2,700 sq. ft., which is entirely occupied by Intervest
Bank. The branch office at 2575 Ulmerton Road is a three-story building
containing approximately 17,000 sq. ft. Intervest Bank occupies the ground floor
(approximately 2,500 sq. ft.) and leases the upper floors to commercial tenants.
The branch office at 6750 Gulfport Blvd. is a one-story building containing
approximately 2,800 sq. ft., which is entirely occupied by Intervest Bank. In
addition, each of Intervest Bank's offices include drive-through teller
facilities.
Intervest National Bank's office is located on the third floor of One
Rockefeller Plaza in New York City, N.Y. The office consists of approximately
7,000 sq. ft. and has been leased through May 2008.
Legal Proceedings
The Company is periodically party to or otherwise involved in legal proceedings
arising in the normal course of business, such as claims to enforce liens,
claims involving the making and servicing real property loans, and other issues
incident to the Company's business. Management does not believe that there is
any pending or threatened proceeding against the Company which, if determined
adversely, would have a material effect on the business, results of operations,
or financial position of the Company.
40
<PAGE>
MANAGEMENT
Directors and Executive Officers of the Company
The directors and executive officers of the Company, their ages and positions
with the Company are as set forth below.
Michael A. Callen, age 59, serves as a Director of the Company, and has
served in such capacity since May, 1994. Mr Callen received a Bachelor of Arts
degree from the University of Wisconsin in Economics and Russian. Mr. Callen is
President of Avalon Argus Associates, a financial consulting firm. Mr. Callen
had been Senior Advisor, The National Commercial Bank, Jeddah, Kingdom of Saudi
Arabia for approximately five years and was a Director and Sector Executive at
Citicorp/Citibank, responsible for corporate banking activities in North
America, Europe and Japan. Mr. Callen is also a Director of Intervest National
Bank and Intervest Corporation of New York, and also serves as a director of
AMBAC, Inc.
Milton F. Gidge, age 70, serves as a Director of the Company, and has
served in such capacity since March, 1994. Mr. Gidge received a Bachelor of
Business Administration degree in Accounting from Adelphi University and a
Masters Degree in Banking and Finance from New York University. Mr. Gidge
retired in 1994 and, prior to his retirement, was a Director and Chairman-Credit
Policy of Lincoln Savings Bank, F.S.B. (headquartered in New York City). He is
also a Director of Intervest National Bank, Intervest Corporation of New York,
Interboro Mutual Indemnity Insurance Company and Vicon Industries, Inc. Mr.
Gidge was an officer of Lincoln Savings Bank, F.S.B. for more than five years.
Wayne F. Holly, age 43, serves as a Director of the Company and has
served in such capacity since June, 1999. Mr. Holly received a Bachelor of Arts
degree in Economics from Alfred University. Mr. Holly is President of Sage,
Rutty & Co., Inc., members of the Boston Stock Exchange, with offices in
Rochester, New York and Canandaigua, New York, and is also a Director of
Intervest National Bank and Intervest Corporation of New York. Mr. Holly has
been an officer and director of Sage, Rutty & Co., Inc. for more than five
years.
Lawrence G. Bergman, age 55, serves as a Director, and as Vice
President and Secretary of the Company and has served in such capacities since
the Company was organized. Mr. Bergman received a Bachelor of Science degree and
a Master of Engineering (Electrical) degree from Cornell University, and a
Master of Science in Engineering and a Ph.D degree from The Johns Hopkins
University. Mr. Bergman is also a director of Intervest National Bank, Co-
Chairman of the Board and a member of the Loan Committee of Intervest Bank, and
a Director, Vice-President and Secretary of Intervest Corporation of New York.
During the past five years Mr. Bergman has been actively involved in the
ownership and operation of real estate and mortgage investments.
Jerome Dansker, age 81, serves as Chairman of the Board of Directors
and Executive Vice President of the Company. He has served as Executive Vice
President since 1994 and as Chairman of the Board since 1996. Mr. Dansker
received a Bachelor of Science degree from the New York University School of
Commerce, Accounts and Finance, a law degree from the New York University School
of Law, and is admitted to practice as an attorney in the State of New York. Mr.
Dansker is also Chairman of the Board of Intervest National Bank, a Director and
Chairman of the Loan Committee of Intervest Bank, and Chairman of the Board of
Directors and Executive Vice President of Intervest Corporation of New York.
During the past five years, Mr. Dansker has been actively involved in the
ownership and operation of real estate and mortgage investments.
Lowell S. Dansker, age 49, serves as a Director, President and
Treasurer of the Company, and has served in such capacities since the Company
was organized. Mr. Dansker received a Bachelor of Science in Business
Administration from Babson College, a law degree from the University of Akron
School of Law, and is admitted to practice as an attorney in New York, Ohio,
Florida and the District of Columbia. Mr. Dansker is also a Director and Chief
Executive Officer of Intervest National Bank, Co-Chairman of the Board of
Directors and a member of the Loan Committee of Intervest Bank and a Director,
President and Treasurer of Intervest Corporation of New York. During the past
five years, Mr. Dansker has been actively involved in the ownership and
operation of real estate and mortgage investments.
Edward J. Merz, age 68, serves as a Director of the Company and has
served in such capacity since February, 1998. Mr. Merz received a Bachelor of
Business Administration from City College of New York and is a graduate of the
Stonier School of Banking at Rutgers University. Mr. Merz is Chairman of the
Board of Directors of the Suffolk County National Bank of Riverhead and of its
parent, Suffolk Bancorp, and has been an officer and director of those companies
for more than five years. He is also a director of Intervest National Bank and
Intervest Corporation of New York.
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<PAGE>
Lawton Swan, III, age 57, serves as a director of the Company and has
served in that capacity since February, 2000. Mr. Swan received a Bachelor of
Science Degree from Florida State University in Business Administration and
Insurance. Mr. Swan is President of Interisk Corporation, a consulting firm
specializing in risk management and employee benefit plans, which he founded in
1978. He is also a director of Intervest National Bank, Intervest Bank and
Intervest Corporation of New York.
Thomas E. Willett, age 52, serves as a Director of the Company, and has
served in such capacity since March, 1999. Mr. Willett received a Bachelor of
Science Degree from the United States Air Force Academy and a law degree from
Cornell University School of Law. Mr. Willett has been a partner of Harris Beach
& Wilcox, LLP, a law firm in Rochester, New York, for more than five years and
is a director of Intervest National Bank and Intervest Corporation of New York.
David J. Willmott, age 61, serves as a Director of the Company, and has
served in such capacity since March, 1994. Mr. Willmott is a graduate of Becker
Junior College and attended New York University Extension and Long Island
University Extension of Southampton College. Mr. Willmott is the Editor and
Publisher of Suffolk Life Newspapers, which he founded more than 25 years ago
and is a Director of Intervest National Bank and Intervest Corporation of New
York.
Wesley T. Wood, age 57, serves as a Director of the Company, and has
served in such capacity since March, 1994. Mr. Wood received a Bachelor of
Science degree from New York University, School of Commerce. Mr. Wood is
President of Marketing Capital Corporation, an international marketing
consulting and investment firm which he founded in 1973. He is also a Director
of Intervest National Bank and Intervest Corporation of New York, a Director of
the Center of Direct Marketing at New York University, a member of the Marketing
Committee at Fairfield University in Connecticut, and a Trustee of St. Dominics
R.C. Church in Oyster Bay, New York.
Executive Compensation
The following table sets forth information concerning total compensation paid
during the last three years to Intervest Bank's chief executive officer. No
other officer of the Company or its subsidiaries had annual compensation in
excess of $100,000.
<TABLE>
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation Long-Term Compensation
------------------------------------------------------------- ----------------------
Name and Principal Other Annual
Position Year Salary Bonuses Compensation Awards(1) Pay-Outs
-------- ---- ------ ------- ------------ --------- --------
<S> <C> <C> <C>
Keith A. Olsen, 1999 $125,000 $17,500 ---- ------ ------
President
1998 $125,000 $10,000 ---- 5,000 ------
1997 $115,000 $10,000 ---- ------ ------
- ------------------------------
<FN>
(1) These represent warrants to purchase the number of shares of Class A Common
Stock set forth in the table.
</FN>
</TABLE>
Employment Agreement with Keith A. Olsen
Intervest Bank has an employment agreement with Mr. Keith A. Olsen that expires
December 31, 2000. The agreement provides for a base annual salary of not less
than $125,000 and also provides for the payment of up to two years' severance in
certain circumstances upon termination of employment.
42
<PAGE>
Certain Relationships and Related Transactions
The Company's subsidiary banks had, and expect to have in the future,
various loan and other banking transactions in the ordinary course of business
with directors and executive officers of the Company and its subsidiaries (or
associates of such persons). In the opinion of management, all such
transactions: (i) have been or will be made in the ordinary course of business,
(ii) have been and will be made on substantially the same terms, including
interest rates and collateral on loans, as those generally prevailing at the
time for comparable transactions with unrelated persons, and (iii) have not and
will not involve more than the normal risk of collectability or present other
unfavorable features. The total dollar amount of extensions of credit, including
unused lines of credit, to directors and executive officers and any of their
associates was $3.4 million as of December 31, 1999, which represented
approximately 15.8% of total stockholders' equity of the Company.
The Company, as well as directors of the Company and corporations
affiliated with certain directors of the Company, have in the past and may in
the future participate in mortgage loans originated by the Company's subsidiary
banks. Such participations are on substantially the same terms as would apply
for comparable transactions with other persons and the interest of the
participants in the collateral securing those loans is pari passu with the
originating bank.
Intervest Bank leases office space from a corporation in which Robert
J. Carroll, Esq., a director of Intervest Bank, is an officer and in which he
has an ownership interest. Thomas E. Willett, Esq., a director of the Company,
is a partner in the law firm of Harris Beach & Wilcox, LLP, which firm provided
legal services to the Company and its subsidiaries during 1999.
During 1999, the Company agreed to acquire Intervest Corporation of New
York. The shareholders of Intervest Corporation of New York included officers
and directors of the Company. The merger was approved by the boards of directors
of both companies, the shareholders of both companies and the Federal Reserve
Bank of Atlanta. In the merger, the Shareholders of Intervest Corporation of New
York received an aggregate of 1,250,000 shares of Class A Common Stock of the
Company in exchange for all of the shares of stock of Intervest Corporation of
New York. Those shares are included in the shares disclosed in the table on page
44. The merger became effective in March 2000.
Except for the transactions described above and outside of normal
customer relationships, none of the directors, officers or present shareholders
of the Company and no corporations or firms with such persons or entities are
associated, currently maintains or has maintained since the beginning of the
last fiscal year, any significant business or personal relationship with the
Company or with its subsidiary banks other than such as arises by virtue of such
position or ownership interest in the Company.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 21, 2000 by (i) each person
who is known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock of the Company, (ii) each of the Company's directors,
(iii) each executive officer of the Company and (iv) all current directors and
executive officers of the Company as a group.
<TABLE>
Class A Common Stock Class B Common Stock
-------------------- --------------------
Name of
Beneficial Holder Number of Shares Percent of Class(1) Number of Shares Percent of Class(1)
- ----------------- ---------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Helene D. Bergman 475,750(2) 13.28% 75,000 21.13%
Directors and Executive Officers
Lawrence G. Bergman, Director, 475,750(2) 13.28% 75,000 21.13%
Vice President and Secretary
Michael A. Callen, Director 50,000(3) 1.40% 0 0%
Lowell S. Dansker, Director, 962,000(4) 26.68% 150,000 42.25%
President and Treasurer
Jerome Dansker, Chairman, 1,001,965(5) 24.62% 250,000(5) 45.45%
Executive Vice President, Director
Milton F. Gidge, Director 30,563(6) 0.86% 0 0%
Wayne F. Holly, Director 12,200 0.35% 0 0%
Edward J. Merz, Director 5,200(7) 0.15% 0 0%
Lawton Swan, III, Director 2,500(8) 0.07% 0 0%
Thomas E. Willett, Director 6,000(9) 0.17% 0 0%
David J. Willmott, Director 87,500(10) 2.44% 0 0%
Wesley T. Wood, Director 102,500(11) 2.85% 0 0%
All directors and executive
officers as a group (11 persons) 3,211,928 61.86% 550,000 86.36%
- -----------------------------
<FN>
(1) Percentages have been computed based upon the total outstanding shares
of the Company plus, for each person and the group, shares that person
or the group has the right to acquire pursuant to warrants.
(2) Includes 47,500 shares of Class A common stock issuable upon the
exercise of warrants.
(3) Includes 38,750 shares of Class A common stock issuable upon the
exercise of warrants.
(4) Includes 70,000 shares of Class A common stock issuable upon the
exercise of warrants and 10,500 shares held as custodian for minor
children.
(5) Includes 533,465 shares of Class A common stock issuable upon the
exercise of warrants. The shares of Class B common stock include
195,000 shares issuable upon exercise of warrants.
(6) Includes 17,500 shares of Class A common stock issuable upon the
exercise of warrants.
(7) Includes 5,000 shares of Class A common stock issuable upon the
exercise of warrants.
(8) Includes 2,000 shares of Class A common stock issuable upon the
exercise of warrants.
(9) Includes 3,000 shares of Class A common stock issuable upon the
exercise of warrants.
(10) Includes 57,500 shares of Class A common stock issuable upon the
exercise of warrants.
(11) Includes 65,000 shares of Class A common stock issuable upon the
exercise of warrants.
</FN>
</TABLE>
44
<PAGE>
DESCRIPTION OF SECURITIES
General
The Company's Certificate of Incorporation provide for two classes of
common capital stock consisting of 9,500,000 shares of Class A Common Stock, par
value $1.00 per share, and 700,000 shares of Class B Common Stock, par value
$1.00 per share. In addition, the Company's Articles provide for 300,000 shares
of preferred stock, par value $1.00 per share ("Preferred Stock"). The Company's
Articles of Incorporation authorize the Board of Directors, without shareholder
approval, to fix the preferences, limitations and relative rights of the
Preferred Stock, to establish one or more series or classes of Preferred Stock,
and to determine the variations between each such series or class. No shares of
Preferred Stock are issued or outstanding.
As of the date of this Prospectus, there were issued and outstanding
3,535,629 shares of Class A Common Stock, 2,217,000 of which are held by the
initial stockholders of the Company and a related party and 355,000 shares of
Class B Common Stock held by the same initial stockholders.
Common Stock
Both classes of common stock have equal voting rights as to all
matters, except that, so long as at least 50,000 shares of Class B Common Stock
remain issued and outstanding, the holders of the outstanding shares of Class B
Common Stock are entitled to vote for the election of two-thirds of the
directors (rounded up to the nearest whole number) and the holders of the
outstanding shares of Class A Common Stock are entitled to vote for the
remaining directors of the Company. Under Delaware law, the holders of Class A
and Class B Common Stock would be entitled to vote as separate classes upon
certain matters which would adversely affect or subordinate the rights of a
class.
Subject to preferences that may be applicable to any outstanding shares
of Preferred Stock (none of which are presently outstanding), holders of Class A
Common Stock are entitled to share ratably in dividends when and as declared by
the Company's Board of Directors out of funds legally available therefor. See
"Dividends."
The holders of Class A Common Stock and Class B Common Stock share
ratably in dividends when and as declared by the Board of Directors.
The shares of Class B Common Stock are convertible, on a share for
share basis, into Class A Common Stock, at any time and from time to time after
January 1, 2000. Neither Class A nor Class B Common Stock holders have any
preemptive rights as to additional issues of common stock. Shareholders are
subject to no assessments and, upon liquidation, both Class A and Class B common
shareholders would be entitled to participate equally per share in the assets of
the Company available to common shareholders.
Class A Warrants
As of the date of this prospectus, 2,464,218 warrants were outstanding
to purchase the Company's Class A Common Stock as follows:
Warrants totaling 1,379,815 entitle the registered holders thereof to
purchase one share of Class A Common Stock at a price of $6.67 per share. These
warrants expire on December 31, 2001, except for 501,465, which expire on
January 31, 2006;
Warrants totaling 962,403 entitle the registered holders thereof to
purchase one share of Class A Common Stock at a price of $11.50 per share from
January 1, 2000 through December 31, 2000; $12.50 per share from January 2, 2001
through December 31, 2001; and $13.50 per share from January 1, 2002 to December
31, 2002. These warrants expire on December 31, 2002; and
Warrants totaling 122,000 entitle the registered holders thereof to
purchase one share of Class A common stock at a price of $15.00 per share
through year-end 2000; $16.00 per share in 2001 and $17.00 per share in 2002.
These warrants also expire on December 31, 2002.
45
<PAGE>
Except for the exercise price, the expiration dates and the redemption
provisions, all of the outstanding warrants related to Class A Shares are alike
in all respects and the following discussions applies to all of the warrants for
Class A Common Stock.
The exercise price is subject to adjustment in accordance with the
anti-dilution and other provisions referred to below. The holder of any Warrant
may exercise such Warrant or any portion thereof by surrendering the certificate
representing the Warrant to the Company's transfer and warrant agent, with the
subscription on the reverse side of such certificate properly completed and
executed, together with payment of the exercise price. The Warrant may be
exercised at any time until expiration of the Warrant. No fractional shares will
be issued upon the exercise of the Warrants. Warrants may not be exercised as to
fewer than 100 shares unless exercised as to all Warrants held by the holder
thereof. The exercise prices of the Warrants have been arbitrarily determined by
the Company and are not necessarily related to the Company's book value, net
worth or other established criteria of value. The exercise price should in no
event be regarded as an indication of any future market price of the securities
offered hereby.
The Warrants are not exercisable unless, at the time of exercise, the
Company has a current prospectus covering the shares of common stock issuable
upon exercise of such Warrants and such shares have been registered, qualified
or deemed to be exempt under the securities law of the state of residence of the
holders of such Warrants. Although the Company will use its best efforts to have
all such shares so registered or qualified on or before the exercise date and to
maintain a current prospectus relating thereto until the expiration of such
Warrants, there can be no assurance that it will be able to do so.
The exercise price and the number of shares of Class A Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications on or of the Class A Common Stock or sales by
the Company of shares of its Class A Common Stock at a price below the then
applicable exercise price of the Warrants. Additionally, an adjustment will be
made in the case of a reclassification or exchange of Class A Common Stock,
consolidation or merger of the Company with or into another corporation or sale
of all or substantially all of the assets of the Company in order to enable
warrant holders to acquire the kind and number of shares of stock or other
securities or property receivable in such event by a holder of the number of
shares of Class A Common Stock that might otherwise have been purchased upon the
exercise of the Warrant. In most cases, no adjustment will be made until the
number of shares issued by the Company exceeds 5% of the number of shares
outstanding after the offering and thereafter no adjustments will be made until
the cumulative adjustments and exercise price per share amount to $.05 or more.
No adjustment to the exercise price of the shares subject to the Warrants will
be made for dividends (other than stock dividends), if any paid on the Class A
Common Stock or for securities issued pursuant to a company stock option plan,
if any, or other employee benefit plans of the Company.
The Warrants are fully registered and may be presented to the transfer
and warrant agent for transfer, exchange or exercise at any time at or prior to
the close of business on the expiration date for such Warrant, at which time the
Warrant becomes wholly void and of no value. If a market for the Warrants
develops, the holder may sell the Warrants instead of exercising them. There can
be no assurance, however, that a market for the Warrants will develop or
continue.
The Warrants do not confer upon holders any voting or any other rights
as a shareholder of the Company.
Class B Warrants
There are outstanding warrants to purchase up to 195,000 shares of
Class B Common Stock, of which 145,000 allow the purchase at any time prior to
January 31, 2007, at a purchase price of $6.67 per share, and 50,000 that allow
the purchase at any time prior to January 31, 2008, at a purchase price of
$10.00 per share. The warrant contains terms and conditions substantially in
conformity with the Warrants related to shares of Class A Common Stock. In
addition, the Warrant provides for an adjustment in the number of shares of
Class B Common Stock purchasable upon the exercise of the Warrant and the
exercise price per share in accordance with anti-dilution and other provisions
which are in substantial conformity with those described above, but which relate
to share issuances and recapitalizations for both Class A and Class B Common
Stock.
Transfer Agent and Warrant Agent
The registrar and transfer agent for the Common Stock and the Warrant
Agent for the Warrants is The Bank of New York.
46
<PAGE>
Preferred Stock
The Company's Articles of Incorporation authorize the Board of
Directors, without further shareholder approval, to issue shares of Preferred
Stock in one or more series with powers, preferences, rights, restrictions,
limitations, and other qualifications that could adversely affect the voting and
other rights of the holders of Common Stock.
The Board of Directors has the authority to issue up to 300,000 shares
of the Preferred Stock of the Company in any number of series (to designate the
rights and preferences of such series) which could operate to render more
difficult the accomplishment of mergers or other business combinations. The
Board of Directors of the Company has no present intent to issue any Preferred
Stock at this time. Under certain circumstances and when, in the judgment of the
Board of Directors, the action will be in the best interest of the stockholders
and the Company, such shares could be used to create voting impediments or to
frustrate persons seeking to gain control of the Company. Such shares could be
privately placed with purchasers friendly to the Board of Directors in opposing
a hostile takeover bid. In addition, the Board of Directors could authorize
holders of a series of Preferred Stock to vote either separately as a class or
with the holders of the Company's Common Stock on any merger, sale or exchange
of assets by the Company or any other extraordinary corporate transaction. The
existence of the additional authorized shares could have the effect of
discouraging unsolicited takeover attempts or delaying, deferring or preventing
a change in control of the Company. Such an occurrence, in the event of a
hostile takeover attempt, may have an adverse impact on stockholders who may
wish to participate in such offer. The issuance of new shares could be used to
dilute the stock ownership of a person or entity seeking to obtain control of
the Company should the Board of Directors consider the action of such entity or
person not to be in the best interest of the stockholders and the Company. The
Board of Directors is not aware of any present attempt or effort by any person
to accumulate the Company's securities or obtain control of the Company.
Restrictions on Changes in Control
Under the Federal Change in Bank Control Act (the "Control Act"), a
notice must be submitted to the FRB if any person, or group acting in concert,
seeks to acquire 10% or more of any class of outstanding voting securities of
the Company, unless the FRB determines that the acquisition will not result in a
change of control of the Company. Both the Class A Common Stock and the Warrants
are deemed to be voting securities for these purposes. Under the Control Act,
the FRB has 60 days within which to act on such notice, taking into
consideration certain factors, including the financial and managerial resources
of the acquiror, the convenience and needs of the community served by the bank
holding company and its subsidiary banks, and the antitrust effects of the
acquisition. Under the BHCA a company is generally required to obtain prior
approval of the FRB before it may obtain control of a bank holding company.
Control is generally described to mean the beneficial ownership of 25% or more
of all outstanding voting securities of a company.
Description of the Debentures
General
The Debentures are unsecured subordinated obligations of the Company,
limited to an aggregate principal amount of $7,000,000 and mature on July 1,
2008. The Debentures were issued pursuant to an Indenture dated as of June 1,
1998 (the "Indenture") between the Company and the Bank of New York, as trustee
(the "Trustee"). Interest on the Debentures accrues each calendar quarter at the
rate of 8% per annum. In addition, interest accrues each calendar quarter on the
balance of the accrued interest as of the last day of the preceding calendar
quarter at the same interest rate. All accrued interest on the Debentures 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 on the Debentures and to
thereafter receive payments of quarterly interest. The election must be made
after April 1 and before May 31 and the holder will receive a payment of accrued
interest on July 1 and will thereafter receive quarterly payments of interest on
the first day of each January, April, July and October until the maturity date.
Once made, an election to receive interest is irrevocable. Quarterly interest is
payable to holders of record on the first day of the month preceding the
interest payment date.
Subordination of Debentures
The Debentures are general unsecured obligations of the Company limited
to $7,000,000 principal amount. The Debentures are subordinated in payment of
principal and interest to all Senior Indebtedness. The term Senior
47
<PAGE>
Indebtedness is defined in the Indenture to mean all indebtedness of the
Company, whether outstanding on the date of the Indenture or thereafter created,
which (i) is secured, in whole or in part, by any asset or assets owned by the
Company or by a corporation, a majority of whose voting stock is owned by the
Company or a subsidiary of the Company ("Subsidiary"), or (ii) arises from
unsecured borrowings by the Company from commercial banks, savings banks,
savings and loan associations, insurance companies, companies whose securities
are traded in a national securities market, or any majority-owned subsidiary of
any of the foregoing, or (iii) arises from unsecured borrowings by the Company
from any pension plan (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended), or (iv) arises from borrowings by the
Company which are evidenced by commercial paper, or (v) other unsecured
borrowings by the Company which are subordinate to indebtedness of a type
described in clauses (i), (ii) or (iv) above, or (vi) is a guaranty or other
liability of the Company of, or with respect to any indebtedness of, the
subsidiary of the type described in clauses (ii), (iii) or (iv) above. As of
December 31, 1997, the Company had no senior indebtedness. There is no
limitation or restriction in the Debentures or the Indenture on the creation of
senior indebtedness by the Company on the amount of such senior indebtedness to
which the Debentures may be subordinated. There is also no limitation on the
creation or amount of indebtedness which is pari passu with (i.e. having no
priority of payment over and not subordinated in right of payment to) the
Debentures.
Upon any distributions of any assets of the Company in connection with
any dissolution, winding-up, liquidation or reorganization of the Company, the
holders of all senior indebtedness will first be entitled to receive payment in
full of the principal and premium, if any, thereof and any interest due thereof,
before the holders of the Debentures are entitled to receive any payment upon
the principal of or interest on the Debentures, and thereafter payments to the
debenture holders will be pro rata with payments to holders of pari passu
indebtedness. In the absence of any such events, the Company is obligated to pay
principal of and interest on the Debentures in accordance with their terms. The
Company will not maintain any sinking fun for the retirement of any of the
Debentures.
Conversion Rights
The Debentures are convertible, at the option of the holder, into
shares of Class A Common Stock of the Company at any time prior to April 1, 2008
(subject to prior redemption by the Company on not less than 30 days notice and
not more than 90 days notice), at a current conversion price of $12.50 per share
through December 31, 2000, which conversion price increases annually on July 1
of each year. The Company reserves the right, from time to time in its
discretion to establish conversion prices per share which are less than the
conversion prices set forth above, which lower prices shall remain in effect for
such periods as the Company may determine and as shall be set forth in a written
notice to the holders of Debentures.
The conversion price is subject to adjustment in certain events,
including (i) dividends (and other distributions) payable in Class A Common
Stock on any class of capital stock of the Company, (ii) the issuance to all
holders of common stock of rights or warrants entitling them to subscribe for or
purchase Class A Common Stock at less than the current market price (as
defined), (iii) subdivisions, combinations and reclassifications of common
stock, (iv) distributions to all holders of Class A Common Stock of evidence of
indebtedness of the Company or assets (including securities, but excluding those
dividends, rights, warrants and distributions referred to above and any dividend
or distribution paid exclusively in cash.
Fractional shares of Class A Common Stock will not be issued upon
conversion, but, in lieu thereof, the Company will pay cash adjustment equal to
the portion of the principal and/or interest not converted into whole shares.
Transfers
The Debentures are transferable on the books of the Company by the
registered holders thereof upon surrender of the Debentures to the Registrar
appointed by the Company and, if requested by the Registrar, shall be
accompanied by a written instrument of transfer in form satisfactory to the
registrar. The Company has appointed The Bank of New York as the "Registrar" for
the Debentures. The person in whose name any Debenture is registered shall be
treated as the absolute owner of the Debenture for all purposes, and shall not
be affected by any notice to the contrary. Upon transfer, the Debentures will be
canceled, and one or more new registered Debentures, in the same aggregate
principal amount, of the same maturity and with the same terms, will be issued
to the transferee in exchange therefor. (Art. 2, Sec. 2.07(a)).
48
<PAGE>
Duties of the Trustee
The Indenture provides that in case an Event of Default (as defined)
shall occur and continue, the Trustee will be required to use the same degree of
care and skill as a prudent person would exercise or use under the circumstances
in the conduct of his own affairs in the exercise of its power. While the
Trustee may pursue any available remedies to enforce any provision of the
Indenture or the Debentures, the holders of a majority in principal amount of
all outstanding Debentures may direct the time, method, and place of conducting
any proceeding for exercising any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any of the Debenture holders, unless they
shall have offered to the Trustee security and indemnity satisfactory to it.
Redemption
The Company may, at its option, at any time call all or any part of the
Debentures for payment, and redeem the same at any time prior to the maturity
thereof. The redemption price for Debentures will be (i) face amount plus a 1%
premium if the date of redemption is prior to July 1, 2000, and (ii) face amount
if the date of redemption is on or after July 1, 2000. In all cases, the
Debenture Holder will also receive interest accrued to the date of redemption.
Notice of redemption must be sent by first class mail, postage prepaid, to the
registered holders of the Debentures not less than 30 days nor more than 90 days
prior to the date the redemption is to be made. In the event of a call for
redemption, no further interest shall accrue after the redemption date on any
Debentures called for redemption. (Art. 3, Section 3.03, Paragraph 5). Since the
payment of principal of, interest on, or any other amounts due on the Debentures
is subordinate in right of payment to the prior payment in full of all Senior
Indebtedness upon the dissolution, winding up, liquidation or reorganization of
the Company, no redemption will be permitted upon the happening of such an
event.
Limitation On Dividends and Other Payments
The Indenture provides that the Company will not declare or pay any
dividend or make any distribution on its Capital Stock (i.e. any and all shares,
interests, participations, rights or other equivalents of the Company's stock)
or to its shareholders (other than dividends or distributions payable in Capital
Stock), or purchase, redeem or otherwise acquire or retire for value, or permit
any Subsidiary to purchase or otherwise acquire for value, Capital Stock of the
Company, if at the time of such payment, or after giving effect thereto, an
Event of Default, as hereinafter defined, shall have occurred and be continuing
or a default shall occur as a result thereof; provided, however, that the
foregoing limitation shall not prevent (A) the payment of any dividend within 60
days after the date of declaration thereof, if at said date of declaration such
payment complied with the provisions of such limitation, or (B) the acquisition
or retirement of any shares of the Company's Capital Stock by exchange for, or
out of the proceeds of the sale of shares of, its Capital Stock. (Art. 4,
Section 4.04).
Discharge Prior to Redemption or Maturity
If the Company at any time deposits with the Trustee money or U.S.
Government Obligations sufficient to pay principal and interest on the
Debentures prior to their redemption or maturity, the Company will be discharged
from the Indenture, provided certain other conditions specified in the Indenture
are satisfied. In the event of such deposit, which is irrevocable, Debenture
Holders must look only to the deposited money and securities for payment. U.S.
Government Obligations are securities backed by the full faith and credit of the
United States. (Art. 8, Section 8.01(2)).
Access of Information to Security Holders
Debenture Holders may obtain from the Trustee information necessary to
communicate with other Debenture Holders. Upon written application to the
Trustee by any three or more Debenture Holders stating that such Debenture
Holders desire to communicate with other Debenture Holders with respect to their
rights under the Indenture or under the Debentures, and upon providing the
Trustee with the form of proxy or other communication which the Debenture
Holders propose to transmit, and upon receipt by the Trustee from the Debenture
Holders of reasonable proof that each such Debenture Holder has owned a
Debenture for a period of at least six months preceding the date of such
application, the Trustee shall, within five business days after the receipt of
such information, either (a) provide the applicant Debenture Holders access to
all information in the Trustee's possession with respect to the names and
addresses of the Debenture Holders; or (b) provide the applicant Debenture
Holders with information as to the number of Debenture Holders and the
approximate cost of mailing to such Debenture Holders the form of proxy or other
communication, if any, specified in the applicant Debenture Holders'
application, and upon written request from such applicant Debenture
49
<PAGE>
Holders and receipt of the material to be mailed and of payment, the Trustee
shall mail to all the Debenture Holders copies of the from of proxy or other
communication so specified in the request. (Art. 2, Section 2.08).
Compliance with Conditions and Covenants
Upon any request by the Company to the Trustee to take any action under
the Indenture, the Company is required to furnish to the Trustee (i) an
officers' certificate of the Company stating that all conditions and covenants
in the Indenture relating to the proposed action have been complied with and
(ii) an opinion of counsel stating that, in the opinion of such counsel, all
such conditions and covenants have been complied with. (Art. 11, Sec. 11.03).
Amendment, Supplement and Waiver
Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented, and compliance by the Company with any provision of the
Indenture or the Debentures may be waived, with the consent of the holders of a
majority in principal amount of the Debentures outstanding. Without notice to or
consent of any holders of Debentures, the Company may amend or supplement the
Indenture or the Debentures to cure any ambiguity, omission, defect or
inconsistency, or to make any change that does not adversely affect the rights
of any holders of Debentures. However, without the consent of each holder of
Debentures affected, an amendment, supplement or waiver may not reduce the
amount of Debentures whose holders must consent to an amendment, supplement or
waiver, reduce the rate or extend the time for payment of interest on any
Debentures (except that the payment of interest on Debentures may be postponed
for a period not exceeding three years from its due date with the consent of
holders of not less than 75% in principal amount of Debentures at the time
outstanding, which consent shall be binding upon all holders), reduce the
principal of or extend the fixed maturity of any Debentures, make any Debentures
payable in money other than that stated in the Indenture, make any change in the
subordination provisions of the Indenture that adversely affects the rights of
any holder of Debentures or waive a default in the payment of principal of or
interest on, or other redemption payment on any Debentures. (Art. 9, Sec. 9.02).
Defaults and Remedies
Each of the following is an "Event of Default" under the Indenture: (a)
failure by the Company to pay any principal on the Debentures when due; (b)
failure by the Company to pay any interest installment on the Debentures within
thirty days after the due date; (c) failure to perform any other covenant or
agreement of the Company made in the Indenture or the Debentures, continued for
sixty days after receipt of notice thereof from the Trustee or the holders of at
least 25% in principal amount of the Debentures; and (d) certain events of
bankruptcy, insolvency or reorganization. (Art. 6, Sec. 6.01). If an Event of
Default (other than those described in clause (d) above) occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the Debentures, by notice to the Company, may declare the principal of and
accrued interest on all of the Debentures to be due and payable immediately. If
an Event of Default of the type described in clause (d) above occurs, all unpaid
principal and accrued interest on the Debentures shall automatically become due
and payable without any declaration or other act on the part of the Trustee or
any holder. (Art. 6, Sec. 6.02). Holders of Debentures may not enforce the
Indenture or the Debentures except as provided in the Indenture. The Trustee may
refuse to enforce the Indenture or the Debentures unless it receives indemnity
and security satisfactory to it. Subject to certain limitations, the holders of
a majority in principal amount of the Debentures may direct the Trustee in its
exercise of any trust or power conferred on the Trustee, and may rescind an
acceleration of the Debentures. The Trustee may withhold from holders of
Debentures notice of any continuing default (except a default in payment of
principal or interest) if it determines that withholding notice is in their
interest. (Art. 6, Secs. 6.05 and 6.06).
The Indenture requires the Company to furnish to the Trustee an annual
statement, signed by specified officers of the Company, stating whether or not
such officers have knowledge of any Default under the Indenture, and, if so,
specifying each such Default and the nature thereof. (Art. 4, Sec. 4.03).
Federal Income Tax Consequences
Holders of the Debentures are required to include in their income for
federal income tax purposes all of the accrued but unpaid interest for each
taxable year, since such amounts constitute interest income within the meaning
of the applicable provisions of the Internal Revenue Code of 1986, as amended to
date (the "Code"). As a result, such debenture holders are required to pay taxes
on interest which has accrued, although such interest will not be paid until
maturity of the Debenture.
50
<PAGE>
Interest payments received by holders of Debentures who have elected to
received quarterly payments of interest will be includable in the income of such
holders for federal income tax purposes for the taxable year in which the
interest was received, except with respect to the payment of accrued interest
that has been included in their income in prior years.
Holders who hold the Debentures for investment purposes should treat
all reportable interest (whether actually received or accrued) as portfolio
income under applicable code provisions.
The Company's deposit of funds with the Trustee to effect the discharge
of the Company's obligations under the Debentures and the Indenture prior to
redemption or maturity of the Debentures, will have no effect on the amount of
income realized or recognized (gain or loss) by the Debenture Holders or the
timing of recognition of gain or loss for federal income tax purposes.
PLAN OF DISTRIBUTION
The Company's Warrants are not exercisable and its Debentures are not
convertible unless the Company has a current prospectus covering the shares
issuable upon exercise of the Warrants or conversion of the Debentures and this
prospectus covers those shares.
With respect to the shares of Class A Common Stock and Class B Common
Stock issuable upon exercise of the Warrants, those shares shall be issued by
the Company, from time to time, upon exercise by the holders thereof of the
Warrants. Shares of Class A Common Stock or Class B Common Stock may be
purchased by the holders of Warrants only by mailing or delivering a completed
and duly executed Election to Purchase Form which is on the reverse side of the
Warrant Certificate, together with payment of the then applicable exercise price
per share for each warrant surrendered to the Bank of New York, the Company's
warrant agent, prior to expiration of the warrant. Payment may be made in
certified funds, cashier check, bank draft or bank check, payable to the order
of the Warrant Agent. All funds received by the Warrant Agent from the exercise
of warrants will be forwarded to the Company.
With respect to the shares of Class A Common Stock issuable upon
conversion of the Debentures, those shares will be issued upon written notice to
the Company at the office maintained for that purpose and delivery of the
certificate representing the Debentures to be converted.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Harris Beach & Wilcox LLP, Rochester, New York.
EXPERTS
The consolidated balance sheets of Intervest Bancshares Corporation and
Subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of earnings, changes in stockholders' equity and cash flows for the
years then ended included in this Prospectus, have been included herein in
reliance on the report of Hacker, Johnson, Cohen & Grieb PA, Tampa, Florida,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
51
<PAGE>
Index to Financial Statements
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
Supplemental Disclosures (page F-2)
Independent Auditors' Report (page F-3)
Consolidated Balance Sheets as of December 31, 1999 and 1998 (page F-4)
Consolidated Statements of Earnings for the Years Ended December 31, 1999 and
1998 (page F-5)
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1999 and 1998 (page F-6)
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999 and
1998 (page F-7)
Notes to Consolidated Financial Statements (pages F-8 to F-28)
F - 1
<PAGE>
Supplementary Data
Securities
The following table sets forth, by maturity distribution, information pertaining
to securities held to maturity:
<TABLE>
<CAPTION>
After One Year to After Five Years to
One Year or Less Five Years Ten Years Total
---------------- ---------- --------- -----
Carrying Avg. Carrying Avg. Carrying Avg. Carrying Avg.
($ in thousands) Value Yield Value Yield Value Yield Value Yield
- ---------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At December 31, 1999:
- ---------------------
U.S. Government
agencies securities $ 7,907 5.72% $58,013 5.65% $17,212 6.36% $83,132 5.80%
At December 31, 1998:
- ---------------------
U.S. Treasury securities $ 2,015 6.03% $ - - % $ - - % $ 2,015 6.03%
U.S. Government
agencies securities - - 61,060 5.80 19,263 6.18 80,323 5.89
- ---------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total $ 2,015 6.03% $61,060 5.80% $19,263 6.18% $82,338 5.89%
- ---------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
At December 31, 1997:
- ---------------------
U.S. Treasury securities $ 1,996 6.10% $ 2,031 6.03% $ - - % $ 4,027 6.06%
U.S. Government
agencies securities 11,173 6.08 30,859 6.23 12,762 6.46 54,794 6.28
- ---------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total $13,169 6.08% $32,890 6.21% $12,762 6.46% $58,821 6.24%
- ---------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
Loans and Allowance for Loan Loss Reserves
- ------------------------------------------
The following table sets forth information with respect to the composition of
loans receivable at December 31:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Carrying Carrying Carrying Carrying Carrying
($ in thousands) Value Value Value Value Value
- ------------------------------------------------- ------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Commercial real estate and multifamily loans $146,101 $92,535 $71,173 $54,151 $29,384
Residential 1-4 family loans 2,413 2,627 3,162 2,784 3,046
Construction loans - - 158 47 335
Commercial loans 1,783 2,875 2,641 3,514 4,391
Consumer loans 266 184 92 157 115
- ------------------------------------------------- ------------- ------------- ------------ ------------ -------------
Total gross loans receivable 150,563 98,221 77,226 60,653 37,271
- ------------------------------------------------- ------------- ------------- ------------ ------------ -------------
Deferred loan fees and unamortized discounts (916) (485) (401) (343) (213)
Allowance for loan loss reserves (2,493) (1,662) (1,173) (811) (593)
- ------------------------------------------------- ------------- ------------- ------------ ------------ -------------
Loans receivable, net $147,154 $96,074 $75,652 $59,499 $36,465
- ------------------------------------------------- ------------- ------------- ------------ ------------ -------------
Loans included above that were
on a nonaccrual status at year end $ - $ - $ - $ - $ -
- ------------------------------------------------- ------------- ------------- ------------ ------------ -------------
</TABLE>
The following table sets forth information with respect to the allowance for
loan loss reserves at December 31:
<TABLE>
<CAPTION>
($ in thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------- ------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Allowance at beginning of year $ 1,662 $ 1,173 $ 811 $ 593 $ 369
Provision charged to operations 830 479 352 250 233
Chargeoffs - - - (65) (30)
Recoveries 1 10 10 33 21
- ------------------------------------------------- ------------- ------------- ------------ ------------ -------------
Allowance at end of year $ 2,493 $ 1,662 $ 1,173 $ 811 $ 593
- ------------------------------------------------- ------------- ------------- ------------ ------------ -------------
Total loans, net of deferred fees and discounts $149,647 $97,736 $76,825 $60,310 $37,058
Average loans outstanding for the year $110,006 $90,470 $68,711 $49,266 $28,052
Net chargeoffs (recoveries) to average loans
outstanding during the year -% -% - 0.06% 0.03%
Ratio of allowance to net loans receivable 1.67% 1.70% 1.53% 1.34% 1.60%
- ------------------------------------------------- ------------- ------------- ------------ ------------ -------------
</TABLE>
F-2
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
Intervest Bancshares Corporation
New York, New York:
We have audited the accompanying consolidated balance sheets of
Intervest Bancshares Corporation and Subsidiaries (the "Company") at
December 31, 1999 and 1998 and the related consolidated statements of
earnings, changes in stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
fairly present, in all material respects, the financial position of the
Company at December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for organizational and
preopening costs. Effective January 1, 1999, the Company adopted AICPA
Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities."
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
January 14, 2000, except for Note 23, as
to which the date is March 10, 2000
F-3
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
As of December 31,
------------ -------------
($ in thousands, except par value) 1999 1998
--------------------------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
ASSETS
Cash and due from banks $3,138 $ 2,876
Federal funds sold 3,900 6,473
Short-term investments 291 4,123
------------ -------------
Total cash and cash equivalents 7,329 13,472
Interest-bearing deposits with banks 100 199
Securities held to maturity, net (estimated fair value of
$79,882 and $82,173, respectively) 83,132 82,338
Federal Reserve Bank stock, at cost 508 233
Loans receivable (net of allowance for loan loss reserves of
$2,493 and $1,662, respectively) 147,154 96,074
Accrued interest receivable 1,836 1,800
Premises and equipment, net 5,767 4,917
Deferred income tax asset 912 579
Other assets 1,091 910
--------------------------------------------------------------------------------------- ------------ -------------
Total assets $247,829 $200,522
--------------------------------------------------------------------------------------- ------------ -------------
LIABILITIES
Deposits:
Noninterest-bearing demand deposit accounts $ 4,347 $ 3,027
Interest-bearing deposit accounts:
Checking (NOW) accounts 6,636 7,955
Savings accounts 19,089 26,823
Money-market accounts 54,302 33,629
Certificate of deposit accounts 122,794 99,033
------------ -------------
Total deposit accounts 207,168 170,467
Federal funds purchased 6,955 -
Convertible subordinated debentures payable 6,930 7,000
Accrued interest payable on debentures 892 299
Mortgage escrow funds payable 1,521 870
Official checks outstanding 1,821 1,572
Other liabilities 1,078 747
--------------------------------------------------------------------------------------- ------------ -------------
Total liabilities 226,365 180,955
--------------------------------------------------------------------------------------- ------------ -------------
Minority interest - 23
Commitments and contingencies (notes 5, 16, 18 and 22)
STOCKHOLDERS' EQUITY
Preferred stock (300,000 shares authorized, none issued) - -
Class A common stock ($1.00 par value, 7,500,000 shares authorized,
2,281,879 and 2,184,515 shares issued and outstanding, respectively) 2,282 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 14,411 13,789
Retained earnings 4,466 3,271
--------------------------------------------------------------------------------------- ------------ -------------
Total stockholders' equity 21,464 19,544
--------------------------------------------------------------------------------------- ------------ -------------
Total liabilities and stockholders' equity $247,829 $200,522
--------------------------------------------------------------------------------------- ------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
For the Year Ended
December 31,
---------------------------
($ in thousands, except per share data) 1999 1998
-------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans receivable $ 9,691 $ 8,278
Securities 4,873 4,224
Other interest-earning assets 494 432
-------------------------------------------------------------------------------------- ------------- -------------
Total interest and dividend income 15,058 12,934
-------------------------------------------------------------------------------------- ------------- -------------
INTEREST EXPENSE
Deposits 8,812 7,977
Federal funds purchased 29 1
Convertible subordinated debentures 637 319
-------------------------------------------------------------------------------------- ------------- -------------
Total interest expense 9,478 8,297
-------------------------------------------------------------------------------------- ------------- -------------
Net interest and dividend income 5,580 4,637
Provision for loan loss reserves 830 479
-------------------------------------------------------------------------------------- ------------- -------------
Net interest and dividend income after provision for loan loss reserves 4,750 4,158
-------------------------------------------------------------------------------------- ------------- -------------
NONINTEREST INCOME
Customer service fees 140 139
Income from lending activities 259 195
Net gain on sale of loans 56 -
All other 1 15
-------------------------------------------------------------------------------------- ------------- -------------
Total noninterest income 456 349
-------------------------------------------------------------------------------------- ------------- -------------
NONINTEREST EXPENSES
Salaries and employee benefits 1,523 1,056
Occupancy and equipment, net 782 467
Advertising and promotion 33 31
Professional fees and services 230 225
Stationery, printing and supplies 145 98
All other 452 256
-------------------------------------------------------------------------------------- ------------- -------------
Total noninterest expenses 3,165 2,133
-------------------------------------------------------------------------------------- ------------- -------------
Earnings before income taxes and change in accounting principle 2,041 2,374
Provision for income taxes 718 939
Cumulative effect of change in accounting principle (note 1) (128) -
-------------------------------------------------------------------------------------- ------------- -------------
Net earnings $ 1,195 $ 1,435
-------------------------------------------------------------------------------------- ------------- -------------
Basic earnings per share:
Earnings before change in accounting principle $ 0.53 $ 0.58
Cumulative effect of change in accounting principle (0.05) -
-------------------------------------------------------------------------------------- ------------- -------------
Net earnings per share $ 0.48 $ 0.58
-------------------------------------------------------------------------------------- ------------- -------------
Diluted earnings per share:
Earnings before change in accounting principle $ 0.48 $ 0.46
Cumulative effect of change in accounting principle (0.05) -
-------------------------------------------------------------------------------------- ------------- -------------
Net earnings per share $ 0.43 $ 0.46
-------------------------------------------------------------------------------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
For the Year Ended
December 31,
---------------------------
($ in thousands) 1999 1998
-------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
CLASS A COMMON STOCK
Balance at beginning of year $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 89,300 and 60,100 shares, respectively, upon the
exercise of warrants 90 60
-------------------------------------------------------------------------------------- ------------- -------------
Balance at end of year 2,282 2,184
-------------------------------------------------------------------------------------- ------------- -------------
CLASS B COMMON STOCK
Balance at beginning of year 300 300
Issuance of 5,000 shares upon the exercise of warrants 5 -
-------------------------------------------------------------------------------------- ------------- -------------
Balance at end of year 305 300
-------------------------------------------------------------------------------------- ------------- -------------
ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of year 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 26 43
Issuance of 94,300 and 60,100 shares upon exercise of stock warrants,
including tax benefits 534 386
-------------------------------------------------------------------------------------- ------------- -------------
Balance at end of year 14,411 13,789
-------------------------------------------------------------------------------------- ------------- -------------
RETAINED EARNINGS
Balance at beginning of year 3,271 1,836
Comprehensive income - net earnings for the year 1,195 1,435
-------------------------------------------------------------------------------------- ------------- -------------
Balance at end of year 4,466 3,271
-------------------------------------------------------------------------------------- ------------- -------------
-------------------------------------------------------------------------------------- ------------- -------------
Total stockholders' equity at end of year $21,464 $19,544
-------------------------------------------------------------------------------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended
December 31,
------------
--------------------------------
($ in thousands) 1999 1998
--------------------------------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 1,195 $ 1,435
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 410 337
Provision for loan loss reserves 830 479
Deferred income tax benefit (333) (94)
Interest expense on debentures 637 319
Compensation expense related to stock warrants 26 43
Gain on sale of loans (56) -
Amortization of premiums, fees and discounts, net (281) (218)
Increase in official checks outstanding 249 853
Decrease (increase) in all other assets and liabilities, net 561 (575)
--------------------------------------------------------------------------------- ---------------- ---------------
Net cash provided by operating activities 3,238 2,579
--------------------------------------------------------------------------------- ---------------- ---------------
INVESTING ACTIVITIES
Decrease (increase) in interest-earning deposits 99 (100)
Maturities and calls of securities held to maturity 32,556 50,050
Purchases of securities held to maturity (33,278) (73,650)
Loan originations, net of principal repayments (57,812) (20,657)
Sale of loans 5,660 -
Purchases of Federal Reserve Bank stock, net (275) -
Purchases of premises and equipment, net (1,260) (377)
--------------------------------------------------------------------------------- ---------------- ---------------
Net cash used by investing activities (54,310) (44,734)
--------------------------------------------------------------------------------- ---------------- ---------------
FINANCING ACTIVITIES
Net increase in demand, savings, NOW and money-market deposits 12,940 33,645
Net increase in certificates of deposit 23,761 5,655
Net increase in mortgage escrow funds payable 651 280
Net proceeds from federal funds purchased 6,955 -
Net proceeds from sale of convertible debentures - 6,457
Net proceeds from issuance of common stock 622 414
--------------------------------------------------------------------------------- ---------------- ---------------
Net cash provided by financing activities 44,929 46,451
--------------------------------------------------------------------------------- ---------------- ---------------
Net (decrease) increase in cash and cash equivalents (6,143) 4,296
Cash and cash equivalents at beginning of year 13,472 9,176
--------------------------------------------------------------------------------- ---------------- ---------------
Cash and cash equivalents at end of year $ 7,329 $ 13,472
--------------------------------------------------------------------------------- ---------------- ---------------
SUPPLEMENTAL DISCLOSURES Cash paid during the year for:
Interest $ 8,741 $ 7,929
Income taxes 1,209 849
Noncash activities:
Conversion of Debentures into Class A common stock 70 -
Issuance of common stock in exchange for common stock of minority
stockholders of Intervest Bank 7 -
--------------------------------------------------------------------------------- ---------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Intervest Bancshares Corporation (the "Holding Company") was
incorporated on February 5, 1993 and is headquartered in New York City.
At December 31, 1999, the Holding Company owns 100% of the outstanding
common and preferred stock of Intervest Bank and 100% of the oustanding
common stock of Intervest National Bank. Hereafter, the Holding
Company, Intervest Bank and Intervest National Bank are referred to
collectively as the "Company," on a consolidated basis. The Holding
Company's primary business is the ownership of Intervest Bank and
Intervest National Bank (the "Banks.")
Intervest National Bank is a full-service commercial bank located at
One Rockefeller Plaza, Suite 300, New York, New York, 10020. It
received its national charter from the Office of the Comptroller of the
Currency and opened for business on April 1, 1999. Intervest Bank is a
Florida state-chartered commercial bank with four banking offices in
Clearwater, Florida and one in South Pasadena, Florida. Each Bank
conducts a full-service commercial banking business, which consists of
attracting deposits from the general public and investing those funds,
together with other source of funds, primarily through the origination
of commercial and multifamily real estate loans, and through the
purchase of security investments. Intervest National Bank also provides
Internet banking services at its Web Site www.intervestnatbank.com.
Principles of Consolidation, Basis of Presentation and Use of Estimates
The consolidated financial statements include the accounts of the
Holding Company and the Banks. All significant intercompany balances
and transactions have been eliminated in consolidation. Certain
reclassifications have been made to prior year amounts to conform to
the current year's presentation. The accounting and reporting policies
of the Company conform to generally accepted accounting principles and
to general practices within the banking industry.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent
liabilities, as of the date of the financial statements and revenues
and expenses during the reporting periods. Actual results could differ
from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the
determination of the allowance for loan loss reserves.
Cash Equivalents
For purposes of the statements of cash flows, cash equivalents include
Federal funds sold and short-term investments. Federal funds are
generally sold for one-day periods and short-term investments have
maturities of three months or less.
Securities
Securities for which the Company has the ability and intent to hold
until maturity are classified as securities held to maturity and are
carried at cost, adjusted for accretion of any discounts and
amortization of premiums, which are recognized into interest income
using the interest method over the period to maturity. Securities that
are held for indefinite periods of time which management intends to use
as part of its asset/liability management strategy, or that may be sold
in response to changes in interest rates or other factors, are
classified as available for sale and are carried at fair value.
Unrealized gains and losses, net of related income taxes, are reported
as a separate component of comprehensive income. Realized gains and
losses from sales are determined using the specific identification
method.
F-8
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. Description of Business and Summary of Significant Accounting Policies,
Continued
Loans Receivable
Loans that the Company has the intent and ability to hold for the
foreseeable future or until maturity or satisfaction are carried at
their outstanding principal net of chargeoffs, the allowance for loan
loss reserves, unamortized discounts and deferred loan origination fees
or costs. Loan origination and commitment fees, net of certain costs,
are deferred and amortized to interest income as an adjustment to the
yield of the related loans over the contractual life of the loans using
the interest method. When a loan is paid off or sold, or if a
commitment expires unexercised, any unamortized net deferred amount is
credited or charged to earnings as appropriate.
Loans are placed on nonaccrual status when principal or interest
becomes 90 days or more past due. Accrued interest receivable
previously recognized is reversed when a loan is placed on nonaccrual
status. Amortization of net deferred fee income is discontinued for
loans placed on nonaccrual status. Interest payments received on loans
in nonaccrual status are recognized as income on a cash basis unless
future collections of principal are doubtful, in which case the
payments received are applied as a reduction of principal. Loans remain
on nonaccrual status until principal and interest payments are current.
Allowance for Loan Loss Reserves
The allowance for loan loss reserves is netted against loans receivable
and is increased by provisions charged to operations and decreased by
chargeoffs (net of recoveries). The adequacy of the allowance is
evaluated monthly with consideration given to: the nature and volume of
the loan portfolio; overall portfolio quality; loan concentrations;
specific problem loans and commitments and estimates of fair value
thereof; historical chargeoffs and recoveries; adverse situations which
may affect the borrowers' ability to repay; and management's perception
of the current and anticipated economic conditions in the Company's
lending areas. In addition, SFAS No. 114 specifies the manner in which
the portion of the allowance for loan loss reserves is computed related
to certain loans that are impaired. A loan is normally deemed impaired
when, based upon current information and events, it is probable the
Company will be unable to collect both principal and interest due
according to the contractual terms of the loan agreement. Impaired
loans normally consist of loans on nonaccrual status. Interest income
on impaired loans is recognized on a cash basis. Impairment for
commercial real estate and residential loans is measured based on: the
present value of expected future cash flows, discounted at the loan's
effective interest rate; or the observable market price of the loan; or
the estimated fair value of the loan's collateral, if payment of the
principal and interest is dependent upon the collateral.
When the fair value of the property is less than the recorded
investment in the loan, this deficiency is recognized as a valuation
allowance within the overall allowance for loan loss reserves and a
charge through the provision for loan losses. The Company normally
charges off any portion of the recorded investment in the loan that
exceeds the fair value of the collateral. The net carrying amount of an
impaired loan does not at any time exceed the recorded investment in
the loan.
Lastly, the Company's regulators, as an integral part of their
examination process, periodically review the allowance for loan loss
reserves. Accordingly, the Company may be required to take certain
chargeoffs and/or recognize additions to the allowance based on the
regulators' judgment concerning information available to them during
their examination.
F-9
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. Description of Business and Summary of Significant Accounting Policies,
Continued
Premises and Equipment
Land is carried at cost. Buildings, leasehold improvements and
furniture, fixtures and equipment are carried at cost, less accumulated
depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful life of the asset.
Leasehold improvements are amortized using the straight-line method
over the terms of the related leases, or the useful life of the asset,
whichever is shorter. Maintenance, repairs and minor improvements are
charged to operating expense as incurred, while major improvements are
capitalized.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," establishes a "fair value" based method of
accounting for stock-based compensation plans and encourages all
entities to adopt that method of accounting for all their stock-based
compensation plans. However it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic
value-based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company has elected to follow APB No. 25 and related interpretations in
accounting for its stock-based compensation, which is in the form of
stock warrants. Statement 123 requires pro forma disclosures of net
earnings and earnings per share determined as if the Company accounted
for its stock warrants under the fair value method.
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
Under SFAS No. 109, "Accounting for Income Taxes," deferred tax assets
and liabilities are recognized for the estimated future tax
consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax law or rates is recognized in income in the period
that includes the enactment date of change. A valuation allowance is
recorded if it is more likely than not that some portion or all of the
deferred tax assets will not be realized based on a review of available
evidence.
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 and dilutive
potential common stock shares that may be outstanding in the future.
Potential common stock shares consist of outstanding dilutive common
stock warrants (which are computed using the "treasury stock method")
and convertible debentures (computed using 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 earnings
(as adjusted for interest expense that would no longer occur if the
debentures were converted).
F-10
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. Description of Business and Summary of Significant Accounting Policies,
Continued
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan
foreclosure are to be sold. Upon foreclosure of the property, the
related loan is transferred from the loan portfolio to foreclosed real
estate at the lower of the loan's carrying value at the date of
transfer, or estimated fair value of the property less estimated
selling costs. Such amount becomes the new cost basis of the property.
Adjustments made to the carrying value at the time of transfer are
charged to the allowance for loan loss reserves. After foreclosure,
management periodically performs market valuations and the real estate
is carried at the lower of cost or estimated fair value less estimated
selling costs. Revenue and expenses from operations and changes in the
valuation allowance of the property are included in the consolidated
statement of earnings.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Company enters into off-balance
sheet financial instruments consisting of commitments to extend credit,
unused lines of credit and standby letters of credit. Such financial
instruments are recorded in the consolidated financial statements when
they are funded or related fees are incurred or received.
Recent Accounting Pronouncements
Accounting for Start-Up Costs. 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.
Accounting for Derivative Instruments and Hedging Activities. 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.
Since the Company does not currently use derivative financial
instruments, the standard will not have any impact on the Company's
financial statements when adopted.
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. On January 1, 1999 the Company adopted the AICPA's SOP
98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The SOP, among other things, provides
guidance as to when and what types of costs should be capitalized as it
relates to internal-use software. The adoption of this statement did
not have any impact on the Company's financial statements.
F-11
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
2. Securities Held To Maturity
The carrying and estimated fair values of securities held to maturity
are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
($ in thousands) Cost Gains Losses Value
---------------------------------------------- ------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
At December 31, 1999:
U.S. Government agency securities $83,132 $ 1 $3,251 $79,882
---------------------------------------------- ------------- ------------- -------------- ------------
At December 31, 1998:
U.S. Treasury securities $ 2,015 $ 15 $ - $ 2,030
U.S. Government agency securities 80,323 186 366 80,143
---------------------------------------------- ------------- ------------- -------------- ------------
$82,338 $201 $ 366 $82,173
---------------------------------------------- ------------- ------------- -------------- ------------
</TABLE>
At December 31, 1999 and 1998, the securities portfolio was comprised
of securities with fixed rates of interest. The weighted-average yield
of the portfolio was approximately 5.80% at December 31, 1999 and 5.89
% at December 31, 1998. At December 31, 1999 and 1998, U.S Government
agency securities consisted of debt obligations of the Federal Home
Loan Bank, Federal Farm Credit Bank and Federal National Mortgage
Association. There were no sales of securities or transfers of
securities to an available for sale account during the years ended
December 31, 1999 and 1998.
The carrying and estimated fair values of securities held to maturity
at December 31, 1999, by remaining term to contractual maturity are
summarized as follows:
<TABLE>
<CAPTION>
Amortized Estimated Fair
($ in thousands) Cost Value
--------------------------------------------- ------------------ -----------------
<S> <C> <C>
Due in one year or less $ 7,907 $ 7,908
Due after one year through five years 58,013 55,708
Due after five years through ten years 17,212 16,266
--------------------------------------------- ------------------ -----------------
$83,132 $79,882
--------------------------------------------- ------------------ -----------------
</TABLE>
3. Loans Receivable
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
-------------------- - --------------------
($ in thousands) # of loans Amount # of loans Amount
----------------------------------------------- ----------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
Commercial real estate loans 101 $ 78,425 95 $68,828
Residential multifamily loans 96 67,478 51 23,707
Residential 1-4 family loans 44 2,311 47 2,627
Commercial loans 42 2,107 49 2,875
Consumer loans 24 242 17 184
----------------------------------------------- ----------- ------------- ------------ ----------------
Loans receivable 307 150,563 259 98,221
----------------------------------------------- ----------- ------------- ------------ ----------------
Deferred loan fees (916) (485)
Allowance for loan loss reserves (2,493) (1,662)
----------------------------------------------- ----------- ------------- ------------ ----------------
Loans receivable, net $147,154 $96,074
----------------------------------------------- ----------- ------------- ------------ ----------------
</TABLE>
At December 31, 1999 and 1998, there were no loans held for sale.
F-12
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
3. Loans Receivable, Continued
The geographic distribution of the loan portfolio is summarized as
follows:
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
-------------------- --------------------
($ in thousands) Amount % of Total Amount % of Total
---------------------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Florida $92,255 61.3% $82,167 83.7%
New York 54,143 36.0 16,054 16.3
All other 4,165 2.7 - -
---------------------------------- ----------- ------------- ------------ -------------
$150,563 100.0% $98,221 100.0%
---------------------------------- ----------- ------------- ------------ -------------
</TABLE>
Credit risk, which represents the possibility of the Company not
recovering amounts due from its borrowers, is significantly related to
local economic conditions as well as the Company's underwriting
standards. Economic conditions affect the income levels of borrowers
and the market value of the underlying collateral. In addition,
although commercial real estate and multifamily loans typically bear
higher interest rates than 1-4 family residential loans, they entail
certain risks not normally found in 1-4 family residential mortgage
lending. Commercial real estate and multifamily loans usually involve
larger loans to single borrowers. In addition, satisfactory payment
experience on loans secured by income-producing properties (such as
office buildings, shopping centers and rental and cooperative apartment
buildings) is largely dependent on high levels of occupancy. Thus,
these loans are more subject to adverse conditions in the real estate
market and economy or specific conditions at or in the vicinity of the
property's location.
4. Allowance for Loan Loss Reserves
Activity in the allowance for loan loss reserves is summarized as
follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
($ in thousands) 1999 1998
-------------------------------------------------- ---------------- -------------------
<S> <C> <C>
Balance at beginning of year $1,662 $1,173
Provision charged to operations 830 479
Recoveries 1 10
-------------------------------------------------- ---------------- -------------------
Balance at end of year $2,493 $1,662
-------------------------------------------------- ---------------- -------------------
</TABLE>
There were no loans on nonaccrual status or classified as impaired
during the years ended December 31, 1999 or 1998.
5. Premises and Equipment, Lease Commitments and Rental Expense
Premises and equipment is summarized as follows:
<TABLE>
<CAPTION>
At December 31,
---------------
($ in thousands) 1999 1998
------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Land $ 1,264 $1,264
Buildings 4,016 3,419
Leasehold improvements 324 136
Furniture, fixtures and equipment 1,765 1,289
------------------------------------------------------- --------------- ---------------
Total cost 7,369 6,108
------------------------------------------------------- --------------- ---------------
Less accumulated deprecation and amortization (1,602) (1,191)
------------------------------------------------------- --------------- ---------------
Net book value $ 5,767 $ 4,917
------------------------------------------------------- --------------- ---------------
</TABLE>
F-13
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
5. Premises and Equipment, Lease Commitments and Rental Expense, Continued
Intervest Bank leases its Belcher Road office and Intervest National
Bank leases its New York office. The leases, which contain operating
escalation clauses based upon various criteria, are accounted for as
operating leases expiring in June 2007 and May 2008, respectively.
The Company's future minimum annual lease rental payments under
noncancellable operating leases at December 31, 1999, aggregated as
follows: $354,000 in 2000; $357,000 in 2001; $360,000 in 2002; $363,000
in 2003; $394,000 in 2004; and $1,358,000 thereafter. The Company's
rental expense aggregated $284,000 and $94,000, for 1999 and 1998,
respectively.
Intervest Bank subleases certain of its space to other companies under
leases that expire at various times through August 2007. Future
sublease rental income at December 31, 1999 aggregated as follows:
$319,000 in 2000; $246,000 in 2001; $223,000 in 2002; $198,000 in 2003;
$197,000 in 2004; and $464,000 thereafter. Sublease rental income
aggregated $338,000 for 1999 and 1998, respectively.
6. Deposits
Scheduled maturities of certificates of deposit accounts are summarized
as follows:
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
-------------------- --------------------
Wtd-Avg Wtd-Avg
($ in thousands) Amount Stated Rate Amount Stated Rate
----------------------------- -------------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
Within one year $75,815 5.56% $55,130 5.36%
Over one to two years 18,992 5.77 17,052 5.90
Over two to three years 12,148 6.03 10,153 6.00
Over three to four years 5,288 5.84 10,576 6.06
Over four years 10,551 6.32 6,122 5.85
----------------------------- -------------- --------------- ----------- --------------
$122,794 5.72% $99,033 5.62%
----------------------------- -------------- --------------- ----------- --------------
</TABLE>
Certificates of deposit accounts of $100,000 or more totaled
$18,240,000 and $10,962,000 at December 31, 1999 and 1998,
respectively. At December 31, 1999, certificates of deposit accounts of
$100,000 or more by remaining maturity were as follows: due within one
year $12,587,000; over one to two years $2,568,000 over two to three
years $968,000; over three to four years $102,000; and over four years
$2,015,000.
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
($ in thousands) 1999 1998
---------------------------------------- ----------------- -------------------
<S> <C> <C>
Money-market and NOW accounts $2,222 $1,324
Savings accounts 1,066 832
Certificates of deposit accounts 5,524 5,821
---------------------------------------- ----------------- -------------------
$8,812 $7,977
---------------------------------------- ----------------- -------------------
</TABLE>
F-14
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
7. Convertible Debentures
In June 1998, the Holding Company sold Convertible Subordinated
Debentures (the "Debentures") in the aggregate principal amount of
$7,000,000 in a public offering. The proceeds from the sale, net of
underwriting discounts and other fees, amounted to approximately
$6,500,000. The Debentures are due July 1, 2008 and are convertible at
the option of the holders at any time prior to April 1, 2008, unless
previously redeemed by the Holding Company, into shares of Class A
common stock of the Holding Company at the following current conversion
prices per share: $10.00 in 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. The Holding Company has the right to establish conversion
prices that are less than those set forth above for such periods as it
may determine. On January 13, 1999, the conversion prices were adjusted
downward from those set at the original offering date to the prices
shown above.
The Holding Company also has the option at any time to call all or any
part of the Debentures for payment and redeem the same at any time
prior to maturity thereof. The redemption price for the Debentures is
the face amount plus a 1% premium if redemption occurs before July 1,
2000, or the face amount if the date of redemption is on or after July
1, 2000.
Interest on the Debentures will accrue and compound each calendar
quarter at 8%. All accrued interest is payable at the maturity of the
Debentures whether by acceleration, redemption or otherwise. Any
Debenture holder may, on or before July 1 of each year commencing July
1, 2003, elect to be paid all accrued interest and to thereafter
receive payments of interest quarterly.
During 1999, 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, which resulted in 7,554 shares of Class A common
stock being issued in connection with the conversions.
8. Other Borrowed Funds
From time to time, the Banks purchase Federal funds to manage
liquidity needs. At December 31, 1999, $6,955,000 of overnight Federal
funds were outstanding. These funds had an interest rate of 5.18%.
Intervest Bank also has agreements with correspondent banks whereby it
may borrow up to $8,000,000 on an unsecured basis. There were no
outstanding borrowings under these agreements at December 31, 1999 or
1998.
9. Stockholders' Equity
The Holding Company's Board of Directors is authorized to issue up to
300,000 shares of preferred stock of the Holding Company without
stockholder approval. The powers, preferences and rights, and the
qualifications, limitations, and restrictions thereof on any series of
preferred stock issued is determined by the Board of Directors. At
December 31, 1999 and 1998, there was no preferred stock issued and
outstanding.
Class A and B common stock have equal voting rights as to all matters,
except that, so long as at least 50,000 shares of Class B common stock
remain issued and outstanding, the holders of the outstanding shares of
Class B common stock are entitled to vote for the election of
two-thirds of the Board of Directors (rounded up to the nearest whole
number), and the holders of the outstanding shares of Class A common
stock are entitled to vote for the remaining Directors of the Holding
Company. The shares of Class B common stock are convertible, on a
share-for-share basis, into Class A common stock at any time after
January 1, 2000.
F-15
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
10. Asset and Dividend Restrictions
The Banks are required under Federal Reserve Board regulations to
maintain reserves, generally consisting of cash or noninterest-earning
accounts, against its transaction accounts. At December 31, 1999 and
1998, balances maintained as reserves were not material.
As a member of the Federal Reserve Banking system, the Banks must
maintain an investment in the capital stock of the Federal Reserve
Bank. At December 31, 1999 and 1998, such investment, which earns a
dividend, aggregated to $508,000 and $233,000, respectively. At
December 31, 1999, U.S. government agency securities with a carrying
value of $5,500,000 were pledged against Federal Funds Purchased. See
note 8 "Other Borrowed Funds."
The payment of dividends by the Holding Company and by the Banks to the
Holding Company is subject to various regulatory restrictions. These
restrictions take into consideration various factors such as whether
there are sufficient net earnings, as defined, liquidity, asset
quality, capital adequacy and economic conditions. Additionally, no
dividends may be declared or paid with respect to shares of Class B
common stock until January 1, 2000, after which time the holders of
Class A common stock and Class B common stock will share ratably in any
dividend. The Holding Company has never paid a common dividend to its
shareholders and currently has no intentions of paying a common
dividend.
11. Profit Sharing Plans
The Banks sponsor tax-qualified, profit sharing plans in accordance
with the provisions of Section 401(k) of the Internal Revenue Code.
Each plan is available to each Bank's employees who elect to
participate after meeting certain length-of-service requirements. The
Banks' contributions to the profit sharing plans are discretionary and
are determined annually. Total expense related to the contributions to
the plans included in the consolidated financial statements aggregated
$25,000 and $22,000 for 1999 and 1998, respectively.
12. Related Party Transactions
Intervest Bank has made loans to certain of its directors and their
related entities. The activity is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
($ in thousands) 1999 1998
--------------------------------------------- ------------- --------------
<S> <C> <C>
Balance at beginning of year $3,826 $3,242
Additions 25 868
Repayments (456) (284)
--------------------------------------------- ------------- --------------
Balance at end of year $3,395 $3,826
--------------------------------------------- ------------- --------------
</TABLE>
There are no loans to directors or officers of Intervest National Bank
and the Holding Company.
The Banks participate with Intervest Corporation of New York (ICNY) in
various mortgage loans. These loans amounted to $7,747,000 and $237,000
at December 31, 1999 and 1998, respectively. The Banks also have
deposit accounts from directors, executive officers and members of
their immediate families, ICNY and its affiliated companies totaling
approximately $9,800,000 at December 31, 1999, and approximately
$800,000 at December 31, 1998. The shareholders of ICNY are
shareholders, directors and officers of the Company. See note 23 with
respect to the acquisition of ICNY by the Company.
F-16
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
13. Common Stock Warrants
The Holding Company has common stock warrants outstanding, which
entitle the registered holders thereof to purchase one share of common
stock for each warrant. All warrants are exercisable when issued,
except for certain Class B common stock warrants issued in 1998. The
Holding Company's warrants have been issued in connection with public
stock offerings, to directors and employees of Intervest Bank and
directors of the Holding Company and to outside third parties for
performance of services.
Data concerning common stock warrants is summarized as follows:
<TABLE>
<CAPTION>
Exercise Price Per Warrant Total Wtd-Avg
Class A Common Stock Warrants: $6.67 $10.00 (1) $14.00 (2) Warrants Exercise Price
------------------------------------------- ------------ ------------ -------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Outstanding at December 31,1997 1,528,665 965,683 - 2,494,348 $ 7.96
Granted in 1998 - 20 122,020 122,000 $14.00
Exercised in 1998 (56,100) (4,000) - (60,100) $ 6.89
------------ ------------ -------------- -------------
Outstanding at December 31,1998 1,472,565 961,703 122,000 2,556,268 $ 8.27
Granted in 1999 - 1,000 - 1,000 $10.00
Exercised in 1999 (89,000) (300) - (89,300) $ 6.68
------------------------------------------- ------------ ------------ -------------- -------------
Outstanding at December 31,1999 1,383,565 962,403 122,000 2,467,968 $ 8.33
-------------------------------------------------------- ------------ -------------- -------------
Remaining contractual life in years
at December 31, 1999 3.4 3.0 3.0 3.2
-------------------------------------------------------- ------------ -------------- ------------- ------------------
<FN>
(1) These warrants entitle the holder to purchase one share of Class A
common stock at a price of $10.00 per share as of December 31, 1999;
$11.50 per share in 2000; $12.50 per share in 2001 and $13.50 per share
in 2002.
(2) These warrants entitle the holder to purchase one share of Class A
common stock at a price of $14.00 per share as of December 31, 1999;
$15.00 per share in 2000; $16.00 per share in 2001 and $17.00 per share
in 2002.
</FN>
</TABLE>
<TABLE>
Exercise Price Per Warrant
-------------------------- Total Wtd-Avg
Class B Common Stock Warrants: $6.67 $10.00 (1) Warrants Exercise Price
-------------------------------------------------------- ------------ -------------- ------------- ------------------
<S> <C> <C> <C> <C>
Outstanding at December 31,1997 150,000 - 150,000 $ 6.67
Granted in 1998 (1) - 50,000 50,000 $10.00
------------ -------------- -------------
Outstanding at December 31,1998 150,000 50,000 200,000 $ 7.50
Exercised in 1999 (5,000) - (5,000) $ 6.67
-------------------------------------------------------- ------------ -------------- -------------
Outstanding at December 31,1999 145,000 50,000 195,000 $ 7.52
-------------------------------------------------------- ------------ -------------- -------------
Remaining contractual life in years
at December 31, 1999 7.1 8.1 7.3
-------------------------------------------------------- ------------ -------------- ------------- ------------------
<FN>
(1) At December 31, 1999, 14,200 of these warrants were immediately
exercisable. An additional 7,100 warrants vest and become exercisable
on each April 27th of 2000, 2001, 2002, 2003 and the remaining 7,400 on
April 27, 2004. The warrants, which expire on January 31, 2008, become
fully vested earlier upon certain conditions.
</FN>
</TABLE>
The Company uses the intrinsic value-based method prescribed under APB
Opinion No. 25, "Accounting for Stock Issued to Employees," in
accounting for its stock warrants. Under this method, compensation
expense related to stock warrants is the excess, if any, of the market
price of the stock as of the grant date over the exercise price of the
warrant. The exercise price of the Class B warrants granted in 1998 was
below the market price of the common shares at the date of grant.
Therefore, in accordance with APB Opinion No. 25, approximately $26,000
and $43,000 was included in salaries and employee benefits expense for
1999 and 1998, respectively, in connection with these warrants. No
compensation expense was recorded related to the remaining stock
warrants granted in 1998 because their exercise prices were the same as
the market price of the common shares at the date of grant.
F-17
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
13. Common Stock Warrants, Continued
Had compensation expense been determined based on the estimated fair
value of the warrants at the grant date in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation," the Company's net
earnings and earnings per share would have been reduced to the pro
forma amounts as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
($ in thousands, except per share amounts) 1999 1998
--------------------------------------------------------------- --------------- -------------------
<S> <C> <C>
Reported net earnings $1,195 $1,435
Pro forma net earnings (1) $1,172 $1,146
Reported basic earnings per share $ 0.48 $ 0.58
Pro forma basic earnings per share $ 0.47 $ 0.47
Reported diluted earnings per share $ 0.43 $ 0.46
Pro forma diluted earnings per share $ 0.42 $ 0.38
--------------------------------------------------------------- --------------- -------------------
<FN>
(1) Pro forma net earnings for 1998 does not reflect the full
impact of calculating compensation expense related to Class B
stock warrants granted in 1998, since the total expense
calculated under SFAS No.123 is apportioned over the vesting
period of those warrants.
</FN>
</TABLE>
The per share weighted-average estimated fair value of 172,000 stock
warrants granted to employees and directors in 1998 was $3.63 on the
date of grant using the Black-Scholes option-pricing model. The
following weighted-average assumptions were used: no expected
dividends; expected life of 2.9 years, expected price volatility of 25%
and a 5.5% risk-free interest rate. For 1999, a fair value calculation
for the 1000 warrants issued was not performed because the impact was
not significant. The assumptions used are subjective in nature, involve
uncertainties and cannot be determined with precision.
14. Income Taxes
The Holding Company and its subsidiaries file a consolidated federal
income tax return on a calendar year basis. The Holding Company also
files consolidated income tax returns with Intervest National Bank in
New York State and New York City. In addition, the Holding Company also
files a state income tax return in New Jersey and a franchise tax
return in Delaware. Intervest Bank files a state income tax return in
Florida. At December 31, 1999 and 1998, the Company had a net deferred
tax asset of $912,000 and $579,000, respectively. The asset relates to
the unrealized benefit for: net temporary differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases that will result in future tax
deductions. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of such assets is dependent upon the generation of
sufficient taxable income during the periods in which those temporary
differences become deductible. Management believes that it is more
likely than not that the Company's deferred tax asset will be realized
and accordingly, a valuation allowance for deferred tax assets was not
maintained at any time during 1999 and 1998.
The total tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
($ in thousands) 1999 1998
--------------------------------------------------- ----------- ------------ -----------
<S> <C> <C>
Provision for income taxes $718 $939
Benefit from change in accounting principle (65) -
--------------------------------------------------- ----------- ------------ -----------
$653 $939
--------------------------------------------------- ----------- ------------ -----------
</TABLE>
F-18
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
14. Income Taxes, Continued
Allocation of federal, state and local income taxes between current and
deferred portions is as follows:
<TABLE>
<CAPTION>
($ in thousands) Current Deferred Total
-------------------------------------------- ----------- ------------ -----------
<S> <C> <C> <C>
Year Ended December 31, 1999:
Federal $ 839 $(267) $572
State and Local 147 (66) 81
-------------------------------------------- ----------- ------------ -----------
$ 986 $(333) $653
-------------------------------------------- ----------- ------------ -----------
Year Ended December 31, 1998:
Federal $ 815 $(80) $735
State and Local 218 (14) 204
-------------------------------------------- ----------- ------------ -----------
$1,033 $(94) $939
-------------------------------------------- ----------- ------------ -----------
</TABLE>
The components of deferred tax (benefit) expense are summarized as
follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
($ in thousands) 1999 1998
----------------------------------------------- ---------------- ---------------
<S> <C> <C>
Allowance for loan loss reserves $(262) $(185)
Organization and startup costs (99) -
Depreciation (3) (38)
Deferred loan fees 6 7
Net operating loss carryforwards 61 125
Stock-based compensation (12) (15)
All other (24) 12
----------------------------------------------- ---------------- ---------------
$(333) $(94)
----------------------------------------------- ---------------- ---------------
</TABLE>
The tax effects of the temporary differences that give rise to the
deferred tax asset are summarized as follows:
<TABLE>
<CAPTION>
At December 31,
---------------
($ in thousands) 1999 1998
------------------------------------------------------- ----------- -----------
<S> <C> <C>
Allowance for loan loss reserves $745 $483
Organization and startup costs 99 -
Stock-based compensation 27 15
Depreciation 22 19
Deferred loan fees - 6
Net operating loss carryforwards - 61
All other 19 (5)
------------------------------------------------------- ----------- -----------
Total deferred tax asset $912 $579
------------------------------------------------------- ----------- -----------
</TABLE>
The reconciliation between the statutory federal income tax rate and
the Company's effective tax rate (including state and local taxes) is
as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
($ in thousands) 1999 1998
------------------------------------------------------- ------------ ------------
<S> <C> <C>
Tax provision at statutory rate 34.0% 34.0%
Increase (decrease) in taxes resulting from:
State and local income taxes, net of Federal benefit 2.9 5.6
Other (1.6) -
------------------------------------------------------- ------------ ------------
35.3% 39.6%
------------------------------------------------------- ------------ ------------
</TABLE>
F-19
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
15. Earnings Per Share
Net earnings applicable to common stock and the weighted-average number
of shares used for basic and diluted earnings per share computations
are summarized as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
($ in thousands, except share and per share amounts) 1999 1998
----------------------------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
Basic earnings per share:
Net earnings applicable to common stockholders $1,195 $1,435
Average number of common shares outstanding 2,510,293 2,457,113
--------------------------------------------------------------------------------- ------------ ---------------
Basic earnings per share amount $0.48 $0.58
--------------------------------------------------------------------------------- ------------ ---------------
Diluted earnings per share:
Net earnings applicable to common stockholders $1,195 $1,435
Adjustment to net earnings from assumed conversion of debentures - 172
------------ ---------------
Adjusted net earnings for diluted earnings per share computation $1,195 $1,607
------------ ---------------
Average number of common shares outstanding:
Common shares outstanding 2,510,293 2,457,113
Potential dilutive shares resulting from exercise of warrants 259,825 630,457
Potential dilutive shares resulting from conversion of debentures - 385,946
------------ ---------------
Total average number of common shares outstanding used for dilution 2,770,118 3,473,516
--------------------------------------------------------------------------------------------------------------
Diluted earnings per share amount $0.43 $0.46
--------------------------------------------------------------------------------- ------------ ---------------
</TABLE>
A total of 1,012,000 and 122,000 common stock warrants with an exercise
price of $10.00 and $14.00, respectively, were not included in the
computation of diluted EPS for 1999 because their exercise price was
greater than the average market price of the common stock during 1999.
In addition, the Debentures were also excluded from the diluted
computation for 1999 because they were not dilutive. A total of 122,000
common stock warrants with an exercise price of $10.00 were not
included in the computation of diluted EPS for 1998 because their
exercise price was greater than the average market price of the common
stock during 1998.
16. Contingencies
The Company is periodically party to or otherwise involved in legal
proceedings arising in the normal course of business, such as claims to
enforce liens, claims involving the making and servicing real property
loans, and other issues incident to the Company's business. Management
does not believe that there is any pending or threatened proceeding
against the Company which, if determined adversely, would have a
material effect on the business, results of operations, or financial
position of the Company.
17. Regulatory Matters
The Holding Company and the Banks are subject to regulation,
examination and supervision by the Federal Reserve Bank. The Banks are
also subject to regulation, examination and supervision Federal Deposit
Insurance Corporation. In addition, Intervest Bank is subject to the
regulation, examination and supervision of the Florida Department of
Banking and Finance, while the Office of the Comptroller of the
Currency regulates Intervest National Bank.
F-20
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
17. Regulatory Matters, Continued
The Company (on a consolidated basis) and the Banks are subject to
various regulatory capital requirements administered by the federal
banking agencies. Failure to meet capital requirements can initiate
certain mandatory and possibly discretionary actions by the regulators
that, if undertaken, could have a direct material effect on the
Company's and the Banks' financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action,
the Company and the Banks must meet specific capital guidelines that
involve quantitative measures of their assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting
practices. These capital amounts are also subject to qualitative
judgement by the regulators about components, risk weighting and other
factors. Prompt corrective action provisions are not applicable to bank
holding companies.
Quantitative measures established by the regulations to ensure capital
adequacy require the Company and the Banks to maintain minimum amounts
and ratios of total and Tier 1 capital to risk-weighted assets and of
Tier 1 capital to average assets, as defined by the regulations.
Management believes, as of December 31, 1999 and 1998, that the
Company, Intervest Bank and Intervest National Bank (as of December 31,
1999 only) met all capital adequacy requirements to which they are
subject.
As of December 31, 1999, the most recent notification from the
regulators categorized the Banks as well-capitalized institutions under
regulatory framework for prompt corrective action, which requires
minimum Tier 1 leverage and Tier 1 and total risk-based capital ratios
of 5%, 6% and 10%, respectively. Management believes that there are no
current conditions or events outstanding that would change the
designations from well capitalized.
The tables below present information regarding the Company's
(consolidated) and the Banks' capital adequacy.
<TABLE>
<CAPTION>
Consolidated Minimum to Be Well
------------ ------------------
Capitalized Under
-----------------
Minimum Capital Prompt Corrective
--------------- -----------------
Actual Requirements Action Provisions
------ ------------ -----------------
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
------------------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
As of December 31, 1999:
Total capital to risk-weighted assets $22,811 13.18% $13,847 8.00% NA NA
Tier 1 capital to risk-weighted assets $20,643 11.93% $6,923 4.00% NA NA
Tier 1 capital to average assets $20,643 8.46% $9,761 4.00% NA NA
As of December 31, 1998:
Total capital to risk-weighted assets $20,628 17.01% $9,702 8.00% NA NA
Tier 1 capital to risk-weighted assets $19,110 15.76% $4,851 4.00% NA NA
Tier 1 capital to average assets $19,110 9.89% $7,732 4.00% NA NA
------------------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
</TABLE>
F-21
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
17. Regulatory Matters, Continued
<TABLE>
<CAPTION>
Minimum to Be Well
------------------
Capitalized Under
-----------------
Minimum Capital Prompt Corrective
--------------- -----------------
Actual Requirements Action Provisions
------ ------------ -----------------
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
------------------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Intervest Bank
--------------
As of December 31, 1999:
------------------------
Total capital to risk-weighted assets $13,737 11.04% $9,951 8.00% $12,439 10.00%
Tier 1 capital to risk-weighted assets $12,176 9.79% $4,976 4.00% $7,463 6.00%
Tier 1 capital to average assets $12,176 6.44% $7,562 4.00% $9,453 5.00%
As of December 31, 1998:
------------------------
Total capital to risk-weighted assets $12,046 11.15% $8,644 8.00% $10,805 10.00%
Tier 1 capital to risk-weighted assets $10,692 9.90% $4,322 4.00% $6,483 6.00%
Tier 1 capital to average assets $10,692 6.04% $7,086 4.00% $8,857 5.00%
Intervest National Bank
-----------------------
As of December 31, 1999:
------------------------
Total capital to risk-weighted assets $8,724 19.02% $3,668 8.00% $4,586 10.00%
Tier 1 capital to risk-weighted assets $8,280 18.06% $1,834 4.00% $2,752 6.00%
Tier 1 capital to average assets $8,280 16.29% $2,034 4.00% $2,542 5.00%
------------------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
</TABLE>
18. Off-Balance Sheet Financial Instruments
The Company is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments are in the form of
commitments to extend credit and standby letters of credit, and may
involve, to varying degrees, elements of credit and interest rate risk
in excess of the amounts recognized in the consolidated balance sheets.
The contract amounts of these instruments reflect the extent of
involvement the Company has in these financial instruments. The
Company's exposure to credit loss in the event of nonperformance by the
other party to the off-balance sheet financial instruments is
represented by the contractual amount of those instruments. The Company
uses the same credit policies in making commitments as it does for
on-balance sheet instruments.
Commitments to extend credit are agreements to lend funds to a customer
as long as there is no violation of any condition established in the
contract. Such commitments generally have fixed expiration dates or
other termination clauses and may require payment of fees. Since some
of the commitments are expected to expire without being drawn upon, the
total commitment amount does not necessarily represent future cash
requirements. The Company evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on
management's credit evaluation of the counterparty. Standby letters of
credit are conditional commitments issued by the Company to guarantee
the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers.
F-22
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
18. Off-Balance Sheet Financial Instruments, Continued
The following is a summary of the notional amounts of the Company's
off-balance sheet financial instruments.
<TABLE>
<CAPTION>
At December 31,
($ in thousands) 1999 1998
----------------------------------------------------- ----------- ------------
<S> <C> <C>
Unfunded loan commitments $26,256 $3,175
Available lines of credit 765 628
Standby letters of credit 900 1,100
----------------------------------------------------- ----------- ------------
$27,921 $4,903
----------------------------------------------------- ----------- ------------
</TABLE>
19. Estimated Fair Value of Financial Instruments
Fair value estimates are made at a specific point in time based on
available information about each financial instrument. Where available,
quoted market prices are used. However, a significant portion of the
Company's financial instruments, such as commercial real estate and
multifamily loans, do not have an active marketplace in which they can
be readily sold or purchased to determine fair value. Consequently,
fair value estimates for such instruments are based on assumptions made
by management that include the financial instrument's credit risk
characteristics and future estimated cash flows and prevailing interest
rates. As a result, these fair value estimates are subjective in
nature, involve uncertainties and matters of significant judgment and
therefore, cannot be determined with precision. Accordingly, changes in
any of management's assumptions could cause the fair value estimates to
deviate substantially. The fair value estimates also do not reflect any
additional premium or discount that could result from offering for
sale, at one time, the Company's entire holdings of a particular
financial instrument, nor estimated transaction costs. Further, the tax
ramifications related to the realization of unrealized gains and losses
can have a significant effect on and have not been considered in the
fair value estimates. Finally, fair value estimates do not attempt to
estimate the value of anticipated future business, the Company's
customer relationships, branch network, and the value of assets and
liabilities that are not considered financial instruments, such as core
deposit intangibles and premises and equipment.
The carrying and estimated fair values of the Company's financial
instruments are summarized as follows:
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
-------------------- --------------------
Carrying Fair Carrying Fair
($ in thousands) Value Value Value Value
----------------------------------------------- ------------- ----------- ------------- -----------
Financial Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 7,329 $ 7,329 $ 13,472 $ 13,472
Securities held to maturity, net 83,132 79,882 82,338 82,173
Loans receivable, net 147,154 147,304 96,074 96,139
Federal Reserve Bank stock 508 508 233 233
Interest-bearing deposits 100 100 199 199
Accrued interest receivable 1,836 1,836 1,800 1,800
Financial Liabilities:
Deposit liabilities 207,168 206,711 170,467 172,194
Federal funds purchased 6,955 6,955 - -
Convertible debentures plus accrued interest 7,822 7,383 7,299 7,299
Accrued interest payable on deposits 461 461 386 386
----------------------------------------------- ------------- ----------- ------------- -----------
</TABLE>
F-23
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
19. Estimated Fair Value of Financial Instruments, Continued
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Securities. The estimated fair value of securities held to maturity are
based on quoted market prices. The carrying value of the Federal
Reserve Bank stock approximated fair value since these securities do
not present credit concerns and are redeemable at cost.
Loans Receivable. The estimated fair value of variable rate loans that
reprice frequently and have no significant change in credit risk since
origination approximates their carrying values. For fixed-rate loans
(one-to-four family residential, commercial real estate and commercial
loans), estimated fair value is based on a discounted cash flow
analysis, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
Management can make no assurance that its perception and quantification
of credit risk would be viewed in the same manner as that of a
potential investor. Therefore, changes in any of management's
assumptions could cause the fair value estimates of loans to deviate
substantially.
Deposits. The estimated fair value of deposits with no stated maturity,
such as savings, money market, checking and noninterest-bearing demand
deposit accounts approximates carrying value. The estimated fair value
of certificates of deposit are based on the discounted value of their
contractual cash flows. The discount rate used in the present value
computation was estimated by comparison to current interest rates
offered by the Banks for certificates of deposit with similar remaining
maturities.
Convertible Debentures. The estimated fair value of the convertible
debentures and related accrued interest is based on a discounted cash
flow analysis. The discount rate used in the present value computation
was estimated by comparison to what management believes to be the
Holding Company's incremental borrowing rate for a similar arrangement.
All Other Financial Assets and Liabilities. The carrying value of cash
and due from banks, Federal funds sold and purchased, short-term
investments and accrued interest receivable and payable approximated
fair value since these instruments are payable on demand or have
short-term maturities.
Off-Balance Sheet Instruments. The carrying amounts of commitments to
lend approximated estimated fair value.
F-24
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
20. Holding Company Financial Information
<TABLE>
<CAPTION>
Condensed Balance Sheets
At December 31,
---------------
($ in thousands) 1999 1998
--------------------------------------------------------- ------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 9 $ 44
Short-term investments 4,877 4,123
---------- ------------
Total cash and cash equivalents 4,886 4,167
Interest-bearing deposits - 100
Loans receivable (net of allowance for loan loss reserves
of $13 and $55 at December 31, 1999 and 1998) 2,584 10,729
Investment in subsidiaries 21,239 11,081
Deferred debenture offering costs 479 522
All other assets 117 544
------------------------------------------------------------ ---------- ------------
Total assets $29,305 $27,143
------------------------------------------------------------ ---------- ------------
LIABILITIES
Convertible subordinated debentures payable $6,930 $7,000
Accrued interest payable on convertible debentures 892 299
All other liabilities 19 300
------------------------------------------------------------ ---------- ------------
Total liabilities 7,841 7,599
------------------------------------------------------------ ---------- ------------
STOCKHOLDERS' EQUITY
Common stock and paid-in capital 16,998 16,273
Retained earnings 4,466 3,271
------------------------------------------------------------ ---------- ------------
Total stockholders' equity 21,464 19,544
------------------------------------------------------------ ---------- ------------
Total liabilities and stockholders' equity $29,305 $27,143
------------------------------------------------------------ ---------- ------------
</TABLE>
Condensed Statements of Earnings
<TABLE>
<CAPTION>
For the Year Ended
------------------
December 31,
------------
($ in thousands) 1999 1998
----------------------------------------------------------- ------------ -----------
<S> <C> <C>
Interest income $744 $ 993
Interest expense 637 319
------------ -----------
Net interest income 107 674
Provision (credit) for loan loss reserves (42) 55
Noninterest income 161 109
Noninterest expense 197 197
------------ -----------
Earnings before income taxes 113 531
Income taxes 53 245
------------ -----------
Net earnings before earnings (loss) of subsidiaries 60 286
Equity in earnings of Intervest Bank 1,642 1,149
Equity in loss of Intervest National Bank (507) -
----------------------------------------------------------- ------------ -----------
Net earnings $1,195 $1,435
----------------------------------------------------------- ------------ -----------
</TABLE>
F-25
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
20. Holding Company Financial Information, Continued
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended
------------------
December 31,
------------
($ in thousands) 1999 1998
------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 1,195 $ 1,435
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiaries (1,135) (1,149)
Provision (credit) for loan loss reserves (42) 55
Deferred income tax expense (benefit) 7 (45)
Compensation expense related to Class B warrants issued 26 43
Gain on sale of loans (56) -
Interest expense on debentures 637 319
Change in all other assets and liabilities, net 135 (371)
------------------------------------------------------------------- ------------- ------------
Net cash provided by operating activities 767 287
------------------------------------------------------------------- ------------- ------------
INVESTING ACTIVITIES
Decrease (increase) in interest-earning deposits 100 (100)
Investment in preferred stock of subsidiary - (500)
Investment in common stock of subsidiaries (9,018) -
Sale of loans 5,660 -
Loan originations and principal repayments, net 2,761 (10,032)
------------------------------------------------------------------- ------------- ------------
Net cash used by investing activities (497) (10,632)
------------------------------------------------------------------- ------------- ------------
FINANCING ACTIVITIES
Net (decrease) increase in mortgage escrow funds payable (173) 142
Proceeds from sale of convertible debentures, net of issuance costs - 6,457
Proceeds from issuance of common stock upon the exercise
of stock warrants, net of issuance costs 622 414
------------------------------------------------------------------- ------------- ------------
Net cash provided by financing activities 449 7,013
------------------------------------------------------------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents 719 (3,332)
Cash and cash equivalents at beginning of year 4,167 7,499
------------------------------------------------------------------- ------------- ------------
Cash and cash equivalents at end of year $ 4,886 $ 4,167
------------------------------------------------------------------- ------------- ------------
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Income taxes $ 142 $ 200
Noncash transactions:
Conversion of debentures into Class A common stock 70 -
Issuance of common stock in exchange for common
stock of minority stockholders of Intervest Bank 7 -
------------------------------------------------------------------- ------------- ------------
</TABLE>
F-26
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
21. Quarterly Financial Data (Unaudited)
The following is a summary of the consolidated statements of earnings
by quarter:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
------------------------------------
First Second Third Fourth
($ in thousands, except per share amounts) Quarter Quarter Quarter Quarter
-------------------------------------------------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Interest and dividend income $3,476 $3,389 $3,739 $4,454
Interest expense 2,171 2,137 2,355 2,815
----------- ---------- ----------- ----------
Net interest and dividend income 1,305 1,252 1,384 1,639
Provision for loan loss reserves 112 223 270 225
----------- ---------- ----------- ----------
Net interest and dividend income after
provision for loan loss reserves 1,193 1,029 1,114 1,414
Noninterest income 123 100 128 105
Noninterest expense 647 823 815 880
----------- ---------- ----------- ----------
Earnings before income taxes and change in
accounting principle 669 306 427 639
Income taxes 275 120 149 174
Cumulative effect of change in accounting principle 128 - - -
-------------------------------------------------------- ----------- ---------- ----------- ----------
Net earnings $ 266 $ 186 $ 278 $ 465
-------------------------------------------------------- ----------- ---------- ----------- ----------
Basic earnings per share:
Earnings before change in accounting principle $ .16 $ .07 $ .11 $ .18
Cumulative effect of change in accounting principle (.05) - - -
-------------------------------------------------------- ----------- ---------- ----------- ----------
Net earnings per share $ .11 $ .07 $ .11 $ .18
-------------------------------------------------------- ----------- ---------- ----------- ----------
Diluted earnings per share:
Earnings before change in accounting principle $ .15 $ .07 $ .10 $ .17
Cumulative effect of change in accounting principle (.05) - - -
-------------------------------------------------------- ----------- ---------- ----------- ----------
Net earnings per share $ .10 $ .07 $ .10 $ .17
-------------------------------------------------------- ----------- ---------- ----------- ----------
For the Year Ended December 31, 1998
------------------------------------
First Second Third Fourth
($ in thousands, except per share amounts) Quarter Quarter Quarter Quarter
-------------------------------------------------------- ----------- ---------- ----------- ----------
Interest and dividend income $2,892 $3,075 $3,420 $3,547
Interest expense 1,838 1,975 2,192 2,292
----------- ---------- ----------- ----------
Net interest and dividend income 1,054 1,100 1,228 1,255
Provision for loan loss reserves 100 130 127 122
----------- ---------- ----------- ----------
Net interest and dividend income after
provision for loan loss reserves 954 970 1,101 1,133
Noninterest income 65 85 71 128
Noninterest expense 509 527 518 579
----------- ---------- ----------- ----------
Earnings before income taxes 510 528 654 682
Income taxes 202 203 261 273
-------------------------------------------------------- ----------- ---------- ----------- ----------
Net earnings $ 308 $325 $393 $409
-------------------------------------------------------- ----------- ---------- ----------- ----------
Basic earnings per share $ .13 $ .13 $ .16 $ .16
Diluted earnings per share $ .09 $ .10 $ .13 $ .14
-------------------------------------------------------- ----------- ---------- ----------- ----------
</TABLE>
F-27
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
22. Year 2000 Issue
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. Prior to January 1, 2000, the
Company had completed all upgrades necessary to ensure that its
operating and financial systems were Year 2000 compliant. The Company
has not determined what effect, if any, the Year 2000 issue has had on
its customers and vendors. To date, the Company has not experienced any
problems as a result of the Year 2000 issue. Expenses incurred by the
Company related to the Year 2000 issue have not been material.
23. Merger
In late 1999, Intervest Bancshares Corporation announced that it had
agreed to acquire Intervest Corporation of New York, a company with
assets of approximately $99,000,000, consisting of a portfolio of
mortgages on improved real property and short-term investments,
primarily certificates of deposit and U.S. government agency notes. The
combined total assets of the two entities if they had merged at
December 31, 1999 would have been approximately $340,000,000.
The two entities 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 Intervest
Bancshares Corporation. The merger was approved by both Boards of
Directors, the shareholders of both the Company and Intervest
Corporation of New York, and the Federal Reserve Bank of Atlanta. In
the merger, Intervest Corporation of New York shareholders received an
aggregate of 1,250,000 shares of the Company's Class A common stock in
exchange for all of Intervest Corporation of New York's capital stock.
The merger became effective in March 2000 and will be accounted for at
historical cost similar to the pooling-of-interests method of
accounting.
F-28
<PAGE>
No dealer, salesman or any other person is authorized to give any information or
to make any representation not contained in this Prospectus. If given or made,
such information or representation must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer of any
securities other than the registered securities to which it relates or an offer
to any person in any jurisdiction where such an offer would be unlawful. Neither
the delivery of this Prospectus, nor any sale made hereunder, shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to its date.
----------------
TABLE OF CONTENTS
Page
Where You Can Find More
Information.................................... 2
Prospectus Summary............................... 3
Investment Considerations and Risk
Factors........................................ 7
Use of Proceeds.................................. 9
Market for Securities............................ 9
Dividends........................................ 10
Capitalization................................... 11
Selected Financial Data.......................... 12
Management's Discussion and
Analysis of Financial Condition
and Results of Operation....................... 13
Business......................................... 29
Management....................................... 41
Security ownership of Certain
Beneficial Owners and Management.............. 44
Description of Securities........................ 45
Plan of Distribution............................. 51
Legal Matters.................................... 51
Experts.......................................... 51
Index to Financial Statements.................... F-1
INTERVEST BANCSHARES CORPORATION
3,102,458 shares of Class A Common Stock
and
195,000 shares of Class B Common Stock
--------------
PROSPECTUS
--------------
<PAGE>
PART II
Information Not Required In Prospectus
Item 24. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of Delaware provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any action, suit or proceeding, by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interest of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. No indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
The Company's bylaws provide that the Company will indemnify the officers
and directors of the Company to the fullest extent permitted under the laws of
the State of Delaware. In that regard, the Company is obligated to indemnify
officers and directors of the Company from and against any and all judgments,
fines, amounts paid in settlement, and reasonable expenses, including attorneys'
fees, actually and necessarily incurred by an officer or director as a result of
any action or proceeding, or any appeal therein, to the extent such amounts may
be indemnified under the laws of Delaware; and to pay any officer or director of
the Company in advance of the final disposition of any civil or criminal
proceeding, the expenses incurred by such officer or director in defending such
action or proceeding. The Company's obligation to indemnify its officers and
directors continues to individuals who have ceased to be officers or directors
of the Company and to the heirs and personal representatives of former officers
and directors of the Company.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated cost and expenses to be borne
by the company in connection with the offering described in the Registration
Statement, other than underwriting commissions and discounts. All amounts except
the registration fee are estimates.
Registration Fee $ ------
Printing and Engraving expenses $ 2,000
Accounting fees and expenses $ 5,000
Legal fees and expenses $ 15,000
Blue Sky fees and expenses $ 7,000
Transfer Agents and Registrar fees $ ------
Miscellaneous $ 11,000
-------
Total $ 40,000
- ------------------------------------
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
In March of 2000, 50,000 shares of Class B Common Stock were issued to the
Chairman of the Board of the Company. In addition, in March of 2000, an
aggregate of 1,250,000 shares of Class A Common Stock were issued to the eight
shareholders of Intervest Corporation of New York in connection with the merger
of a wholly-owned subsidiary of the Company into Intervest Corporation of New
York. These shares were issued without registration under the Securities Act of
1933, as amended, in reliance upon the exemption afforded by Section 4(2)
thereof.
Item 27. Exhibits.
Exhibit Number Description of Exhibit
3.1 Restated Certificate of Incorporation of the Company1
3.2 Bylaws of the Company1
4.1 Form of Certificate for Shares of Class A Common Stock2
4.2 Form of Certificate for Shares of Class B Common Stock2
4.3 Form of Warrant for Class A Common Stock1
4.4 Form of Warrant Agreement between the Company and the Bank
of New York1
4.5 Form of Indenture between the Company and The Bank of New
York, as Trustee3
5.1 Opinion of Harris Beach & Wilcox, LLP
24.1 Consent of Harris Beach & Wilcox, LLP is included in the
Opinion of Harris Beach & Wilcox, LLP, filed as Exhibit 5.1
24.2 Consent of Hacker, Johnson, Cohen & Grieb
- ----------------------
1 Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (No. 333- 33419), filed with the
Commission on September 22, 1997.
2 Incorporated by reference from Pre-Effective Amendment No. 1 to the
Company's Registration Statement on Form SB-2 (No. 33-82246), filed
with the Commission on September 15, 1994.
3 Incorporated by reference from the Company's Registration Statement on
Form SB-2 (No. 333-50113), filed with the Commission on April 15, 1998.
II-2
<PAGE>
Item 28. Undertakings.
(a) The undersigned registrant hereby undertakes:
i. To file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement for the most recent post-effective
amendment thereof, which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
ii. That, for purposes of determining liability under the
Securities Act of 1933, each such post- effective amendment
shall be deemed a new registration statement relating to the
securities offering therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
iii. To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
The undersigned small business issuer will:
1. For determining any liability under the Securities Act, treat any
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a Form of
Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this Registration Statement as of the time
the Commission declared it effective.
2. For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration Statement,
and the offering of the securities at that time as the initial bona fide
offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on this form and has caused this Registration
Statement or Amendment to be signed on behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 24th day of
April, 2000.
INTERVEST BANCSHARES CORPORATION
(Registrant)
By: /s/ Lowell S. Dansker
----------------------------
Lowell S. Dansker, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendment has been signed by the following persons in
the capacities and on the dates indicated.
Title Date
/s/ Lawrence G. Bergman Vice President, Secretary and Director 4/24/00
- -------------------------
(Lawrence G. Bergman)
/s/ Michael A. Callen Director 4/24/00
- -------------------------
(Michael A. Callen)
/s/ Jerome Dansker Chairman of the Board,
- ------------------------- Executive Vice President, Director 4/24/00
(Jerome Dansker)
/s/ Lowell S. Dansker President Treasurer, and Director
- ------------------------- (Principal Executive, Financial
(Lowell S. Dansker) and Accounting Officer) 4/24/00
/s/ Milton F. Gidge Director 4/24/00
- -------------------------
(Milton F. Gidge)
/s/ Wayne F. Holly Director 4/24/00
- -------------------------
(Wayne F. Holly)
/s/ Lawton Swan, III Director 4/24/00
- -------------------------
(Lawton Swan, III)
/s/ Thomas E. Willett Director 4/24/00
- -------------------------
(Thomas E. Willett)
/s/ David J. Wilmott Director 4/24/00
- -------------------------
(David J. Willmott)
/s/ Wesley T. Wood Director 4/24/00
- -------------------------
(Wesley T. Wood)
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit
5.1 Opinion of Harris Beach & Wilcox, LLP
24.1 Consent of Harris Beach & Wilcox, LLP is
included in the Opinion of Harris Beach
& Wilcox, LLP, filed as Exhibit 5.1
24.2 Consent of Hacker, Johnson, Cohen & Grieb
II-6
EXHIBIT 5.1
Opinion of Counsel
<PAGE>
Exhibit 5.1
April 24, 2000
Intervest Bancshares Corporation
10 Rockefeller Plaza, Suite 1015
New York, New York 10020-1903
Re: Intervest Bancshares Corporation
Registration Statement on Form SB-2
Gentlemen:
You have requested our opinion in connection with a Post-Effective
Amendment to a Registration Statement on Form SB-2 (the "Registration
Statement") filed by Intervest Bancshares Corporation (the "Company") with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), in connection with the Company's warrants for the purchase of up to
2,464,218 shares of Class A Common Stock and 195,000 shares of Class B Common
Stock (the "Warrants"), as well as 2,464,218 shares of Class A Common Stock and
195,000 shares of Class B Common Stock that may be issued upon exercise of the
Warrants and 638,240 shares of Class A Common Stock that may be issued upon
conversion of outstanding debentures. The Class A Common Stock and the Class B
Common Stock are herein collectively referred to as the "Common Stock."
Capitalized terms, unless otherwise defined herein, shall have the meanings set
forth in the Registration Statement.
In connection with this opinion, we have examined the Registration
Statement, the Certificate of Incorporation of the Company, the Bylaws of the
Company, Certificates of Public Officials and Officers of the Company and such
other documents and records as we have deemed necessary or appropriate for
purposes of our opinion.
Based on the foregoing, and subject to the qualifications and
assumptions referred to herein, we are of the opinion that:
a. The Company is a corporation validly existing and in good standing
under the laws of the State of Delaware.
b. The Warrants constitute the legal, valid and binding obligations of
the Company.
c. When shares of Common Stock which are issuable upon exercise of the
Warrants have been issued and delivered upon any exercise of the Warrants in
accordance with the terms of the Warrants, such shares of Common Stock will be
duly and validly issued, fully paid and nonassessable.
d. When shares of Common Stock which are issuable upon conversion of
debentures have been issued and delivered upon any conversion of the debentures
in accordance with the terms of the debentures, such shares of Common Stock will
be duly and validly issued, fully paid and nonassessable.
We have assumed the authenticity of all documents submitted to us as
originals, the conformity to the original documents of all documents submitted
to us as copies, and the truth of all facts recited in all relevant documents.
The opinions set forth above are limited to the laws of the states of
Delaware and New York and the federal laws of the United States.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the prospectus included in the Registration Statement.
Very truly yours,
Harris Beach & Wilcox, LLP
By: /s/ Thomas E. Willett
---------------------
Thomas E. Willett,
Member of the Firm
Enc.
EXHIBIT 24.2
Accountant's Consents
<PAGE>
Exhibit 24.2
Accountants' Consent
The Board of Directors
Intervest Bancshares Corporation
New York, New York:
We consent to the use of our report dated January 14, 2000 (except for Note 23,
as to which the date is March 10, 2000) relating to the consolidated balance
sheets as of December 31, 1999 and 1998 and the related consolidated statements
of earnings, changes in stockholders' equity and cash flows for the years then
ended of Intervest Bancshares Corporation and to the use of our name under the
caption of "Experts," in the Registration Statement on Form SB-2 of Intervest
Bancshares Corporation.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
April 24, 2000
