U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2000
Commission File No. 000-23377
INTERVEST BANCSHARES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3699013
----------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation)
10 Rockefeller Plaza, Suite 1015
New York, New York 10020-1903
--------------------------------------------------------------------
(Address of principal executive offices)
(212) 218-2800
--------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
YES XX NO
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
<TABLE>
Title of Each Class: Shares Outstanding:
<S> <C> <C> <C> <C>
Class A Common Stock, $1.00 par value per share 3,535,629 Outstanding at July 31, 2000
----------------------------------------------- ---------------------------------------
Class B Common Stock, $1.00 par value per share 355,000 Outstanding at July 31, 2000
----------------------------------------------- ------------------------------------
</TABLE>
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
FORM 10-Q
June 30, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 2000 (Unaudited) and December 31, 1999 ............ 2
Condensed Consolidated Statements of Earnings (Unaudited)
for the Quarters and Six-Months Ended June 30, 2000 and 1999...... 3
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)for the Six-Months Ended June 30, 2000 and 1999 ....... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Six-Months Ended June 30, 2000 and 1999................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited)..... 6
Review by Independent Certified Public Accountants .................. 14
Report on Review by Independent Certified Public Accountants......... 15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk.. 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 25
Item 2. Changes in Securities and Use of Proceeds................... 25
Item 3. Defaults Upon Senior Securities............................. 25
Item 4. Submission of Matters to a Vote of Security Holders......... 25
Item 5. Other Information........................................... 26
Item 6. Exhibits and Reports on Form 8-K ........................... 26
Signatures................................................................. 26
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-Q 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.
1
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
($ in thousands, except par value) 2000 1999
--------------------------------------------------------------------------------- ---------------- ------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 3,557 $ 4,663
Federal funds sold 16,162 3,900
Short-term investments 2,856 23,532
---------------- ------------------
Total cash and cash equivalents 22,575 32,095
Securities held to maturity, net
(estimated fair value of $83,337 and $79,882, respectively) 86,404 83,132
Federal Reserve Bank stock, at cost 596 508
Loans receivable (net of allowance for loan loss reserves of
$2,738 and $2,493, respectively) 249,138 210,444
Accrued interest receivable 2,698 1,995
Premises and equipment, net 5,764 5,863
Deferred income tax asset 972 936
Deferred debenture offering costs 2,921 3,721
Other assets 1,940 1,787
--------------------------------------------------------------------------------- ---------------- ------------------
Total assets $373,008 $340,481
--------------------------------------------------------------------------------- ---------------- ------------------
LIABILITIES
Deposits:
Noninterest-bearing demand deposit accounts $ 5,406 $ 4,337
Interest-bearing deposit accounts:
Checking (NOW) accounts 8,181 6,636
Savings accounts 17,322 18,722
Money-market accounts 52,273 48,591
Certificate of deposit accounts 175,183 122,794
---------------- ------------------
Total deposits 258,365 201,080
Federal funds purchased - 6,955
Subordinated debentures payable (note 5) 60,330 84,330
Accrued interest payable on debentures (note 5) 6,237 8,092
Mortgage escrow funds payable 5,185 3,375
Official checks outstanding 6,784 1,821
Other liabilities 1,485 1,224
--------------------------------------------------------------------------------- ---------------- ------------------
Total liabilities 338,386 306,877
--------------------------------------------------------------------------------- ---------------- ------------------
STOCKHOLDERS' EQUITY
Preferred stock (300,000 shares authorized, none issued) - -
Class A common stock ($1.00 par value, 9,500,000 shares authorized,
3,535,629 and 3,531,879 shares issued and outstanding, respectively) 3,536 3,532
Class B common stock ($1.00 par value, 700,000 shares authorized,
355,000 and 305,000 shares issued and outstanding respectively) 355 305
Additional paid-in-capital 18,913 18,770
Retained earnings 11,818 10,997
--------------------------------------------------------------------------------- ---------------- ------------------
Total stockholders' equity 34,622 33,604
--------------------------------------------------------------------------------- ---------------- ------------------
Total liabilities and stockholders' equity $373,008 $340,481
--------------------------------------------------------------------------------- ---------------- ------------------
See accompanying notes to condensed consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited)
Quarter Ended Six-Months Ended
June 30, June 30,
----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
($ in thousands, except per share data) 2000 1999 2000 1999
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
INTEREST AND DIVIDEND INCOME
Loans receivable $6,030 $4,516 $11,676 $ 8,997
Securities 1,431 1,494 2,951 3,012
Other interest-earning assets 197 141 287 271
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
Total interest and dividend income 7,658 6,151 14,914 12,280
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
INTEREST EXPENSE
Deposits 3,469 1,969 6,313 3,984
Federal funds purchased - 6 146 6
Subordinated debentures 2,083 2,417 4,505 4,842
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
Total interest expense 5,552 4,392 10,964 8,832
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
Net interest and dividend income 2,106 1,759 3,950 3,448
Provision for loan loss reserves 90 223 245 335
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
Net interest and dividend income after provision for loan loss 2,016 1,536 3,705 3,113
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
NONINTEREST INCOME
Customer service fees 31 34 66 66
Income from mortgage lending activities 146 109 273 490
All other 1 - 1 1
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
Total noninterest income 178 143 340 557
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
NONINTEREST EXPENSES
Salaries and employee benefits 508 505 1,184 984
Occupancy and equipment, net 278 260 549 411
Advertising and promotion 12 43 25 80
Professional fees and services 116 57 220 113
Stationery, printing and supplies 35 50 73 92
All other 181 177 330 313
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
Total noninterest expenses 1,130 1,092 2,381 1,993
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
Earnings before taxes, extraordinary item
and change in accounting principle 1,064 587 1,664 1,677
Provision for income taxes 427 248 637 716
----------- ------------- ------------ ------------
Earnings before extraordinary item
and change in accounting principle 637 339 1,027 961
Extraordinary item, net of tax (note 5) (206) - (206) -
Cumulative effect of change in accounting principle, net of tax (note 6) - - - (128)
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
Net earnings $ 431 $339 $ 821 $833
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
Basic earnings per share:
Earnings before extraordinary item and change in accounting principle $ 0.16 $0.09 $ 0.26 $0.25
Extraordinary item (0.05) - (0.05) -
Cumulative effect of change in accounting principle - - - (0.03)
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
Net earnings per share $ 0.11 $0.09 $0. 21 $0.22
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
Diluted earnings per share:
Earnings before extraordinary item and change in accounting principle $ 0.16 $0.08 $ 0.26 $0.23
Extraordinary item (0.05) - (0.05) -
Cumulative effect of change in accounting principle - - - (0.03)
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
Net earnings per share $ 0.11 $0.08 $ 0.21 $0.20
------------------------------------------------------------------------------- ----------- ------------- ------------ ------------
See accompanying notes to condensed consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Six-Months Ended
June 30,
-----------------------------
<S> <C> <C>
($ in thousands) 2000 1999
----------------------------------------------------------------------------------------- -------------- --------------
CLASS A COMMON STOCK
Balance at beginning of period $ 3,532 $ 3,434
Issuance of 510 shares in exchange for common stock of minority
stockholders of Intervest Bank - 1
Issuance of 6,455 shares upon the conversion of debentures - 6
Issuance of 3,750 and 1,800 shares, respectively, upon exercise of warrants 4 2
----------------------------------------------------------------------------------------- -------------- --------------
Balance at end of period 3,536 3,443
----------------------------------------------------------------------------------------- -------------- --------------
CLASS B COMMON STOCK
Balance at beginning of period 305 300
Issuance of 5,000 shares upon the exercise of warrants - 5
Issuance of 50,000 shares of restricted stock compensation (note 2) 50 -
----------------------------------------------------------------------------------------- -------------- --------------
Balance at end of period 355 305
----------------------------------------------------------------------------------------- -------------- --------------
ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of period 18,770 18,148
Issuance of 510 shares in exchange for common stock of minority
stockholders of Intervest Bank - 6
Issuance of 6,455 shares upon the conversion of debentures, net of
issuance costs - 46
Compensation related to issuance of Class B common stock warrants 12 13
Issuance of 5,000 shares upon exercise of Class B stock warrants - 28
Issuance of 50,000 shares of restricted Class B stock (note 2) 109 -
Issuance of 3,750 and 1,800 shares, respectively, upon
exercise of Class A stock warrants 22 11
----------------------------------------------------------------------------------------- -------------- --------------
Balance at end of period 18,913 18,252
----------------------------------------------------------------------------------------- -------------- --------------
RETAINED EARNINGS
Balance at beginning of period 10,997 9,229
Comprehensive income - net earnings for the period 821 833
----------------------------------------------------------------------------------------- -------------- --------------
Balance at end of period 11,818 10,062
----------------------------------------------------------------------------------------- -------------- --------------
----------------------------------------------------------------------------------------- -------------- --------------
Total stockholders' equity at end of period $34,622 $32,062
----------------------------------------------------------------------------------------- -------------- --------------
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
Intervest Bancshares Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six-Months Ended
June 30,
---------------- -----------------
<S> <C> <C>
($ in thousands) 2000 1999
--------------------------------------------------------------------------------- ---------------- -----------------
OPERATING ACTIVITIES
Net earnings $ 821 $ 833
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 225 189
Provision for loan loss reserves 245 335
Deferred income tax benefit (36) (99)
Amortization of deferred debenture offering costs 800 476
Compensation expense from awards of common stock and warrants 171 13
Amortization of premiums, fees and discounts, net (821) (648)
(Decrease) increase in accrued interest payable on debentures (1,855) 816
Increase (decrease) in official checks outstanding 4,963 (464)
Change in all other assets and liabilities, net 14 (230)
--------------------------------------------------------------------------------- ---------------- -----------------
Net cash provided by operating activities 4,527 1,221
--------------------------------------------------------------------------------- ---------------- -----------------
INVESTING ACTIVITIES
Decrease in interest-earning time deposits with banks - 99
Maturities and calls of securities held to maturity 12,511 24,056
Purchases of securities held to maturity (15,507) (25,427)
Originations of loans receivable, net of principal repayments (39,003) (9,231)
Purchases of Federal Reserve Bank stock, net (88) (286)
Purchases of premises and equipment, net (126) (891)
--------------------------------------------------------------------------------- ---------------- -----------------
Net cash used by investing activities (42,213) (11,680)
--------------------------------------------------------------------------------- ---------------- -----------------
FINANCING ACTIVITIES
Net increase in demand, savings, NOW and money-market deposits 4,896 5,718
Net increase (decrease) in certificates of deposit accounts 52,389 (6,652)
Net increase in mortgage escrow funds payable 1,810 1,314
(Repayments of) proceeds from federal funds purchased, net (6,955) 1,325
Repayments of debentures (24,000) (6,000)
Proceeds from issuance of debentures, net of offering costs - 488
Proceeds from issuance of common stock 26 39
--------------------------------------------------------------------------------- ---------------- -----------------
Net cash provided (used) by financing activities 28,166 (3,768)
--------------------------------------------------------------------------------- ---------------- -----------------
Net decrease in cash and cash equivalents (9,520) (14,227)
Cash and cash equivalents at beginning of period 32,095 40,977
--------------------------------------------------------------------------------- ---------------- -----------------
Cash and cash equivalents at end of period $ 22,575 $ 26,750
--------------------------------------------------------------------------------- ---------------- -----------------
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 12,252 $ 7,585
Income taxes 704 1,145
Noncash financing activities:
Issuance of common stock to minority stockholders of Intervest Bank - 60
Conversion of convertible debentures into common stock - 7
--------------------------------------------------------------------------------- ---------------- -----------------
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
-------------------------------------------------------------------------------
Note 1 - General
The condensed consolidated financial statements of Intervest Bancshares
Corporation and Subsidiaries in this report have not been audited except for the
information derived from the audited Consolidated Balance Sheet as of December
31, 1999. The financial statements in this report should be read in conjunction
with the consolidated financial statements and related notes thereto included in
the Company's Annual Report to Stockholders on Form 10-KSB for the year ended
December 31, 1999.
The condensed consolidated financial statements include the accounts of
Intervest Bancshares Corporation (a bank holding company referred to by itself
as the "Holding Company") and its wholly owned subsidiaries, Intervest National
Bank, Intervest Bank and Intervest Corporation of New York. The banks are
referred to together as the "Banks." The Holding Company and its subsidiaries
are referred to as the "Company" on a consolidated basis. The Holding Company's
primary business activity is the ownership of the aforementioned subsidiaries.
Intervest National Bank is a nationally chartered commercial bank located in
Rockefeller Plaza in New York City. It 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 Banks
conduct a full-service commercial banking business, which consists of attracting
deposits from the general public and investing those funds, together with other
sources 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.
Intervest Corporation of New York is located in Rockefeller Plaza in New York
City and is in the business of originating and acquiring commercial and
multifamily residential loans. As discussed in note 2, Intervest Corporation of
New York was acquired by the Holding Company effective March 10, 2000. The
acquisition was accounted for at historical cost similar to the
pooling-of-interests method of accounting. Under this method of accounting, the
recorded assets, liabilities, shareholders' equity, income and expenses of both
companies are combined and recorded at their historical cost amounts.
Accordingly, all prior period financial information in this report has been
adjusted to include the accounts of Intervest Corporation of New York. All
material intercompany accounts and transactions have been eliminated in
consolidation.
In the opinion of management, all material adjustments necessary for a fair
presentation of financial condition and results of operations for the interim
periods presented in this report have been made. These adjustments are of a
normal recurring nature. The results of operations for the interim periods are
not necessarily indicative of results that may be expected for the entire year
or any other interim period. In preparing the condensed consolidated financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses. Actual
results could differ from those estimates. Certain reclassifications have been
made to prior period amounts to conform to the current periods' presentation.
Note 2 - Acquisition of Intervest Corporation of New York
On March 10, 2000, Intervest Bancshares Corporation completed the acquisition of
Intervest Corporation of New York. The two entities are related in that the same
persons serve on their boards and the former holders of all of the shares of
Intervest Corporation of New York also owned approximately 48% of the voting
shares of Intervest Bancshares Corporation prior to the merger. Both Boards of
Directors, the shareholders of both the Holding Company and Intervest
Corporation of New York, and the Federal Reserve Bank of Atlanta approved the
merger. In the merger, Intervest Corporation of New York shareholders received
an aggregate of 1,250,000 shares of the Holding Company's Class A common stock
in exchange for all of Intervest Corporation of New York's capital stock.
6
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
Note 2 - Acquisition of Intervest Corporation of New York, Continued
In connection with the merger, the Holding Company incurred approximately
$210,000 in expenses related to attorney and consulting fees, printing and stock
compensation expense. The Board of Directors and the Holding Company's
shareholders approved a grant of 50,000 shares of Class B common stock to the
Chairman of the Holding Company for his services with respect to the
development, structuring and other activities associated with the merger. This
resulted in $159,000 of compensation expense being recorded, which is included
in the consolidated statements of earnings for the six-months ended June 30,
2000.
Certain pro forma consolidated balance sheet information follows as of December
31, 1999:
<TABLE>
Originally Historical Pro Forma
($ in thousands) Reported ICNY Adjustments Adjusted
--------------------------------------------------------------- -------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 7,429 $30,754 $ (6,088) (1) $ 32,095
Securities held to maturity 83,132 - - 83,132
Federal Reserve Bank stock 508 - - 508
Loans receivable, net of unearned fees and loan loss reserves 147,154 63,290 - 210,444
Accrued interest receivable 1,349 646 - 1,995
Premises and equipment, net 5,767 96 - 5,863
Deferred income tax asset 912 24 - 936
Deferred debenture offering costs 479 3,242 - 3,721
All other assets 1,099 688 - 1,787
--------------------------------------------------------------- -------------- --------------- ----------------- --------------
Total assets $247,829 $98,740 $ (6,088) $340,481
--------------------------------------------------------------- -------------- --------------- ----------------- --------------
Deposit liabilities $207,168 $ - $ (6,088) (1) $201,080
Federal funds purchased 6,955 - - 6,955
Debentures payable 6,930 77,400 - 84,330
Accrued interest on debentures payable 892 7,200 - 8,092
Mortgage escrow funds payable 1,521 1,854 - 3,375
Official checks outstanding 1,821 - - 1,821
All other liabilities 1,078 146 - 1,224
--------------------------------------------------------------- -------------- --------------- ----------------- --------------
Total liabilities 226,365 86,600 (6,088) 306,877
--------------------------------------------------------------- -------------- --------------- ----------------- --------------
Common stock and paid-in capital 16,998 5,609 - 22,607
Retained earnings 4,466 6,531 - 10,997
--------------------------------------------------------------- -------------- --------------- ----------------- --------------
Total stockholders' equity 21,464 12,140 - 33,604
--------------------------------------------------------------- -------------- --------------- ----------------- --------------
Total liabilities and stockholders' equity $247,829 $98,740 $ (6,088) $340,481
--------------------------------------------------------------- -------------- --------------- ----------------- --------------
<FN>
(1) Represents the elimination of certain intercompany deposit accounts.
Certain reclassifications were also made to the historical amounts of
Intervest Corporation of New York and the Company to conform to the current
period's presentation.
</FN>
</TABLE>
7
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
Note 2 - Acquisition of Intervest Corporation of New York, Continued
A pro forma summary of the Company's consolidated statement of earnings for the
quarter ended June 30, 1999 follows:
<TABLE>
Originally Historical Pro Forma
($ in thousands) Reported ICNY Adjustments Adjusted
------------------------------------------------------------------------ ------------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Interest and dividend income $3,389 $2,766 $ (4) (a) $6,151
Interest expense 2,137 2,259 (4) (a) 4,392
------------- ----------- -------------- -------------
Net interest and dividend income 1,252 507 - 1,759
Provision for loan loss reserves 223 - - 223
------------- ----------- -------------- -------------
Net interest and dividend income after provision for loan loss reserves 1,029 507 - 1,536
Noninterest income 100 43 - 143
Noninterest expenses 823 269 - 1,092
------------- ----------- -------------- -------------
Earnings before taxes 306 281 - 587
Provision for income taxes 120 128 - 248
------------------------------------------------------------------------ ------------- ----------- -------------- -------------
Net earnings $ 186 $ 153 $ - $ 339
------------------------------------------------------------------------ ------------- ----------- -------------- -------------
Basic earnings per share $ 0.07 - $ 0.09
Diluted earnings per share $ 0.07 - $ 0.08
Average number of common shares outstanding - Basic 2,494,567 - 1,250,000 3,744,567
Average number of common shares outstanding - Diluted 2,841,433 - 1,250,000 4,091,433
------------------------------------------------------------------------ ------------- ----------- ------------- --------------
A pro forma summary of the Company's consolidated statement of earnings for the
six-months ended June 30, 1999 follows:
Originally Historical Pro Forma
($ in thousands) Reported ICNY Adjustments Adjusted
------------------------------------------------------------------------ ------------- ----------- -------------- --------------
Interest and dividend income $6,865 $5,420 $ (5) (a) $12,280
Interest expense 4,308 4,529 (5) (a) 8,832
------------- ----------- -------------- --------------
Net interest and dividend income 2,557 891 - 3,448
Provision for loan loss reserves 335 - - 335
------------- ----------- -------------- --------------
Net interest and dividend income after provision for loan loss 2,222 891 - 3,113
reserves
Noninterest income 223 334 - 557
Noninterest expenses 1,470 523 - 1,993
------------- ----------- -------------- --------------
Earnings before taxes and change in accounting principle 975 702 - 1,677
Provision for income taxes 395 321 - 716
Cumulative effect of change in accounting principle (128) - - (128)
------------------------------------------------------------------------ ------------- ----------- -------------- --------------
Net earnings $ 452 $ 381 $ - $ 833
------------------------------------------------------------------------ ------------- ----------- -------------- --------------
Basic earnings per share $0.18 - $0.22
Diluted earnings per share $0.16 - $0.20
Average number of common shares outstanding - Basic 2,492,212 - 1,250,000 3,742,212
Average number of common shares outstanding - Diluted 2,823,056 - 1,250,000 4,073,056
------------------------------------------------------------------------ ------------- ----------- ------------- ---------------
(a) Represents the elimination of certain intercompany interest expense.
</TABLE>
8
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
Note 2 - Acquisition of Intervest Corporation of New York, Continued
A summary of the Company's consolidated statements of earnings for the quarter
and six-months ended June 30, 2000 follows:
<TABLE>
For the Quarter Ended For the Six-Months Ended
June 30, 2000 June 30, 2000
--------------------------- ------------- -------------
Excluding As Excluding As
($ in thousands) ICNY Reported ICNY Reported
----------------------------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest and dividend income $5,476 $7,658 $10,314 $14,914
Interest expense 3,615 5,552 6,721 10,964
------------- ------------- ------------- -------------
Net interest and dividend income 1,861 2,106 3,593 3,950
Provision for loan loss reserves 90 90 245 245
------------- ------------- ------------- -------------
Net interest and dividend income
after provision for loan loss reserves 1,771 2,016 3,348 3,705
Noninterest income 119 178 255 340
Noninterest expenses 930 1,130 1,975 2,381
------------- ------------- ------------- -------------
Earnings before taxes and extraordinary item 960 1,064 1,628 1,664
Provision for income taxes 379 427 622 637
Extraordinary item - (206) - (206)
----------------------------------------------------------------------- ------------- ------------- ------------- -------------
Net earnings $ 581 $ 431 $ 1,006 $ 821
----------------------------------------------------------------------- ------------- ------------- ------------- -------------
The amounts reported in the table above are after elimination of intercompany
revenue and expense.
</TABLE>
Note 3 - Allowance for Loan Loss Reserves
The Company monitors its loan portfolio to determine the appropriate level of
the allowance for loan loss reserves based on various factors. These factors
include: the type and level of loans outstanding, volume of loan originations;
overall portfolio quality; loan concentrations; specific problem loans,
historical chargeoffs and recoveries; adverse situations which may affect the
borrowers' ability to repay; and management's assessment of the current and
anticipated economic conditions in the Company's lending regions.
No loans were classified as nonaccrual or impaired during the 2000 and 1999
reporting periods in this report.
Activity in the allowance for loan loss reserves is summarized as follows:
<TABLE>
For the Quarter Ended For the Six-Months Ended
June 30, June 30,
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
($ in thousands) 2000 1999 2000 1999
--------------------------------------------------------------- -------------- ------------- ------------- -------------
Balance at beginning of period $2,648 $1,774 $2,493 $1,662
Provision charged to operations 90 223 245 335
--------------------------------------------------------------- -------------- ------------- ------------- -------------
Balance at end of period $2,738 $1,997 $2,738 $1,997
--------------------------------------------------------------- -------------- ------------- ------------- -------------
</TABLE>
Note 4 - Earnings Per Share (EPS)
Basic EPS is calculated by dividing net earnings by the weighted-average number
of shares of common stock outstanding. Diluted EPS is calculated by dividing
adjusted net earnings by the weighted-average number of shares of common stock
outstanding and dilutive potential common stock shares that may be outstanding
in the future. Potential common stock shares may arise from outstanding dilutive
common stock warrants (as computed by the "treasury stock method") and
convertible debentures (as computed by the "if converted method").
9
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
Note 4 - Earnings Per Share (EPS), Continued
Diluted EPS considers the potential dilution that could occur if the Company's
outstanding stock warrants and convertible debentures were converted into common
stock that then shared in the Company's adjusted earnings (as adjusted for
interest expense, net of taxes, that would no longer occur if the debentures
were converted into common stock).
EPS computations for the 1999 periods have been adjusted to include the results
of operations of Intervest Corporation of New York as well as the 1,250,000
Class A common shares issued in the merger.
Net earnings applicable to common stock and the weighted-average number of
shares used for basic and diluted earnings per share computations are summarized
in the tables that follows:
<TABLE>
For the Quarter Ended For the Six-Months Ended
June 30, June 30,
------------- ------------ --------------- -------------
BASIC EARNINGS PER SHARE 2000 1999 2000 1999
------------------------------------------------------------------------- ------------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Net earnings:
Earnings before extraordinary item and change in accounting principle $ 637,000 $339,000 $1,027,000 $961,000
Extraordinary item (1) (206,000) - (206,000) -
Cumulative effect of change in accounting principle (2) - - - (128,000)
------------------------------------------------------------------------- ------------- ------------ --------------- -------------
Net earnings $ 431,000 $339,000 $ 821,000 $833,000
------------------------------------------------------------------------- ------------- ------------ --------------- -------------
Average number of common shares outstanding 3,890,629 3,744,567 3,871,007 3,742,212
Per share amounts:
Earnings before extraordinary item and change in accounting principle $0.16 $0.09 $0.26 $0.25
Extraordinary item (1) (0.05) - (0.05) -
Cumulative effect of change in accounting principle (2) - - - (0.03)
------------------------------------------------------------------------- ------------- ------------ --------------- -------------
Basic net earnings per share $0.11 $0.09 $0.21 $0.22
------------------------------------------------------------------------- ------------- ------------ --------------- -------------
DILUTED EARNINGS PER SHARE
Average number of common shares outstanding for dilution:
Common shares outstanding per above 3,890,629 3,744,567 3,871,007 3,742,212
Potential dilutive shares resulting from exercise of warrants (3) - 346,866 - 330,844
Potential dilutive shares resulting from conversion of debentures (3) - - - -
------------- ------------ --------------- -------------
Total average number of common shares outstanding 3,890,629 4,091,433 3,871,007 4,073,056
------------- ------------ --------------- -------------
Per share amounts:
Earnings before extraordinary item and change in accounting principle $0.16 $0.08 $0.26 $0.23
Extraordinary item (1) (0.05) - (0.05) -
Cumulative effect of change in accounting principle (2) - - - (0.03)
------------------------------------------------------------------------- ------------- ------------ --------------- -------------
Diluted net earnings per share $0.11 $0.08 $0.21 $0.20
------------------------------------------------------------------------- ------------- ------------ --------------- -------------
<FN>
(1) Represents a charge, net of taxes, from the early retirement of debentures.
(2) Represents a charge, net of taxes, from the adoption of Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities."
(3) A total of 2,659,000 of common stock warrants with exercise prices ranging
from $6.67 to $15.00 were not included in the quarterly and six-months
computation of diluted EPS for 2000 because they were not dilutive. A total
of 1,134,000 common stock warrants with exercise prices ranging from $10.00
to $14.00 were not included in the quarterly and six-months computation of
diluted EPS for 1999 because they were not dilutive Additionally,
convertible debentures were excluded from all diluted EPS computations
because they were not dilutive and as a result, adjusted net earnings for
diluted EPS is the same as net earnings for basic EPS.
</FN>
</TABLE>
10
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
Note 5 - Subordinated Debentures Payable and Extraordinary Item
Debentures outstanding are summarized as follows:
<TABLE>
At June 30, At December 31,
($ in thousands) 2000 1999
------------------------------------------------------------------------ ------------- -------------------
INTERVEST CORPORATION OF NEW YORK:
<S> <C> <C> <C> <C> <C> <C>
Series 06/29/92 - interest at 2% above prime - due April 1, 2000 $ - $ 7,000
Series 09/13/93 - interest at 2% above prime - due October 1, 2001 - 8,000
Series 01/28/94 - interest at 2% above prime - due April 1, 2002 - 4,500
Series 10/28/94 - interest at 2% above prime - due April 1, 2003 - 4,500
Series 05/12/95 - interest at 2% above prime - due April 1, 2004 9,000 9,000
Series 10/19/95 - interest at 2% above prime - due October 1, 2004 9,000 9,000
Series 05/10/96 - interest at 2% above prime - due April 1, 2005 10,000 10,000
Series 10/15/96 - interest at 2% above prime - due October 1, 2005 5,500 5,500
Series 04/30/97 - interest at 1% above prime - due October 1, 2005 8,000 8,000
Series 11/10/98 - interest at 8% fixed - due January 1, 2001 1,400 1,400
Series 11/10/98 - interest at 81/2% fixed - due January 1, 2003 1,400 1,400
Series 11/10/98 - interest at 9% fixed - due January 1, 2005 2,600 2,600
Series 06/28/99 - interest at 8% fixed - due July 1, 2002 2,500 2,500
Series 06/28/99 - interest at 81/2% fixed - due July 1, 2004 2,000 2,000
Series 06/28/99 - interest at 9% fixed - due July 1, 2006 2,000 2,000
------------- -------------------
53,400 77,400
INTERVEST BANCSHARES CORPORATION:
Series 05/14/98 - interest at 8% fixed - due July 1, 2008 6,930 6,930
------------------------------------------------------------------------ ------------- -------------------
$60,330 $84,330
------------------------------------------------------------------------ ------------- -------------------
</TABLE>
The "Prime" in the preceding table refers to the prime rate of Chase Manhattan
Bank, which was 9.5% on June 30, 2000, 9.0% on March 31, 2000 and 8.50% at
December 31, 1999.
In the first half of 2000, Intervest Corporation of New York's Series 6/29/92,
9/13/93, 1/28/94 and 10/28/94 debentures totaling $24,000,000 in principal were
redeemed prior to maturity for the outstanding principal amount plus accrued
interest aggregating $3,970,000. In connection with these early redemptions,
$382,000 of unamortized deferred debenture offering costs was charged to expense
in the second quarter of 2000 and reported as an extraordinary charge, net of a
tax benefit of $176,000, in the condensed consolidated statements of earnings
for the quarter and six-months ended June 30, 2000.
Intervest Corporation of New York's floating-rate Series 5/12/95, 10/19/95,
5/10/96, 10/15/96 and 4/30/97 debentures have a maximum interest rate of 12%.
The payment of interest on an aggregate of $18,440,000 of these debentures,
which interest is compounded, is deferred until maturity. The payment of
interest on the remaining debentures is made quarterly. Any debenture holder in
the aforementioned Series who has deferred receipt of interest may at any time
elect to receive the deferred interest and subsequently receive regular payments
of interest.
Intervest Corporation of New York's Series 11/10/98 and Series 6/28/99
debentures accrue and compound interest quarterly. The holders of these
debentures can require the Company to repurchase the debentures for face amount
plus accrued interest each year beginning on July 1, 2001 and July 1, 2002,
respectively, provided, however that in no calendar year will the Company be
required to purchase more than $100,000 in principal amount of each maturity of
debentures, on a non-cumulative basis.
All the debentures may be redeemed, in whole or in part, at any time at the
option of the Intervest Corporation of New York, for face value, except for
certain debentures issued in 1998, which would be at a premium of 1% if the
redemption is prior to January 1, 2001 (for Series 11/10/98 due January 1, 2003
and 2005). All the debentures are unsecured and subordinate to all present and
future senior indebtedness, as defined.
11
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
Note 5 - Subordinated Debentures Payable and Extraordinary Item, Continued
The Holding Company's Series 05/14/98 subordinated 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 conversion prices per
share: $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 $30.00 from January 1,
2008 through April 1, 2008. The Holding Company has the right to establish
conversion prices that are less than those set forth above for such periods as
it may determine. The Holding Company also has the option at any time to call
all or any part of the convertible debentures for payment and redeem the same at
any time prior to maturity thereof for face amount. Interest accrues and
compounds each calendar quarter at 8%. All accrued interest is payable at
maturity whether by acceleration, redemption or otherwise. Any convertible
debenture holder may, on or before July 1 of each year commencing July 1, 2003,
elect to be paid all accrued interest and to thereafter receive payments of
interest quarterly.
Scheduled contractual maturities of all debentures as of June 30, 2000 are
summarized as follows:
($ in thousands) Principal Accrued Interest
-------------------------------------------------------- -------------------
For the six-months ended December 31, 2000 $ - $ -
For the year ended December 31, 2001 1,400 184
For the year ended December 31, 2002 2,500 187
For the year ended December 31, 2003 1,400 197
For the year ended December 31, 2004 20,000 2,914
Thereafter 35,030 2,755
-------------------------------------------------------- -------------------
$60,330 $6,237
-------------------------------------------------------- -------------------
Note 6 - Cumulative Effect of Change in Accounting Principle
On January 1, 1999, the Company adopted as required the AICPA's Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities." The SOP
requires that all start-up costs (except for those that are capitalizable under
other generally accepted accounting principles) be expensed as incurred for
financial statement purposes effective January 1, 1999. Previously, a portion of
start-up costs were generally capitalized and amortized over a period of time.
The adoption of this statement resulted in 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.
Note 7 - Regulatory Matters
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 June
30, 2000, that the Company, Intervest Bank and Intervest National Bank met all
capital adequacy requirements to which they are subject.
12
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
Note 7 - Regulatory Matters, Continued
As of June 30 2000, the most recent notification from the regulators categorized
the Banks as well-capitalized institutions under regulatory framework for prompt
corrective action. 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>
Actual Minimum To Be Considered
Ratios Requirement Well Capitalized
Consolidated
<S> <C> <C>
Total capital to risk-weighted assets 12.90% 8.00% NA
Tier 1 capital to risk-weighted assets 11.93% 4.00% NA
Tier 1 capital to total average assets - leverage ratio 9.17% 4.00% NA
Intervest Bank
Total capital to risk-weighted assets 10.97% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 9.72% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 6.53% 4.00% 5.00%
Intervest National Bank
Total capital to risk-weighted assets 15.95% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 15.03% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 13.69% 4.00% 5.00%
</TABLE>
On June 15, 2000, Intervest National Bank and its primary regulator, the Office
of the Comptroller of the Currency of the United States of America entered into
a Memorandum of Understanding ("MOU"). The MOU, is a formal written agreement
whereby, among other things, Intervest National Bank shall review, revise,
develop and implement various policies and procedures with respect to its
lending and credit underwriting. Management has implemented various actions
towards bringing Intervest National Bank to full compliance with the MOU.
13
<PAGE>
Intervest Bancshares Corporation and Subsidiaries
Review by Independent Certified Public Accountants
Hacker, Johnson, Cohen & Grieb PA, the Company's independent certified public
accountants, have made a limited review of the financial data as of June 30,
2000, and for the three- and six-month periods then ended presented in this
document, in accordance with standards established by the American Institute of
Certified Public Accountants.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
14
<PAGE>
Report on Review by Independent Certified Public Accountants
The Board of Directors
Intervest Bancshares Corporation and Subsidiaries
New York, New York:
We have reviewed the condensed consolidated balance sheet of Intervest
Bancshares Corporation and Subsidiaries (the "Company") as of June 30, 2000, and
the related condensed consolidated statements of earnings for the three- and
six-month periods then ended and the related condensed consolidated statements
of changes in stockholders' equity and cash flows for the six-month period then
ended included in this report. These financial statements are the responsibility
of the Company's management.
We were furnished with the report of other accountants on their review
of the interim financial information of Intervest Corporation of New York, whose
total assets as of June 30, 2000, and whose interest income and noninterest
income for the three- and six-month periods then ended, constituted 18.5%; 28.5%
and 30.8%; and 33.1% and 25.0%, respectively, of the related consolidated
totals. The net loss for Intervest Corporation of New York included in the
consolidated totals for the three- and six-month periods ended June 30, 2000 was
$150,000 and $185,000, respectively.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review and the report of other accountants, we are not
aware of any material modifications that should be made to the condensed
consolidated financial statements referred to above for them to be in conformity
with generally accepted accounting principles.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
August 10, 2000
15
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Intervest Bancshares Corporation is the Holding Company for Intervest National
Bank in New York City, Intervest Bank in Clearwater, Florida, and Intervest
Corporation of New York in New York City. Hereafter, all the entities are
referred to as the "Company" on a consolidated basis. Intervest National Bank
and Intervest Bank may be referred to together as the "Banks."
All financial information in this report has been adjusted to include the
accounts of Intervest Corporation of New York, which was acquired by the Company
through a merger completed on March 10, 2000. Intervest Corporation of New York
engages in the business of originating and acquiring commercial and multifamily
residential loans. The merger has been accounted for at historical cost similar
to the pooling-of-interests method of accounting. See note 2 to the condensed
consolidated financial statements for a further discussion of the merger.
The Company's earnings (before an extraordinary charge) increased to $637,000,
or $0.16 per fully diluted share, for the second quarter of 2000, from $339,000,
or $0.08 per share, for the second quarter of 1999. The increase was primarily
due to growth in net interest and dividend income and a lower provision for loan
loss reserves, partially offset by a higher provision for income taxes.
In the second quarter of 2000, the Company recorded a charge, net of taxes, of
$206,000, or $0.05 per share, in connection with the early retirement of
$17,000,000 of debentures by its subsidiary, Intervest Corporation of New York.
This charge reduced consolidated net earnings to $431,000, or $0.11 per fully
diluted share, for the second quarter of 2000.
Earnings from Intervest National Bank and Intervest Bank, the Company's banking
subsidiaries, increased from the same period a year ago. Intervest National
Bank's net earnings increased to $139,000 in the second quarter of 2000, from a
net loss of $173,000 in the same quarter of 1999. Intervest National Bank opened
for business on April 1, 1999. Intervest Bank's net earnings increased to
$471,000 in the second quarter of 2000, from $382,000 in the second quarter of
1999.
For the first six months of 2000, earnings (before extraordinary charges and the
effect of accounting changes) increased to $1,027,000, or $0.26 per fully
diluted share, from $961,000, or $0.23 per share, for the same period of 1999.
The increase was due to higher net interest and dividend income, largely offset
by nonrecurring expenses associated with the acquisition of Intervest
Corporation of New York, an increase in operating expenses due to the opening of
Intervest National Bank, and a decline in mortgage prepayment fee income.
Including the one-time charges discussed above and on page 24, net earnings were
$821,000, or $0.21 per fully diluted share, in the first half of 2000, compared
to $833,000, or $0.20 per share, for the same period of 1999.
Selected information about the Holding Company and its subsidiaries at June 30,
2000 and for the quarter and six-months ended June 30, 2000, follows in the
table below:
<TABLE>
Intervest
Intervest Corporation
Holding Intervest National of Consolidated
($ in thousands) Company Bank Bank New York Amounts (1)
--------------------------------------------------------- ----------- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Total assets $42,878 $203,868 $96,225 $69,082 $373,008
Total cash and cash equivalents 2,129 6,905 13,392 4,835 22,575
Total securities, net - 75,451 11,549 - 87,000
Total loans, net of unearned fees and loan loss 5,742 113,896 69,266 60,234 249,138
Total deposit liabilities - 186,445 81,916 - 258,365
Total debentures payable and related accrued interest 8,138 - - 58,429 66,567
Total stockholders' equity 34,622 13,712 11,692 8,955 34,622
Net earnings (loss) for the quarter (29) 471 139 (150) 431
Net earnings (loss) for the six-months (159) 966 199 (185) 821
Number of full-service banking offices - 5 1 - 6
--------------------------------------------------------- ----------- ------------ ------------ ------------- ---------------
<FN>
(1) Consolidated amounts exclude intercompany balances.
</FN>
</TABLE>
16
<PAGE>
Comparison of Financial Condition at June 30, 2000 and December 31, 1999
Overview
Total assets at June 30, 2000 increased to $373,008,000, from $340,481,000 at
December 31, 1999, primarily as a result of an increase in loans receivable,
partially offset by a decline in cash and cash equivalents.
Total liabilities at June 30, 2000 increased to $338,386,000, from $306,877,000
at December 31, 1999, due to growth in certificate of deposit accounts. The
increase in deposits was partially offset by the retirement of debentures
payable and the repayment of federal funds purchased.
Stockholders' equity increased to $34,622,000 at June 30, 2000, from $33,604,000
at year-end 1999. The increase reflected earnings for the six-months ended June
30, 2000 and the issuance of common stock in connection with a stock award and
the exercise of warrants. Book value per common share increased to $8.90 per
share at June 30, 2000, from $8.76 at December 31, 1999.
The Company's balance sheet was comprised of the following:
<PAGE>
<TABLE>
At June 30, 2000 At December 31, 1999
-------------- ----------------- ----------------- -----------------
Carrying % of Carrying % of
($ in thousands) Value Total Assets Value Total Assets
------------------------------------------------ -------------- ----------------- -------- ----------------- -----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 22,575 6.1% $32,095 9.4%
Securities, net 87,000 23.3 83,640 24.6
Loans receivable, net 249,138 66.8 210,444 61.8
All other assets 14,295 3.8 14,302 4.2
------------------------------------------------ -------------- ----------------- -------- ----------------- -----------------
Total assets $373,008 100.0% $340,481 100.0%
------------------------------------------------ -------------- ----------------- -------- ----------------- -----------------
Deposits $258,365 69.2% $201,080 59.1%
Federal funds purchased - - 6,955 2.0
Debentures payable 60,330 16.2 84,330 24.8
Accrued interest payable on debentures 6,237 1.7 8,092 2.3
All other liabilities 13,454 3.6 6,420 1.9
------------------------------------------------ -------------- ----------------- -------- ----------------- -----------------
Total liabilities 338,386 90.7 306,877 90.1
------------------------------------------------ -------------- ----------------- -------- ----------------- -----------------
Stockholders' equity 34,622 9.3 33,604 9.9
------------------------------------------------ -------------- ----------------- -------- ----------------- -----------------
Total liabilities and stockholders' equity $373,008 100.0% $340,481 100.0%
------------------------------------------------ -------------- ----------------- -------- ----------------- -----------------
</TABLE>
Cash and Cash Equivalents
Cash and cash equivalents include interest-bearing and noninterest-bearing cash
balances, investments in overnight federal funds and other short-term
investments that have original maturities of three months or less. Short-term
investments are normally comprised of commercial paper issued by large
commercial banks, certificates of deposit and U.S. government securities.
The level of cash and cash equivalents fluctuates based on various factors,
including liquidity needs, loan demand, deposit flows, repayments of borrowed
funds and alternative security investment opportunities.
Securities
Securities 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 $86,404,000 at June 30, 2000, compared to $83,132,000 at
December 31, 1999. The portfolio consists of fixed-rate debt obligations of the
Federal Home Loan Bank, Federal Farm Credit Bank, Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation. Most of the
securities have terms that allow the issuer the right to call or prepay its
obligation without prepayment penalty.
17
<PAGE>
In order for the Banks to be members of the Federal Reserve Banking System, the
Banks maintain an investment in the capital stock of the Federal Reserve Bank,
which pays a dividend that is currently 6%. The amount of the investment, which
amounted to $596,000 at June 30, 2000 and $508,000 at year-end 1999, fluctuates
based on each Bank's capital level.
Loans Receivable
Loans receivable, before the allowance for loan loss reserves, increased to
$251,876,000 at June 30, 2000, from $212,937,000 at December 31, 1999. The
increase was due to new commercial and multifamily real estate loan
originations, partially offset by principal repayments. Commercial real estate
and multifamily real estate properties collateralized almost all of the loans in
the Company's loan portfolio.
At June 30, 2000 and December 31, 1999, the Company did not have any loans on a
nonaccrual status or classified as impaired.
Allowance for Loan Loss Reserves
The Company monitors its loan portfolio to determine the appropriate level of
the allowance for loan loss reserves based on various factors. These factors
include: the type and level of loans outstanding, volume of loan originations;
overall portfolio quality; loan concentrations; specific problem loans,
historical chargeoffs and recoveries; adverse situations which may affect the
borrowers' ability to repay; and management's assessment of the current and
anticipated economic conditions in the Company's lending regions.
At June 30, 2000, the allowance amounted to $2,738,000, compared to $2,493,000
at year-end 1999. The increase in the allowance was due to new loan
originations. The allowance represented 1.09% of total loans outstanding at June
30, 2000, compared to 1.17% at December 31, 1999.
All Other Assets
The following table shows the composition of all other assets:
At At
June 30, December 31,
($ in thousands) 2000 1999
----------------------------------------- ----------- ----------------
Accrued interest receivable $2,698 $1,995
Loan fees receivable 1,120 839
Premises and equipment, net 5,764 5,863
Deferred income tax asset 972 936
Deferred debenture offering costs 2,921 3,721
All other 820 948
----------------------------------------- ----------- ----------------
$14,295 $14,302
----------------------------------------- ----------- ----------------
Deferred debenture offering costs in the table above consist primarily of
underwriters' commissions and are amortized over the terms of the debentures.
The decline was due to normal amortization as well as the accelerated
amortization of $382,000 in connection with the early retirement of debentures
in the second quarter of 2000. See note 5 to the condensed consolidated
financial statements for a further discussion.
Deposit Liabilities
Deposit liabilities increased to $258,365,000 at June 30, 2000, from
$201,080,000 at December 31, 1999, due to growth in certificate of deposit
accounts. At June 30, 2000, certificate of deposit accounts totaled $175,183,000
and demand deposit, savings, NOW and money-market accounts aggregated
$83,182,000. The same categories of deposit accounts totaled $122,794,000 and
$78,286,000, respectively, at December 31, 1999. Certificate of deposit accounts
represented 68% of total deposits at June 30, 2000, compared to 61% at year-end
1999.
18
<PAGE>
Federal Funds Purchased
From time to time, the Banks purchase Federal funds to manage their liquidity
needs. At June 30, 2000, there were no outstanding funds, compared to $6,955,000
at December 31, 1999.
Debentures Payable and Accrued Interest Payable on Debentures
At June 30, 2000, debentures payable amounted to $60,330,000, compared to
$84,330,000 at year-end 1999. In the first half of 2000, Intervest Corporation
of New York's Series 6/29/92, 9/13/93, 1/28/94 and 10/28/94 debentures totaling
$24,000,000 in principal amount were redeemed prior to maturity for the
outstanding principal amount plus accrued interest aggregating $3,970,000.
At June 30, 2000, debentures payable consisted of $53,400,000 of Intervest
Corporation of New York's registered floating and fixed-rate subordinated
debentures and $6,930,000 of the Holding Company's fixed-rate convertible
subordinated debentures. From time to time, Intervest Corporation of New York
has issued debentures and the proceeds were used for the origination and
purchase of commercial and multifamily mortgage loans. The Holding Company has
issued debentures to raise funds for working capital purposes.
At June 30, 2000, accrued interest payable on debentures amounted to $6,237,000,
compared to $8,092,000 at year-end 1999. The decline reflected the early
retirement of the debentures discussed above, partially offset by additional
accruals. The accrued interest is payable at the maturity of various debentures.
For a further discussion of the debentures, including conversion prices and
redemption premiums, see note 5 to the condensed consolidated financial
statements.
All Other Liabilities
The following table shows the composition of all other liabilities:
At At
June 30, December 31,
($ in thousands) 2000 1999
---------------------------------------- --------------- ----------------
Mortgage escrow funds payable $5,185 $3,375
Accrued interest payable on deposits 610 461
Official checks outstanding 6,784 1,821
All other 875 763
---------------------------------------- --------------- ----------------
$13,454 $6,420
---------------------------------------- --------------- ----------------
Mortgage escrow funds payable represent advance payments made by borrowers for
real estate 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. The level of official checks
outstanding varies and fluctuates based on banking activity.
Stockholders' Equity and Regulatory Capital
Stockholders' equity increased to $34,622,000 at June 30, 2000, from $33,604,000
at December 31, 1999. The increase was almost entirely due to net earnings of
$821,000 and the issuance of 53,750 shares of common stock. The issuance of
common stock resulted, net of issuance costs, in a $185,000 aggregate increase
in stockholders' equity. The shares were issued as follows: 3,750 shares of
Class A common stock upon the exercise of Class A warrants; and 50,000 shares of
Class B common stock issued in connection with the merger. (See note 2 to the
condensed consolidated financial statements for a further discussion of the
stock issued in connection with the merger.)
Intervest Bank and Intervest National Bank are both well-capitalized
institutions as defined by FDIC regulations. (See note 7 to the condensed
consolidated financial statements for capital ratios.) On June 15, 2000,
Intervest National Bank and its primary regulator, the Office of the Comptroller
of the Currency of the United States of America entered into a Memorandum of
Understanding ("MOU"). The MOU, is a formal written agreement whereby, among
other things, Intervest National Bank shall review, revise, develop and
implement various policies and procedures with respect to its lending and credit
underwriting. Management has implemented various actions towards bringing
Intervest National Bank to full compliance with the MOU.
19
<PAGE>
Liquidity and Capital Resources
The Company manages its liquidity position on a daily basis to assure that funds
are available to meet operations, loan and investment funding commitments,
deposit withdrawals and the repayment of borrowed funds. The Company's primary
sources of funds consist of: retail deposits obtained through the Banks'
offices; satisfactions and repayments of loans; the maturities and calls of
securities; and cash provided by operating activities. From time to time, the
Banks may also utilize the Federal funds market.
From time to time, Intervest Corporation of New York has issued debentures and
the proceeds were used for the origination and purchase of commercial and
multifamily mortgage loans. The Holding Company has also issued debentures to
raise funds for working capital purposes. In the first half of 2000, Intervest
Corporation of New York repaid $24,000,000 of debentures plus accrued interest
of $3,970,000 to debenture holders. Adequate funds were maintained to retire
these debentures.
At June 30, 2000, the Company's total commitment to lend aggregated
approximately $21,800,000. Based on its cash flow projections, the Company
believes that it can fund all of its outstanding lending commitments and
maturing liabilities from the aforementioned sources of funds. For information
about the cash flows from the Company's operating, investing and financing
activities, see the condensed consolidated statements of cash flows in this
report.
Interest Rate Risk
Interest rate risk arises from differences in the repricing of assets and
liabilities within a given time period. The principal objective of the Company's
asset/liability management strategy is to minimize its exposure to changes in
interest rates. The Company uses "gap analysis," which measures the difference
between interest-earning assets and interest-bearing liabilities that mature or
reprice within a given time period, to monitor its interest rate sensitivity. At
June 30, 2000, the Company's one-year negative interest-rate sensitivity gap was
$53,914,000, or 14.5% of total assets, compared to $80,693,000, or 23.7%, at
December 31, 1999.
In computing the gap, the Company treats interest checking, money market and
savings deposit accounts as immediately repricing. For a further discussion of
interest rate risk and gap analysis, including the assumptions used in
developing the one-year gap position, see the Company's 1999 Annual Report on
Form 10-KSB, pages 28 and 29.
Comparison of Results of Operations for the Quarters Ended June 30, 2000 and
1999
Overview
Net earnings (before an extraordinary charge) increased to $637,000, or $0.16
per fully diluted share, for the second quarter of 2000, from $339,000, or $0.08
per share, for the second quarter of 1999. The increase was primarily due to a
$347,000 increase in net interest and dividend income and a $133,000 decline in
the provision for loan loss reserves, partially offset by a $179,000 increase in
the provision for income taxes.
In the second quarter of 2000, the Company recorded a charge, net of taxes, of
$206,000, or $0.05 per share, in connection with the early retirement of
$17,000,000 of debentures by its subsidiary, Intervest Corporation of New York.
This charge reduced consolidated net earnings to $431,000, or $0.11 per fully
diluted share, for the second quarter of 2000.
Net Interest and Dividend Income
Net interest and dividend income is the Company's primary source of earnings and
is influenced primarily by the amount, distribution and repricing
characteristics of its interest-earning assets and interest-bearing liabilities,
as well as by the relative levels and movements of interest rates. The table
that follows sets forth information on average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for the periods indicated. The yields and rates
shown are based on a computation of annualized income/expense for each period
divided by average interest-earning assets/interest-bearing liabilities during
each period. Certain yields and rates shown are adjusted for related fee income
or expense. Average balances are derived mainly from daily balances. Net
interest margin is computed by dividing annualized net interest and dividend
income by the average of total interest-earning assets during each period.
20
<PAGE>
<TABLE>
For the Quarter Ended
------------------------------------ --- ------------------------------------
June 30, 2000 June 30, 1999
------------------------------------ --- ------------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Assets
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans $245,685 $6,030 9.87% $166,285 $4,516 10.89%
Securities 96,423 1,431 5.97 105,984 1,494 5.65
Other interest-earning assets 13,348 197 5.94 12,256 141 4.61
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Total interest-earning assets 355,456 $7,658 8.67% 284,525 $6,151 8.67%
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Noninterest-earning assets 13,708 13,393
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Total assets $369,164 $297,918
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Checking deposits $ 7,768 $ 59 3.05% $ 7,848 $ 62 3.17%
Savings deposits 17,410 231 5.34 25,986 265 4.09
Money-market deposits 53,425 711 5.35 37,941 407 4.30
Certificates of deposit 163,963 2,468 6.05 89,997 1,235 5.50
-------------- ----------- --------- --- ------------- ----------- ----------
Total deposit accounts 242,566 3,469 5.75 161,772 1,969 4.88
Federal funds purchased - - - 440 6 5.47
Debentures and accrued interest payable 77,173 2,083 10.86 92,661 2,417 10.46
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Total interest-bearing liabilities 319,739 $5,552 6.98% 254,873 $4,392 6.91%
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Noninterest-bearing deposits 9,225 4,276
Noninterest-bearing liabilities 5,813 6,868
Stockholders' equity 34,387 31,901
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Total liabilities and stockholders' equity $369,164 $297,918
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Net interest and dividend income/spread $2,106 1.69% $1,759 1.76%
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Net interest-earning assets/margin $35,717 2.38% $29,652 2.48%
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.11x 1.12x
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Other Ratios:
Return on average assets (1) 0.47% 0.46%
Return on average equity (1) 5.01% 4.25%
Noninterest expense to average assets (1) 1.22% 1.47%
Efficiency ratio 49.47% 57.41%
Average stockholders' equity to average assets 9.31% 10.71%
--------------------------------------------------- ------------ ----------- --------- --- ------------- ----------- ----------
(1) Annualized
</TABLE>
Net interest and dividend income increased to $2,106,000 in the second quarter
of 2000, from $1,759,000 in the 1999 second quarter. The improvement was
attributable to a $79,400,000 increase in the average loan portfolio, partially
offset by a decline in the interest rate spread from 1.76% to 1.69%. The growth
in the loan portfolio was funded by a $80,794,000 increase in average deposits.
The Company's cost of funds increased 7 basis points to 6.98% due to the rising
interest rate environment, as evidenced by the Federal Reserve Board increasing
the Federal Funds target rate on six occasions between June 1999 and June 2000,
for a total increase of 175 basis points. The higher rate environment resulted
in higher rates paid by the Company on its deposit accounts and floating-rate
debentures, as well as an increase in depositors' preference for certificate of
deposit accounts. Such accounts normally pay a higher rate than savings and
money-market accounts.
The Company's yield on earning assets remained unchanged at 8.67% despite the
rising rate environment. This was the result of a decline in the yield on the
loan portfolio due to competitive lending conditions, which resulted in
originations of new loans with interest rates that are lower than those in the
existing portfolio as well as prepayments of higher-yielding loans. This decline
was offset by higher yields earned on the Company's investment securities and
other short-term investments.
21
<PAGE>
Provision for Loan Loss Reserves
The provision 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 that are discussed in note 3 to the condensed consolidated financial
statements. The provision amounted to $90,000 in the second quarter of 2000,
compared to $223,000 in the second quarter of 1999.
Noninterest Income
Noninterest income was $178,000 in the second quarter of 2000, compared to
$143,000 in the second quarter of 1999. Noninterest income includes fees from
customer service charges and income from mortgage lending activities, which are
comprised of loan prepayment fees, fees earned on expired loan commitments, and
loan service, inspection and maintenance charges. The increase from the prior
year quarter was primarily due to higher prepayment fee income.
Noninterest Expenses
Noninterest expenses were $1,130,000 in the second quarter of 2000, compared to
$1,092,000 in the second quarter of 1999.
Provision for Income Taxes
The provision for income taxes increased to $427,000 in the second quarter of
2000, from $248,000 in the same period of 1999, primarily due to higher pre-tax
earnings. The Company's effective tax rate (inclusive of state and local taxes)
amounted to 40% in the 2000 period, compared to 42% in the 1999 period.
Extraordinary Item
In the second quarter of 2000, Intervest Corporation of New York redeemed its
Series 9/13/93, 1/28/94 and 10/28/94 debentures aggregating $17,000,000 in
principal amount prior to maturity for the outstanding principal plus accrued
interest. In connection with these early redemptions, $382,000 of unamortized
deferred debenture offering costs was charged to expense in the second quarter
of 2000 and reported as an extraordinary charge, net of a tax benefit of
$176,000, in the condensed consolidated statements of earnings for the quarter
and six-months ended June 30, 2000.
Comparison of Results of Operations for the Six-Months Ended June 30, 2000 and
1999
Overview
For the first six months of 2000, earnings (before the extraordinary charge
described above and the effect of an accounting change described on page 24)
increased to $1,027,000, or $0.26 per fully diluted share, from $961,000, or
$0.23 per share, for the same period of 1999. The improvement was due to a
$502,000 increase in net interest and dividend income and a $90,000 decrease in
the provision for loan loss reserves. These items were largely offset by a
$388,000 increase in noninterest expenses and a $217,000 decline in noninterest
income. Including the extraordinary charge and the effect of an accounting
change, net earnings were $821,000, or $0.21 per fully diluted share, in the
first half of 2000, compared to $833,000, or $0.20 per share, for the same
period of 1999.
Net Interest and Dividend Income
Net interest and dividend income is the Company's primary source of earnings and
is influenced primarily by the amount, distribution and repricing
characteristics of its interest-earning assets and interest-bearing liabilities
as well as by the relative levels and movements of interest rates.
The table that follows sets forth information for the six-months ended June 30,
2000 and 1999, that is the same as the information described above the table on
page 21.
22
<PAGE>
<TABLE>
For the Six-Months Ended
------------------------------------ --- ------------------------------------
June 30, 2000 June 30, 1999
------------------------------------ --- ------------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans $238,097 $11,676 9.86% $165,744 $8,997 10.95%
Securities 100,904 2,951 5.88 107,764 3,012 5.64
Other interest-earning assets 9,987 287 5.78 12,510 271 4.37
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Total interest-earning assets 348,988 $14,914 8.59% 286,018 $12,280 8.66%
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Noninterest-earning assets 14,052 12,463
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Total assets $363,040 $298,481
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Checking deposits $ 7,526 $ 114 3.05% $ 7,590 $ 118 3.14%
Savings deposits 17,423 445 5.14 26,462 544 4.15
Money-market deposits 52,756 1,373 5.23 36,954 793 4.33
Certificates of deposit 148,245 4,381 5.94 92,160 2,529 5.53
-------------- ----------- --------- --- ------------- ----------- ----------
Total deposit accounts 225,950 6,313 5.62 163,166 3,984 4.92
Federal funds purchased 5,000 146 5.87 219 6 5.52
Debentures and accrued interest payable 84,023 4,505 10.78 93,270 4,842 10.47
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Total interest-bearing liabilities 314,973 $10,964 7.00% 256,655 $8,832 6.94%
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Noninterest-bearing deposits 8,358 4,215
Noninterest-bearing liabilities 5,590 5,963
Stockholders' equity 34,119 31,648
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Total liabilities and stockholders' equity $363,040 $298,481
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Net interest and dividend income/spread $3,950 1.59% $ 3,448 1.72%
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Net interest-earning assets/margin $34,015 2.28% $29,363 2.43%
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.11x 1.11x
------------------------------------------------- -------------- ----------- --------- --- ------------- ----------- ----------
Other Ratios:
Return on average assets (1) 0.45% 0.56%
Return on average equity (1) 4.81% 5.26%
Noninterest expense to average assets (1) 1.31% 1.34%
Effeciency ratio 55.50% 49.76%
Average stockholders' equity to average assets 9.40% 10.60%
--------------------------------------------------- ------------ ----------- --------- --- ------------- ----------- ----------
<FN>
(1) Annualized
</FN>
</TABLE>
Net interest and dividend income increased to $3,950,000 in the first half of
2000, from $3,448,000 in the 1999 first half. The improvement was attributable
to a $72,353,000 increase in the average loan portfolio, partially offset by a
decline in the interest rate spread from 1.72% to 1.59%. The growth in the loan
portfolio was funded primarily by a $62,784,000 increase in average deposits.
The Company's cost of funds increased 6 basis points to 7.00% due to the rising
interest rate environment, as evidenced by the Federal Reserve Board increasing
the Federal Funds target rate on six occasions between June 1999 and June 2000,
for a total of 175 basis points. The higher rate environment resulted in higher
rates paid by the Company on its deposit accounts and floating-rate debentures,
as well as an increase in depositors' preference for certificate of deposit
accounts. Such accounts normally pay a higher rate than savings and money-market
accounts.
The Company's yield on earning assets declined 7 basis points to 8.59% despite
the rising rate environment. This was the result of a decline in the overall
yield on the loan portfolio due to competitive lending conditions, which
resulted in originations of new loans with interest rates that are lower than
those in the existing portfolio, as well as prepayments of higher-yielding
loans. This decline was partially offset by higher yields earned on the
Company's investment securities and other short-term investments.
23
<PAGE>
Provision for Loan Loss Reserves
The provision 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 that are discussed in note 3 to the condensed consolidated financial
statements in this report. The provision amounted to $245,000 in the first half
of 2000, compared to $335,000 in the first half of 1999.
Noninterest Income
Noninterest income declined to $340,000 in the first half of 2000, from $557,000
in the first half of 1999, primarily due to lower fee income from the prepayment
of loans. Noninterest income includes fees from customer service charges and
income from mortgage lending activities, which are comprised of loan prepayment
fees, fees earned on expired loan commitments, and loan service, inspection and
maintenance charges.
Noninterest Expenses
Noninterest expenses increased to $2,381,000 in the first half of 2000, from
$1,993,000 in the first half of 1999. The increase was due to approximately
$210,000 of nonrecurring expenses associated with the acquisition of Intervest
Corporation of New York and increased operating expenses resulting from a full
six-months of operations from Intervest National Bank (which opened on April 1,
1999). The new bank required the addition of employees and increased occupancy
and equipment expenses. The nonrecurring expenses related to attorney fees,
consulting fees, printing costs, and stock compensation expense (see note 2 to
the condensed consolidated financial statements).
Provision for Income Taxes
The provision for income taxes amounted to $637,000 in the first half of 2000,
compared to $716,000 in the same period of 1999. The Company's effective tax
rate (inclusive of state and local taxes) amounted to 38% in the 2000 period,
compared to 43% in the 1999 period. The decline in the effective tax rate
reflects lower New York State and City taxes generated from Intervest
Corporation of New York's and the Holding Company's operations.
Extraordinary Item
See the discussion under the same heading in the Comparison of Results of
Operations for the Quarter Ended June 30, 2000 and 1999.
Cumulative Effect of Change in Accounting Principle
The change in accounting principle represents the required adoption 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.
24
<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. To date, the
Company has not experienced any problems as a result of the Year 2000 issue, nor
does management expect it will. Expenses incurred by the Company related to the
Year 2000 issue have not been material.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Company's market risk arises primarily from interest rate
risk inherent in its lending and deposit-taking activities. The Company has no
risk related to trading accounts, commodities or foreign exchange.
Management actively monitors and manages the Company's interest rate risk
exposure. The primary objective in managing interest rate risk is to limit,
within established guidelines, 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 obtain the maximum yield versus cost spread on that
structure. Management relies primarily on its asset-liability structure to
control interest rate risk. However, a sudden and substantial increase in
interest rates could 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. Management believes that there
have been no significant changes in the Company's market risk exposure since
December 31, 1999.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Not Applicable
ITEM 2. Changes in Securities and Use of Proceeds
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
ITEM 3. Defaults Upon Senior Securities
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) An Annual Meeting of Stockholders was held on May 24, 2000.
(b) Pursuant to the Company's charter and bylaws, one-third of the
directors are elected by the holders of Class A common stock and
two-thirds are elected by holders of Class B common stock. On all other
matters, Class A and Class B common stockholders vote together as a
single class. Each of the persons named in the Proxy Statement dated
April 17, 2000 as a nominee for Director was elected for one year terms
expiring on the date of the next annual meeting (see Item 4-C).
(c) The table that follows summarizes the voting results on the matter that
was submitted to the Company's common stockholders:
25
<PAGE>
<TABLE>
------------------------------------------- ------------------ ----------------------- ---------------------
For Against or Withheld Abstained
------------------------------------------- ------------------ ----------------------- ---------------------
Election of Directors - Class A
<S> <C> <C>
Michael A. Callen 3,200,272 14,840 -
Milton F. Gidge 3,200,272 14,840 -
William F. Holly 3,198,022 17,090 -
Election of Directors - Class B
Lawrence G. Bergman 355,000 - -
Jerome Dansker 355,000 - -
Lowell S. Dansker 355,000 - -
Edward J. Merz 355,000 - -
Thomas E. Willett 355,000 - -
David J. Willmott 355,000 - -
Wesley T. Wood 355,000 - -
------------------------------------------- ------------------ ----------------------- ---------------------
</TABLE>
(d) Not Applicable
ITEM 5. Other Information
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index (numbered in accordance with Item 601 of Regulation S-B)
27 - Financial Data Schedule (For SEC Purposes only)
(b) No reports on Form 8-K were filed during the quarter ended June 30,
2000.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
Date: August 11, 2000 By: /s/ Lowell S. Dansker
----------------------------
Lowell S. Dansker, President and Treasurer
(Chief Financial Officer)
Date: August 11, 2000 By: /s/ Lawrence G. Bergman
------------------------------
Lawrence G. Bergman, Vice President and Secretary
