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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
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Commission File Number 000-23377
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INTERVEST BANCSHARES CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-3699013
- ----------------------------- ------------------------------
(State or other jurisdiction (I.R.S. employer
of incorporation) identification no.)
10 Rockefeller Plaza, Suite 1015
New York, New York 10020-1903
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(Address of principal executive offices)
(212) 218-2800
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act
of 1934
None
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(Title of class)
Securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934
Class A Common Stock, par value $1.00 per share
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(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
As of February 4, 2002 there were 3,544,629 shares of the Registrant's Class A
common stock and 355,000 shares of the Registrant's Class B common stock issued
and outstanding. The aggregate market value of 1,202,729 shares of the
Registrant's Class A common stock on February 4, 2002, which excludes 2,341,900
shares held by affiliates as a group, was $11,498,000 This value is based on the
average bid and asked prices of $9.56 per share on February 4, 2002 of the Class
A common stock on the NASDAQ Small Cap Market.
DOCUMENTS INCORPORATED BY REFERENCE
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Portions of the Proxy Statement for the 2002 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
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Intervest Bancshares Corporation and Subsidiaries
2001 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Page
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Item 1 Description of Business .............................................2
Item 2 Description of Properties...........................................12
Item 3 Legal Proceedings...................................................13
Item 4 Submission of Matters to a Vote of Security Holders.................13
Item 4A Executive Officers and Other Key Employees..........................13
PART II
Item 5 Market for Common Equity and Related Stockholder Matters............15
Item 6 Selected Consolidated Financial and Other Data......................16
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................17
Item7A Quantitative and Qualitative Disclosures About Market Risk..........34
Item 8 Financial Statements and Supplementary Data.........................34
Item 9 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure............................66
PART III
Item 10 Directors and Executive Officers....................................66
Item 11 Executive Compensation..............................................66
Item 12 Security Ownership of Certain Beneficial Owners and Management......66
Item 13 Certain Relationships and Related Transactions......................66
PART IV
Item 14 Exhibits, Financial Statements Schedules and Reports on Form 8-K....66
Signatures...................................................................68
1
PART I
Item 1. Description of Business
General
Private Securities Litigation Reform Act Safe Harbor Statement
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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-K that are not statements of
historical fact may include forward-looking statements that involve a number of
risks and uncertainties. Such forward-looking statements are made based on
management's expectations and beliefs concerning future events impacting the
Company and are subject to uncertainties and factors relating to the Company's
operations and economic environment, all of which are difficult to predict and
many of which are beyond the control of the Company, that could cause actual
results of the Company to differ materially from those matters expressed in or
implied by forward-looking statements. The following factors are among those
that could cause actual results to differ materially from the forward-looking
statements: changes in general economic, market and regulatory conditions; the
development of an interest rate environment that may adversely affect the
Company's interest rate spread, other income or cash flow anticipated from the
Company's operations, investment and lending activities; and changes in laws and
regulations affecting banks and bank holding companies.
Intervest Bancshares Corporation
- --------------------------------
Intervest Bancshares Corporation is a registered bank holding company (the
"Holding Company") incorporated in 1993 under the laws of the State of Delaware.
Its principal office is located at 10 Rockefeller Plaza, Suite 1015, New York,
New York 10020, and its telephone number is 212-218-2800. The Holding Company's
Class A common stock was approved for listing on the NASDAQ SmallCap Market
(Symbol: IBCA) in November 1997. Prior to then, there had been no established
trading market for the securities of the Holding Company. At December 31, 2001,
the Holding Company owned 100% of the outstanding capital stock of Intervest
National Bank, Intervest Corporation of New York and Intervest Statutory Trust I
(hereafter referred to collectively as the "Company," on a consolidated basis).
On July 20, 2001, Intervest Bank (the Holding Company's other wholly owned
banking subsidiary prior to this date) merged into Intervest National Bank. The
merger 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 banks are
combined and recorded at their historical cost amounts. Hereafter, Intervest
National Bank may be referred to as the "Bank."
At December 31, 2001, the Company had total assets of $512,622,000, net loans of
$368,526,000, deposits of $362,437,000, debentures and related interest payable
of $99,910,000, and stockholders' equity of $40,395,000, compared to total
assets of $416,927,000, net loans of $266,326,000, deposits of $300,241,000,
debentures and related interest payable of $72,813,000, and stockholders' equity
of $36,228,000 at December 31, 2000.
The Holding Company's primary business is the operation of its subsidiaries. It
does not engage in any other substantial business activities other than a
limited amount of real estate mortgage lending. From time to time, the Holding
Company sells debentures to raise funds for working capital purposes. The
Holding Company is subject to examination and regulation by the Federal Reserve
Board (FRB).
Intervest National Bank
- -----------------------
Intervest National Bank is a nationally chartered bank that has its headquarters
and full-service banking office at One Rockefeller Plaza, in New York City, and
a total of five full-service banking offices in Pinellas County, Florida - four
in Clearwater and one in South Pasadena.
2
At December 31, 2001, the Bank had total assets of $421,152,000, net loans of
$296,255,000, deposits of $365,978,000, and stockholder's equity of $46,749,000,
compared to total assets of $335,788,000, net loans of $208,399,000, deposits of
$302,072,000 and stockholder's equity of $27,606,000, at December 31, 2000.
The Bank provides a wide range of banking services to small and middle-market
businesses and individuals. It conducts a personalized commercial and consumer
banking business, which consists of attracting deposits from the areas served by
its banking offices. The Bank also provides internet banking through its web
site: www.intervestnatbank.com, which can attract deposit customers from within
as well as outside its primary market areas. The deposits, together with funds
derived from other sources, are used to originate a variety of real estate,
commercial and consumer loans and to purchase investment securities. The Bank
emphasizes multifamily residential and commercial real estate lending and also
offers commercial and consumer loans.
The revenues of the Bank are primarily derived from interest and fees received
from originating loans, and from interest and dividends earned on securities and
other short-term investments. The principal sources of funds for the Bank's
lending activities are deposits, repayment of loans, maturities and calls of
securities and cash flow generated from operating activities. The Bank's
principal expenses are interest paid on deposits and operating and general and
administrative expenses.
Deposit flows and the rates paid thereon are influenced by interest rates on
competing investments available to depositors and general market rates of
interest. Lending activities are affected by the demand for real estate and
other types of loans, interest rates at which such loans may be offered and
other factors affecting the availability of funds to lend. The Bank faces strong
competition in the attraction of deposits and in the origination of loans. The
Bank's deposits are insured by the Federal Deposit Insurance Corporation (FDIC)
to the extent permitted by law.
As is the case with banking institutions generally, the Bank's operations are
significantly influenced by general economic conditions and by related monetary
and fiscal policies of banking regulatory agencies, including the FRB and FDIC.
The Bank is also subject to the supervision, regulation and examination of the
Office of the Comptroller of the Currency of the United States of America (OCC).
In June 2001, the OCC terminated a Memorandum of Understanding with the Bank
that was in effect since June 2000. The memorandum was a formal written
agreement whereby, among other things, the Bank had been required to review,
revise, develop and implement various policies and procedures with respect to
its lending and credit underwriting. Management implemented various actions in
order for the Bank to be in full compliance with the memorandum.
Intervest Corporation of New York
- ---------------------------------
Intervest Corporation of New York is in the business of investing primarily in
commercial and multifamily real estate mortgage loans on income producing
properties, such as office and commercial properties and multifamily residential
apartment buildings. It also makes loans on other types of properties and may
resell mortgages. Intervest Corporation of New York is located at 10 Rockefeller
Plaza in New York City.
Intervest Corporation of New York was acquired on March 10, 2000, by the Holding
Company. In the acquisition, all the outstanding capital stock of Intervest
Corporation of New York was acquired in exchange for 1,250,000 shares of the
Holding Company's Class A common stock. Former shareholders of Intervest
Corporation of New York are officers and directors of Intervest Corporation of
New York and the Holding Company. 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.
At December 31, 2001, Intervest Corporation of New York had total assets of
$83,083,000, net loans of $62,665,000, debentures and related interest payable
of $72,113,000, and stockholder's equity of $9,847,000, compared to total assets
of $74,860,000, net loans of $51,992,000, debentures and related interest
payable of $64,347,000, and stockholder's equity of $9,269,000, at December 31,
2000.
3
Intervest Corporation of New York's operations are significantly influenced by
the movement of interest rates and by general economic conditions, particularly
those in the New York City metropolitan area where most of the properties that
secure its mortgage loans are concentrated.
Intervest Statutory Trust I
- ---------------------------
Intervest Statutory Trust I was formed in December 2001 in connection with the
issuance of $15,000,000 of capital securities. It is not authorized and does not
conduct any trade or business, and was formed for the sole purpose of the
issuance, sale and administration of the capital securities. See note 9 to the
consolidated financial statements for further discussion of the capital
securities.
Market Area
The primary market area of the Bank's New York office is considered to be the
New York City metropolitan region, and Manhattan in particular. The primary
market area of the Bank's Florida offices is considered to be Pinellas County,
which is the most populous county in the Tampa Bay area of Florida. The area has
many more seasonal residents. The Tampa Bay area is located on the West Coast of
Florida, midway up the Florida peninsula. The major cities in the area are Tampa
(Hillsborough County) and St. Petersburg and Clearwater (Pinellas County). The
Bank's deposit gathering and lending markets are concentrated in the communities
surrounding its offices. Management believes that all the Bank's offices are
located in areas serving small and mid-sized businesses and serving middle and
upper income communities. The Bank's deposit-gathering market also includes its
web site on the internet: www.intervestnatbank.com, which attracts deposit
customers from both within and outside the Bank's primary market areas.
Intervest Corporation of New York's lending activities have been concentrated in
the New York City metropolitan region. It also makes loans in other states,
including Connecticut, Florida, New Jersey, North Carolina, Pennsylvania,
Virginia and Washington D.C.
Competition
The deregulation of the banking industry and the widespread enactment of state
laws that permit multi-bank holding companies, as well as an increasing level of
interstate banking, have created a highly competitive environment for commercial
banking. In one or more aspects of its business, the Bank competes with other
commercial banks, savings and loan associations, credit unions, finance
companies, mutual funds, insurance companies, brokerage and investment banking
companies, and other financial intermediaries. Most of these competitors, some
of which are affiliated with large bank holding companies, have substantially
greater resources and lending limits, and may offer services that the Bank does
not currently provide. In addition, many of the Bank's non-bank competitors are
not subject to the same extensive federal regulations that govern bank holding
companies and federally insured banks.
Competition among financial institutions is based upon interest rates offered on
deposit accounts, interest rates charged on loans and other credit and service
charges, the quality and scope of the services rendered, the convenience of
banking facilities and, in the case of loans to commercial borrowers, relative
lending limits. Management believes that a community bank is better positioned
to establish personalized banking relationships with both commercial customers
and individual households. The Bank's community commitment and involvement in
their primary market areas, as well as its commitment to quality and
personalized banking services are factors that contribute to the Bank's
competitiveness. Management believes a locally-based bank is often perceived by
the local business community as possessing a clearer understanding of local
commerce and their needs. Consequently, management believes that the Bank can
compete successfully in its primary market areas by making prudent lending
decisions quickly and more efficiently than its competitors, without
compromising asset quality or profitability, although no assurances can be given
that such factors will assure success. In addition, management believes a
personalized service approach enables the Bank to attract and retain core
deposits.
4
In making its investments, Intervest Corporation of New York also experiences
significant competition from banks, insurance companies, savings and loan
associations, mortgage bankers, pension funds, real estate investment trusts,
limited partnerships and other lenders and investors engaged in purchasing
mortgages or making real property investments with investment objectives similar
in whole or part to its own. An increase in the general availability of funds
may increase competition in the making of investments in mortgages and real
property, and may reduce the yields available therefrom.
Asset Quality
The Bank seeks to maintain a high level of asset quality when considering
investments in securities and the originations of loans. In originating loans,
the Bank places emphasis on the borrower's ability to generate cash flow to
support its debt obligations and other cash related expenses. The Bank's lending
activities are conducted pursuant to written policies and defined lending
limits. Depending on their type and size, certain loans must be reviewed and
approved by a Loan Committee comprised of certain members of the Board of
Directors prior to being originated. As part of its loan portfolio management
strategy, loan-to-value ratios (the ratio that the original principal amount of
the loan bears to the lower of the purchase price or appraised value of the
property securing the loan at the time of origination) on new loans originated
by the Bank typically do not exceed 80%. In addition, physical inspections of
properties being considered for mortgage loans are made as part of the approval
process.
The Bank's Loan Committee, as well as its senior management and lending
officers, concentrate their efforts and resources on loan review and
underwriting procedures. Internal controls include ongoing reviews of loans made
to monitor documentation and ensure the existence and valuations of collateral.
The Bank also has in place a review process with the objective of quickly
identifying, evaluating and initiating necessary corrective actions for any
problem loans.
Intervest Corporation of New York does not have formal policies regarding the
percentage of its assets that may be invested in any single mortgage, the type
of mortgage loans and investments it can make, the geographic location of
properties collateralizing those mortgages, limits as to loan-to-value ratios
and the loan approval process.
At December 31, 2001, the Bank had one commercial real estate loan with a
principal balance of $1,243,000 classified as nonperforming and impaired. The
Company did not have any nonperforming assets or impaired loans at any time
during 2000 or 1999. There can be no assurance that a downturn in real estate
values, as well as other economic factors, would not have an adverse impact on
the Company's future level of nonperforming assets and profitability.
Lending Activities
The Company's lending activities include real estate loans and commercial and
consumer loans. Real estate loans include primarily the origination of loans for
commercial and multifamily properties. While the Bank's lending activities
include single-family residential mortgages, such lending has not been
emphasized. Commercial loans are originated for working capital funding.
Consumer loans include those for the purchase of automobiles, boats, home
improvements and investments. At December 31, 2001, the Company's net loan
portfolio amounted to $368,526,000, compared to $266,326,000 at December 31,
2000.
Commercial and Multifamily Real Estate Mortgage Lending
- -------------------------------------------------------
Almost all of the Company's current loan portfolio is comprised of loans secured
by commercial and multifamily real estate, including rental and cooperative
apartment buildings, office buildings and shopping centers.
Commercial and multifamily mortgage lending generally involves greater risk than
1-4 family residential lending. Such lending typically involves larger loan
balances to single borrowers and repayment of loans secured by income producing
properties is typically dependent upon the successful operation of the
underlying real estate.
5
Mortgage loans on commercial and multifamily properties are normally originated
for terms of no more than 20 years, many with variable interest rates that are
based on the prime rate. Additionally, many loans have an interest rate floor
which resets upward along with any increase in the loan's interest rate. This
feature reduces the loan's interest rate exposure to periods of declining
interest rates.
Mortgage loans on commercial and multifamily properties typically provide for
periodic payments of interest and principal during the term of the mortgage,
with the remaining principal balance and any accrued interest due at the
maturity date. The majority of the mortgages owned by the Company provide for
balloon payments at maturity, which means that a substantial part or the entire
original principal amount is due in one lump sum payment at maturity. If the net
revenue from the property is not sufficient to make all debt service payments
due on the mortgage or, if at maturity or the due date of any balloon payment,
the owner of the property fails to raise the funds (by refinancing, sale or
otherwise) to make the lump sum payment, the Company could sustain a loss on its
investment in the mortgage loan. The Company's mortgage loans are generally not
personal obligations of the borrower and are not insured or guaranteed by
governmental agencies or otherwise.
Commercial Lending
- ------------------
The Bank offers a variety of commercial loan services including term loans,
lines of credit and equipment financing. Short-to-medium term commercial loans,
both collateralized and uncollateralized, are made available to businesses for
working capital needs (including those secured by inventory, receivables and
other assets), business expansion (including acquisitions of real estate and
improvements), and the purchase of equipment and machinery. Commercial loans are
typically underwritten on the basis of the borrower's ability to make repayment
from the cash flow of their business and are generally collateralized as
discussed above. As a result, the availability of funds for the repayment of
commercial loans may be substantially dependent on the success of the business
itself. Further, the collateral underlying the loans may depreciate over time,
cannot be appraised with as much precision as residential real estate, and may
fluctuate in value based on the success of the business.
Consumer Lending
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The Bank offers consumer loans including those for: the purchase of automobiles,
recreation vehicles and boats; second mortgages; home improvements; home equity
lines of credit; and personal loans (both collateralized and uncollateralized).
Consumer loans typically have a shorter term and carry higher interest rates
than other types of loans. In addition, consumer loans have additional risks of
collectability when compared to traditional types of loans granted by commercial
banks such as residential mortgage loans. In many instances, the Bank is
required to rely on the borrower's ability to repay the loan from personal
income sources, since the collateral may be of reduced value at the time of
collection.
Loan Solicitation and Processing
- --------------------------------
Loan originations are derived from the following: advertising in newspapers and
trade journals; referrals from mortgage brokers; existing customers and
borrowers; walk-in customers; and through direct solicitation by the Company's
officers.
The Company's underwriting procedures normally require the following: physical
inspections by management of properties being considered for mortgage loans;
mortgage title insurance; hazard insurance; and an appraisal of the property
securing the loan to determine the property's adequacy as security performed by
an appraiser approved by the Company. In addition, the Company analyzes relevant
real property and financial factors, which in certain cases may include: the
condition and use of the subject property; the property's income-producing
capacity; and the quality, experience and creditworthiness of the property's
owner.
For commercial and consumer loans, upon receipt of a loan application from a
prospective borrower, a credit report and other verifications are obtained to
substantiate specific information relating to the applicant's employment income
and credit standing.
6
Real Estate Investing Activities
The Company, from time to time, may purchase equity interests in real property
or it may acquire such an equity interest pursuant to a foreclosure upon a
mortgage in the normal course of business. With respect to such equity interests
in real estate, the Company may acquire and retain title to properties either
directly or through a subsidiary. While no such transactions are presently
pending, the Company would consider the expansion of its business through
investments in or acquisitions of other companies engaged in real estate or
mortgage business activities. While the Company has not previously made
acquisitions of real property (other than purchases in connection with the
operation of its offices) or managed income-producing property, its management
has had substantial experience in the acquisition and management of properties
and, in particular, multifamily residential properties.
Investment Activities
The Bank's investment policies and strategies are reviewed and approved by its
Board of Directors and Investment Committee. The Company has historically
purchased securities that are issued directly by the U.S. government or one of
its agencies. Accordingly, the Company's investments in securities carry a
significantly lower credit risk than its loan portfolio. To manage interest rate
risk, the Company normally purchases securities that have adjustable rates or
securities with fixed rates that have short- to intermediate-maturity terms.
From time to time, a securities available-for-sale portfolio may be maintained
to provide flexibility for implementing asset and liability management
strategies. The Company does not engage in trading activities.
Securities held to maturity totaled $99,157,000 at December 31, 2001, compared
to $20,970,000 at December 31, 2000. On December 31, 2000, Intervest Bank
transferred U.S. government agency securities with an estimated fair value of
$74,789,000 from the held-to-maturity to the available-for-sale portfolio.
Securities available for sale amounted to $6,192,000 at December 31, 2001,
compared to $74,789,000 at December 31, 2000. The decrease was due to early
redemptions by various agencies brought about from the steady decline in market
interest rates during 2001.
The Company also invests in various money market instruments, including
overnight and term federal funds, short-term bank commercial paper and
certificate of deposits. These instruments are used to temporarily invest
available funds resulting from deposit-gathering activities and normal cash flow
from operations. Cash and short-term investments at December 31, 2001 amounted
to $24,409,000, compared to $42,938,000 at December 31, 2000.
Sources of Funds
The Bank's primary sources of funds consist of the following: retail deposits
obtained through its branch offices and through the mail; amortization,
satisfactions and repayments of loans; maturities and calls of securities; and
cash generated by operating activities. In addition, the Bank has from time to
time received capital contributions from the Holding Company.
Deposit accounts are solicited from individuals, small businesses and
professional firms located throughout the Bank's primary market areas through
the offering of a broad variety of deposit services. The Bank also uses its web
site on the internet: www.intervestnatbank.com, which attracts deposit customers
from both within and outside its primary market areas. At December 31, 2001,
consolidated deposit liabilities totaled $362,437,000, compared to $300,241,000
at December 31, 2000.
Deposit services include the following: certificates of deposit (including
denominations of $100,000 or more); individual retirement accounts (IRAs); other
time deposits; checking and other demand deposit accounts; negotiable order of
withdrawal (NOW) accounts; savings accounts; and money market accounts. Interest
rates offered by the Bank on deposit accounts are normally competitive with
those in the principal market areas of the Bank. In addition, the determination
of rates and terms also considers the Bank's liquidity requirements, growth
goals, capital levels and federal regulations. Maturity terms, service fees and
withdrawal penalties on deposit products are reviewed and established by the
Bank on a periodic basis.
7
The Bank offers internet banking services, ATM services with access to local,
state and national networks, wire transfers, direct deposit of payroll and
social security checks and automated drafts for various accounts. In addition,
the Bank offers safe deposit boxes to its customers in Florida. The Bank
periodically reviews the scope of the banking products and services it offers
consistent with market opportunities and available resources.
The Bank purchases federal funds from time to time to manage its liquidity
needs. At December 31, 2001 and 2000, there were no such funds outstanding, and
such funding has not been emphasized. The Bank has agreements with correspondent
banks whereby it may borrow up to $8,000,000 on an unsecured basis. There were
no outstanding borrowings under these agreements at December 31, 2001 or 2000.
Intervest Corporation of New York's principal sources of funds consist of
borrowings (through the sale of its debentures), mortgage repayments and cash
flow generated from operations. At December 31, 2001, Intervest Corporation of
New York had debentures outstanding of $63,000,000, compared to $57,150,000 at
December 31, 2000. The Holding Company has also sold debentures for working
capital purposes. The Holding Company's debentures outstanding totaled
$10,430,000 at December 31, 2001, and $6,930,000 at December 31, 2000.
On December 18, 2001, the Holding Company's wholly-owned subsidiary, Intervest
Statutory Trust I, sold 9.875% Trust Preferred Securities due December 18, 2031
in the aggregate principal amount of $15,000,000, referred to in this report as
the Capital Securities. The net proceeds from the sale were paid to the Holding
Company in exchange for $15,000,000 of its 9.875% Junior Subordinated Debentures
(the "Junior Subordinated Debentures") due December 18, 2031. The Holding
Company then invested $15,000,000 as a capital contribution in the Bank. The
sole asset of the Trust, the obligor on the Capital Securities, is the Junior
Subordinated Debentures.
For a further discussion of all the debentures, including conversion prices and
redemption premiums, see note 7 and note 9 to the consolidated financial
statements.
Employees
At December 31, 2001, the Company employed 53 full-time equivalent employees.
The employees are not covered by a collective bargaining agreement and the
Company believes its employee relations are good.
Federal and State Taxation
The Company and its subsidiaries file a consolidated federal income tax return
and combined state and city income tax returns in New York. The Company also
files a state income tax return in New Jersey and a franchise tax return in
Delaware. The Bank also files a state income tax return in Florida. Intervest
Corporation of New York files state income tax returns in various states. All
the returns are filed on a calendar year basis.
Consolidated returns have the effect of eliminating intercompany distributions,
including dividends, from the computation of consolidated taxable income for the
taxable year in which the distributions occur. In accordance with an income tax
sharing agreement, income tax charges or credits are, for financial reporting
purposes, allocated to the Holding Company and its subsidiaries on the basis of
their respective taxable income or taxable loss included in the consolidated
income tax return.
Banks and bank holding companies are subject to federal and state income taxes
in the same manner as other corporations. Florida taxes banks under the same
provisions as other corporations, while New York State and New York City taxable
income is calculated under applicable sections of the Internal Revenue Code of
1986, as amended (the "Code"), with some modifications required by state law.
Although the Bank's federal income tax liability is determined under provisions
of the Code, which is applicable to all taxpayers, Sections 581 through 597 of
the Code apply specifically to financial institutions. The two primary areas in
which the treatment of financial institutions differs from the treatment of
other corporations under the Code are in the areas of bond gains and losses and
bad debt deductions. Bond gains and losses generated from the sale or exchange
8
of portfolio instruments are generally treated for financial institutions as
ordinary gains and losses as opposed to capital gains and losses for other
corporations, as the Code considers bond portfolios held by banks to be
inventory in a trade or business rather than capital assets. Banks are allowed a
statutory method for calculating a reserve for bad debt deductions. Based on its
asset size, a bank is permitted to maintain a bad debt reserve calculated on an
experience method, based on chargeoffs and recoveries for the current and
preceding five years, or a "grandfathered" base year reserve, if larger. `
Investment in Subsidiaries
At December 31, 2001
-------------------- Subsidiaries
($ in thousands) % of Equity in Earnings for the
Voting Total Underlying Year Ended December 31,
Subsidiary Stock Investment Net Assets 2001 2000 1999
- ---------- ----- ---------- ---------- ---- ---- ----
Intervest National Bank 100% $46,749 $46,749 $3,404 $2,619 $1,135
Intervest Corporation of New York 100% $ 9,847 $ 9,847 $ 577 $ 129 $ 572
Intervest Statutory Trust I 100% $ 464 $ 464 $ - $ - $ -
Effective December 2001, the Bank began paying a monthly dividend of $125,000 to
the Holding Company in order to provide funds for the debt service on the
Capital Securities (the proceeds of which were contributed to the Bank as
capital). In 2000, Intervest Corporation of New York paid a $3,000,000 dividend
to the Holding Company, which was reinvested in the Bank as a capital
contribution.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both federal
and state laws and regulations that are intended to protect depositors. To the
extent that the following information describes statutory and regulatory
provisions, it is qualified in its entirety by reference to the particular
statutory and regulatory provisions. Any change in the applicable law or
regulation may have a material effect on the business and prospects of the
Holding Company and its subsidiaries.
Bank Holding Company Regulation
- -------------------------------
As a bank holding company registered under the Bank Holding Company Act of 1956
(BHCA), the Holding Company is subject to the regulation and supervision of the
FRB. The Holding Company is required to file with the FRB periodic reports and
other information regarding its business operations and those of its
subsidiaries. Under the BHCA, the Holding Company's activities and those of its
subsidiaries are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries or engaging in any other
activity which the FRB determines to be so closely related to banking or
managing or controlling banks as to be properly incident thereto.
As a bank holding company, the Holding Company is required to obtain the prior
approval of the FRB before acquiring direct or indirect ownership or control of
more than 5% of the voting shares of a bank or bank holding company. The FRB
will not approve any acquisition, merger or consolidation that would have a
substantial anti-competitive result, unless the anti-competitive effects of the
proposed transaction are outweighed by a greater public interest in meeting the
needs and convenience of the public. The FRB also considers managerial, capital
and other financial factors in acting on acquisition or merger applications. A
bank holding company may not engage in, or acquire direct or indirect control of
more than 5% of the voting shares of any company engaged in any non-banking
activity, unless such activity has been determined by the FRB to be closely
related to banking or managing banks. The FRB has identified by regulation
various non-banking activities in which a bank holding company may engage with
notice to, or prior approval by, the FRB.
The FRB monitors the capital adequacy of bank holding companies and uses
risk-based capital adequacy guidelines to evaluate bank holding companies on a
consolidated basis. The guidelines require a ratio of Tier 1 or Core Capital, as
defined in the guidelines, to total risk-weighted assets of at least 4% and a
ratio of total capital to risk-weighted assets of at least 8%. At December 31,
2001, the Company's consolidated ratio of total capital to risk-weighted assets
9
was 14.11% and its risk-based Tier 1 capital ratio was 12.89%. At December 31,
2000, the Company's consolidated ratio of total capital to risk-weighted assets
was 12.63% and its risk-based Tier 1 capital ratio was 11.72%. The guidelines
also require a ratio of Tier 1 capital to adjusted total average assets of not
less than 3%. The Company's consolidated leverage ratio at December 31, 2001 and
2000, was 10.67% and 8.75%, respectively.
The federal banking agencies' risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to operate
with capital positions well above the minimum ratios. The FRB guidelines also
provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets. In addition, the regulations of the FRB provide that concentration of
credit risk and certain risk arising from nontraditional activities, as well as
an institution's ability to manage these risks, are important factors to be
taken into account by regulatory agencies in assessing an organization's overall
capital adequacy.
The FRB and the other federal banking agencies have adopted amendments to their
risk-based capital regulations to provide for the consideration of interest rate
risk in the agency's determination of a banking institution's capital adequacy.
The amendments require such institutions to effectively measure and monitor
their interest rate risk and to maintain capital adequate for that risk.
Bank Regulation
- ---------------
The Bank is a nationally chartered banking corporation subject to supervision,
examination and regulation of the FRB, FDIC and OCC. These regulators have the
power to: enjoin "unsafe or unsound practices;" require affirmative action to
correct any conditions resulting from any violation or practice; issue an
administrative order that can be judicially enforced; direct an increase in
capital; restrict the growth of a bank; assess civil monetary penalties; and
remove officers and directors.
The operations of the Bank are subject to numerous statutes and regulations.
Such statutes and regulations relate to required reserves against deposits,
investments, loans, mergers and consolidations, issuance of securities, payment
of dividends, establishment of branches, and other aspects of the Bank's
operations. Various consumer laws and regulations also affect the operations of
the Bank, including state usury laws, laws relating to fiduciaries, consumer
credit and equal credit, and fair credit reporting.
The Bank is subject to Sections 23A and 23B of the Federal Reserve Act, which
governs certain transactions, such as loans, extensions of credit, investments
and purchases of assets between member banks and their affiliates, including
their parent holding companies. These restrictions limit the transfer of funds
to the Holding Company in the form of loans, extensions of credit, investment or
purchases of assets ("Transfers"), and they require that the Bank's transactions
with the Holding Company be on terms no less favorable to the Bank than
comparable transactions between the Bank and unrelated third parties. Transfers
by the Bank to the Holding Company are limited in amount to 10% of the Bank's
capital and surplus, and transfers to all affiliates are limited in the
aggregate to 20% of the Bank's capital and surplus. Furthermore, such loans and
extensions of credit are also subject to various collateral requirements. These
regulations and restrictions may limit the Holding Company's ability to obtain
funds from the Bank for its cash needs, including funds for acquisitions, and
the payment of dividends, interest and operating expenses.
The Bank is prohibited from engaging in certain tying arrangements in connection
with any extension of credit, lease or sale of property or furnishing of
services. For example, the Bank may not generally require a customer to obtain
other services from the Bank or the Holding Company, and may not require the
customer to promise not to obtain other services from a competitor as a
condition to an extension of credit. The Bank is also subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to
executive officers, directors, principal stockholders or any related interest of
such persons. Extensions of credit (i) must be made on substantially the same
10
terms (including interest rates and collateral) as, and following credit
underwriting procedures that are not less stringent than those prevailing at the
time for, comparable transactions with persons not covered above and who are not
employees and (ii) must not involve more than the normal risk of repayment or
present other unfavorable features. In addition, extensions of credit to such
persons beyond limits set by FRB regulations must be approved by the Board of
Directors. The Bank is also subject to certain lending limits and restrictions
on overdrafts to such persons. A violation of these restrictions may result in
the assessment of substantial civil monetary penalties on the Bank or any
officer, director, employee, agent or other person participating in the conduct
of the affairs of the Bank or the imposition of a cease and desist order.
Applicable law provides the federal banking agencies with broad powers to take
prompt corrective action to resolve problems of insured depository institutions.
The extent of those powers depends upon whether the institution in question is
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized." Under federal regulations,
a bank is considered "well capitalized" if it has (i) a total risk-based capital
ratio of 10% or greater, (ii) a Tier 1 risk-based capital ratio of 6% or
greater, (iii) a leverage ratio of 5% or greater and (iv) is not subject to any
order or written directive to meet and maintain a specific capital level for any
capital measure. An "adequately capitalized" bank is defined as one that has (i)
a total risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based
capital ratio of 4% or greater, and (iii) a leverage ratio of 4% or greater (or
3% or greater in the case of a bank with a composite CAMELS rating of 1). A bank
is considered (a) "undercapitalized " if it has (i) a total risk-based capital
ratio of less than 8%, (ii) a Tier 1 risk-based capitalized ratio of less than
4%, or (iii) a leverage ratio of less than 4% (or 3% in the case of a bank with
a composite CAMELS rating of 1); (b) "significantly undercapitalized" if a bank
has (i) a total risk-based capital ratio of less than 6%, (ii) a Tier 1
risk-based capital ratio of less than 3% or (iii) a leverage ratio of less than
3%, and (c) "critically undercapitalized" if a bank has a ratio of tangible
equity to total assets equal to or less than 2%. At December 31, 2001 and 2000,
the Bank met the definition of a well-capitalized institution.
The deposits of the Bank are insured by the FDIC through the Bank Insurance Fund
(the "BIF") to the extent provided by law. Under the FDIC's risk-based insurance
system, BIF-insured institutions are currently assessed premiums of between zero
and $0.27 per $100 of eligible deposits, depending upon the institutions capital
position and other supervisory factors. Legislation also provides for
assessments against BIF insured institutions that will be used to pay certain
financing corporation ("FICO") obligations. In addition to any BIF insurance
assessments, BIF-insured banks are expected to make payments for the FICO
obligations currently equal to an estimated $0.0182 per $100 of eligible
deposits each year. The assessment is determined quarterly.
Regulations promulgated by the FDIC pursuant to the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("1991 Banking Law") place limitations on
the ability of certain insured depository institutions to accept, renew or
rollover deposits by offering rates of interest which are significantly higher
than the prevailing rates of interest on deposits offered by other depository
institutions having the same type of charter in such depository institutions
normal market area. Under these regulations, well-capitalized institutions may
accept, renew or rollover such deposits without restriction, while adequately
capitalized institutions may accept, renew or rollover such deposits with a
waiver from the FDIC (subject to certain restrictions on payment of rates).
Undercapitalized institutions may not accept, renew or rollover such deposits.
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), a depository institution insured by the FDIC can be held liable for
any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC-insured institution in danger of default. "Default" is defined generally as
the appointment of a conservator or receiver and "in danger of Default" is
defined generally as the existence of certain conditions indicating that a
"default" is likely to occur in the absence of regulatory assistance. The
Federal Community Reinvestment Act of 1977 ("CRA"), among other things, allows
regulators to withhold approval of an acquisition or the establishment of a
branch unless the applicant has performed satisfactorily under the CRA.
Satisfactory performance means adequately meeting the credit needs of the
communities the institution serves, including low and moderate income areas. The
applicable federal regulators now regularly conduct CRA examinations to assess
11
the performance of financial institutions. The Bank has received a
"satisfactory" rating in its most recent CRA examination.
The federal regulators have adopted regulations and examination procedures
promoting the safety and soundness of individual institutions by specifically
addressing, among other things: (i) internal controls; information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate exposure; (v) asset growth; (vi) ratio of classified assets to
capital; (vii) minimum earnings; and (viii) compensation and benefits standards
for management officials.
The FRB, OCC and other federal banking agencies have broad enforcement powers,
including the power to terminate deposit insurance, and impose substantial fines
and other civil and criminal penalties and appoint a conservator or receiver.
Failure to comply with applicable laws, regulations and supervisory agreements
could subject the Holding Company or its banking subsidiary, as well as
officers, directors and other institution-affiliated parties of these
organizations, to administrative sanctions and potentially civil monetary
penalties.
Interstate Banking and Other Recent Legislation
- -----------------------------------------------
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
facilitates the interstate expansion and consolidation of banking organizations
by permitting bank holding companies that are adequately capitalized and managed
to acquire banks located in states outside their home states regardless of
whether such acquisitions are authorized under the law of the host state. The
Act also permits interstate mergers of banks, with some limitations and the
establishment of new branches on an interstate basis provided that such action
is authorized by the law of the host state. The Gramm-Leach-Bliley Act of 1999
permits banks, securities firms and insurance companies to affiliate under a
common holding company structure. In addition to allowing new forms of financial
services combinations, this Act clarifies how financial services conglomerates
will be regulated by the different federal and state regulators. Additional
legislative and regulatory proposals have been made and others can be expected.
These include proposals designed to improve the overall the financial stability
of the United States banking system, and to provide for other changes in the
bank regulatory structure, including proposals to reduce regulatory burdens on
banking organizations and to expand the nature of products and services banks
and bank holding companies may offer. It is not possible to predict whether or
in what form these proposals may be adopted in the future and, if adopted, what
their effect will be on the Company.
Monetary Policy and Economic Control
- ------------------------------------
The commercial banking business in which the Company engages is affected not
only by general economic conditions, but also by the monetary policies of the
FRB. Changes in the discount rate on member bank borrowing, availability of
borrowing at the "discount window," open market operations, the imposition of
changes in reserve requirements against member banks' deposits and assets of
foreign branches and the imposition of and changes in reserve requirements
against certain borrowings by banks and their affiliates are some of the
instruments of monetary policy available to the FRB. These monetary policies are
used in varying combinations to influence overall growth and distributions of
bank loans, investments and deposits, and this use may affect interest rates
charged on loans or paid on deposits. The monetary policies of the FRB have had
a significant effect on the operating results of commercial banks and are
expected to continue to do so in the future. The monetary policies of these
agencies are influenced by various factors, including inflation, unemployment,
short-term and long-term changes in the international trade balance and in the
fiscal policies of the United States Government. Future monetary policies and
the effect of such policies on the future business and earnings of the Company
cannot be predicted.
Item 2. Description of Properties
The office of the Holding Company and Intervest Corporation of New York is
located in leased premises (of approximately 4,000 sq. ft.) on the tenth floor
of 10 Rockefeller Plaza, New York, N.Y, 10020. The lease expires in September
2004.
12
The Bank's headquarters and banking office is located in leased premises on the
third floor of One Rockefeller Plaza, New York, N.Y, 10020. The office consists
of approximately 7,000 sq. ft. and has been leased through May 2008. The Bank's
principal office in Florida is located at 625 Court Street, Clearwater, Florida,
33756. In addition, the Bank operates an additional four branch offices; three
of which are in Clearwater, Florida, at 1875 Belcher Road North, 2175 Nursery
Road and 2575 Ulmerton Road, and one is at 6750 Gulfport Blvd, South Pasadena,
Florida. With the exception of the Belcher Road office, which is leased through
June 2007, the Bank owns all its offices in Florida.
The Bank's office at 625 Court Street consists of a two-story building
containing approximately 22,000 sq. ft. The Bank occupies the ground floor
(approximately 8,500 sq. ft.) and leases the 2nd floor to a single commercial
tenant. The branch office at 1875 Belcher Road is a two-story building in which
the Bank leases approximately 5,100 sq. ft. on the ground floor. The branch
office at 2175 Nursery Road is a one-story building containing approximately
2,700 sq. ft., which is entirely occupied by the Bank. The branch office at 2575
Ulmerton Road is a three-story building containing approximately 17,000 sq. ft.
The Bank occupies the ground floor (approximately 2,500 sq. ft.) and leases the
upper floors to commercial tenants. The branch office at 6750 Gulfport Blvd. is
a one-story building containing approximately 2,800 sq. ft., which is entirely
occupied by the Bank. In addition, each of the Bank's Florida offices include
drive-through teller facilities. The Bank also owns a two-story building located
on property contiguous to its Court Street office in Florida. The building
contains approximately 12,000 sq. ft. and is leased to commercial tenants.
Item 3. Legal Proceedings
The Company is periodically a party to or otherwise involved in legal
proceedings arising in the normal course of business, such as claims to enforce
liens, claims involving the making and servicing of mortgage loans, and other
issues incident to the Company's business. Management does not believe that
there is any pending or threatened proceeding against the Company, which, if
determined adversely, would have a material effect on the business, results of
operations, or financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of the fiscal year ended
December 31, 2001, to a vote of security holders of the Company, through the
solicitation of proxies or otherwise.
Item 4A. Executive Officers and Other Key Employees
Jerome Dansker, age 83, serves as Chairman of the Board of Directors and
Executive Vice President of Intervest Bancshares Corporation. He has served as
Executive Vice President since 1994 and as Chairman of the Board since 1996. Mr.
Dansker received a Bachelor of Science degree from the New York University
School of Commerce, Accounts and Finance, a Law degree from the New York
University School of Law, and is admitted to practice as an attorney in the
State of New York. Mr. Dansker also serves as Chairman of the Board of Directors
and Chairman of the Loan Committee of Intervest National Bank. He is also
Chairman of the Board of Directors and Executive Vice President of Intervest
Corporation of New York.
Lowell S. Dansker, age 51, serves as a Director, President and Treasurer of
Intervest Bancshares Corporation and has served in that capacity since 1993. Mr.
Dansker received a Bachelor of Science in Business Administration from Babson
College, a Law degree from the University of Akron School of Law, and is
admitted to practice as an attorney in New York, Ohio, Florida and the District
of Columbia. Mr. Dansker also serves as Chief Executive Officer, Director and a
member of the Loan Committee of Intervest National Bank. He is also a Director,
President and Treasurer of Intervest Corporation of New York.
Lawrence G. Bergman, age 57, serves as a Director, Vice President and
Secretary of Intervest Bancshares Corporation and has served in that capacity
since 1993. Mr. Bergman received a Bachelor of Science degree and a Master of
Engineering (Electrical) degree from Cornell University and a Master of Science
in Engineering and a Ph.D. degree from The Johns Hopkins University. Mr. Bergman
also serves as a Director and a member of the Loan Committee of Intervest
National Bank. He is also a Director, Vice-President and Secretary of Intervest
13
Corporation of New York.
Keith A. Olsen, age 48, serves as President of the Florida Division and
Director of Intervest National Bank and has served in such capacity since July
2001. Prior to that, Mr. Olsen was the President of Intervest Bank from 1994
until it merged into Intervest National Bank in July 2001. Prior to that, he was
Senior Vice President of Intervest Bank since 1991. Mr. Olsen received an
Associates degree from St. Petersburg Junior College and a Bachelors degree in
Business Administration and Finance from the University of Florida, Gainesville.
He is also a graduate of the Florida School of Banking of the University of
Florida, Gainesville, the National School of Real Estate Finance of Ohio State
University and the Graduate School of Banking of the South of Louisiana State
University. Mr. Olsen has been in banking for more than 15 years and has served
as a senior bank officer for more than 10 years.
Raymond C. Sullivan, age 55, serves as President and Director of Intervest
National Bank and has served in that capacity since April 1999. Prior to that,
Mr. Sullivan was an employee of Intervest Bancshares Corporation from March 1998
to March 1999. Mr. Sullivan received an MBA degree from Fordham University, an
M.S. degree from City College of New York and a B.A. degree from St. Francis
College. Mr. Sullivan also has a Certificate in Advanced Graduate Study in
Accounting from Pace University and is a graduate of the National School of
Finance and Management. Mr. Sullivan has over 27 years of banking experience.
Prior to joining the Company, Mr. Sullivan was the Operations Manager of the New
York Agency Office of Banco Mercantile, C.A. from 1994 to 1997, a Senior
Associate at LoBue Associates, Inc. from 1992 to 1993, and an Executive Vice
President, Chief Operations Officer and Director of Central Federal Savings Bank
from 1985 to 1992.
John J. Arvonio, age 39, serves as Senior Vice President, Chief Financial
Officer and Secretary of Intervest National Bank and has served in such capacity
since September 2000. Prior to that, Mr. Arvonio served as Vice President,
Controller and Secretary of Intervest National Bank since April 1999. Prior to
that, Mr. Arvonio was an employee of Intervest Bancshares Corporation from April
1998 to March 1999. Mr. Arvonio received a B.B.A. degree from Iona College and
is a Certified Public Accountant. Mr. Arvonio has over 13 years of banking
experience. Prior to joining the Company, Mr. Arvonio served as Second Vice
President, Technical Advisor and Assistant Controller for The Greater New York
Savings Bank from 1992 to 1997. Prior to that, Mr. Arvonio was a Manager of
Financial Reporting for the Leasing and Investment Banking Divisions of
Citibank.
14
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market for Securities
The Holding Company's Class A common stock is traded over the counter and quoted
on the NASDAQ SmallCap Market under the symbol: IBCA. At December 31, 2001,
there were 3,544,629 and 355,000 shares of Class A and Class B common stock
outstanding, respectively. There were approximately 700 holders of record of the
Class A common stock, which includes persons or entities that hold their stock
in nominee form or in street name through various brokerage firms. At December
31, 2001, there were four holders of record of Class B common stock. There is no
public-trading market for the Class B common stock.
The high and low sales prices listed below represent actual sales transactions
as reported by the NASDAQ for the Class A common stock by calendar quarter for
2001 and 2000 are as follows:
2001 2000
---- ----
High Low High Low
----------------- -------------------
First quarter $ 6.50 $ 3.75 $ 7.00 $ 5.50
Second quarter $ 7.28 $ 5.30 $ 8.00 $ 4.75
Third quarter $ 7.75 $ 5.25 $ 7.00 $ 4.75
Fourth quarter $ 8.65 $ 6.25 $ 5.50 $ 3.38
Dividends
Class A and Class B common stockholders are entitled to receive dividends when
and if declared by the Board of Directors out of funds legally available for
such purposes. The Holding Company has not paid any dividends on its capital
stock and currently is not contemplating the payment of a dividend.
The Holding Company's ability to pay dividends is generally limited to earnings
from the prior year, although retained earnings and dividends from its
subsidiaries may also be used to pay dividends under certain circumstances. The
primary source of funds for dividends payable by the Holding Company to its
shareholders is the dividends received from its subsidiaries. The payment of
dividends by a subsidiary to the Holding Company is determined by the
subsidiary's Board of Directors and is dependent upon a number of factors,
including the subsidiary's capital requirements, regulatory limitations, results
of operations and financial condition.
There are also various legal limitations with respect to the Bank's financing or
otherwise supplying funds to the Holding Company. In particular, under federal
banking law, the Bank may not declare a dividend that exceeds undivided profits.
In addition, the approval of the FRB and OCC is required if the total amount of
all dividends declared in any calendar year exceeds the Bank's net profits for
that year, combined with its retained net profits for the preceding two years.
The FRB also has the authority to limit further the payment of dividends by the
Bank under certain circumstances. In addition, federal banking laws prohibit or
restrict the Bank from extending credit to the Holding Company under certain
circumstances. The FRB and OCC have established certain financial and capital
requirements that affect the ability of banks to pay dividends and also have the
general authority to prohibit banks from engaging in unsafe or unsound practices
in conducting business. Depending upon the financial condition of the Bank, the
payment of cash dividends could be deemed to constitute such an unsafe or
unsound practice.
Under FRB policy, a bank holding company is expected to act as a source of
financial strength to its subsidiary banks and to commit resources to support
each such bank. Consistent with this policy, the FRB has stated that, as a
matter of prudent banking, a bank holding company generally should not pay cash
dividends unless the available net earnings of the bank holding company is
sufficient to fully fund the dividends, and the prospective rate of earnings
retention appears to be consistent with a holding company's capital needs, asset
quality and overall financial condition.
15
Item 6. Selected Consolidated Financial and Other Data
- ------------------------------------------------------------------------------------------------------------------------------------
At or For The Year Ended December 31,
----------- ------------ ------------ ----------- -----------
($ in thousands, except per share amounts) 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Condition Data:
Total assets..................................................... $512,622 $416,927 $340,481 $300,080 $245,262
Cash and cash equivalents........................................ 24,409 42,938 32,095 40,977 24,043
Securities available for sale.................................... 6,192 74,789 - - -
Securities held to maturity, net................................. 99,157 20,970 83,132 82,338 58,821
Loans receivable, net............................................ 368,526 266,326 212,937 164,986 150,832
Deposits......................................................... 362,437 300,241 201,080 170,420 130,412
Federal funds purchased.......................................... - - 6,955 - -
Debentures and related accrued interest payable.................. 99,910 72,813 92,422 93,090 82,966
Stockholders' equity............................................. 40,395 36,228 33,604 31,112 28,142
Nonaccrual loans................................................. 1,243 - - - -
Allowance for loan loss reserves................................. 3,380 2,768 2,493 1,662 1,173
Loan chargeoffs.................................................. - - - - -
Loan recoveries.................................................. - - 1 10 10
- ------------------------------------------------------------------------------------------------------------------------------------
Operations Data:
Interest and dividend income..................................... $ 35,462 $ 31,908 $ 25,501 $ 24,647 $ 19,807
Interest expense................................................. 24,714 23,325 18,419 17,669 15,008
-----------------------------------------------------------------
Net interest and dividend income................................. 10,748 8,583 7,082 6,978 4,799
Provision for loan loss reserves................................. 612 275 830 479 352
-----------------------------------------------------------------
Net interest and dividend income after
provision for loan loss reserves............................ 10,136 8,308 6,252 6,499 4,447
Noninterest income............................................... 1,655 983 900 700 382
Noninterest expenses............................................. 5,303 4,568 4,059 3,077 2,679
-----------------------------------------------------------------
Earnings before income taxes, extraordinary item
and change in accounting principle.......................... 6,488 4,723 3,093 4,122 2,150
Provision for income taxes....................................... 2,710 1,909 1,198 1,740 860
-----------------------------------------------------------------
Earnings before extraordinary item and
change in accounting principle.............................. 3,778 2,814 1,895 2,382 1,290
Extraordinary item, net of tax (1)............................... - (206) - - -
Cumulative effect of accounting change, net of tax (2)........... - - (128) - -
-----------------------------------------------------------------
Net earnings..................................................... $ 3,778 $ 2,608 $ 1,767 $ 2,382 $ 1,290
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Data:
Basic earnings per share......................................... $ 0.97 $ 0.67 $ 0.47 $ 0.64 $ 0.44
Diluted earnings per share....................................... 0.97 0.67 0.44 0.54 0.39
Common book value per share...................................... 10.36 9.29 8.76 8.33 7.66
Dividends per share.............................................. - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Other Data and Ratios:
Common shares outstanding........................................ 3,899,629 3,899,629 3,836,879 3,734,515 3,674,415
Average common shares used to calculate:
Basic earnings per share.................................... 3,899,629 3,884,560 3,760,293 3,707,113 2,962,292
Diluted earnings per share.................................. 3,899,629 3,884,560 4,020,118 4,723,516 3,322,459
Adjusted net earnings for diluted earnings per share........... $ 3,778 $ 2,608 $ 1,767 $2,554 $ 1,290
Full-service banking offices..................................... 6 6 6 5 5
Return on average assets......................................... 0.85% 0.69% 0.57% 0.87% 0.59%
Return on average equity......................................... 9.94% 7.48% 5.48% 8.05% 6.00%
Loans, net of unearned income to deposits..................... 101.7% 88.70% 105.90% 96.81% 115.66%
Allowance for loan losses to total net loans..................... 0.92% 1.04% 1.17% 1.01% 0.78%
Average stockholders' equity to average total assets........... 8.50% 9.18% 10.37% 10.82% 9.86%
Stockholders' equity to total assets............................. 7.88% 8.69% 9.87% 10.37% 11.47%
- ------------------------------------------------------------------------------------------------------------------------------------
(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."
16
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Management's discussion and analysis of financial condition and results of
operations that follows should be read in conjunction with the Consolidated
Financial Statements and Notes included in this report on Form 10-K.
Intervest Bancshares Corporation has three wholly owned subsidiaries - Intervest
National Bank, Intervest Corporation of New York and Intervest Statutory Trust I
(hereafter referred to collectively as the "Company" on a consolidated basis).
Intervest Bancshares Corporation and Intervest National Bank may be referred to
as the "Holding Company" and the "Bank," respectively.
The Holding Company's primary business is the operation of its subsidiaries. It
does not engage in any other substantial business activities other than a
limited amount of real estate mortgage lending. The Holding Company also sells
debentures to raise funds for working capital purposes.
Intervest National Bank is a nationally chartered, full-service commercial bank
that opened for business on April 1, 1999. On July 20, 2001, Intervest Bank (the
Holding Company's other wholly owned banking subsidiary prior to this date)
merged into Intervest National Bank. Intervest Bank was a Florida state
chartered commercial bank. The merger 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 banks are combined and recorded at their historical cost
amounts. Intervest National Bank has its headquarters and full-service banking
office in Rockefeller Center, in New York City, and a total of five full-service
banking offices in Clearwater and Pinellas County, Florida. The Bank conducts a
personalized commercial and consumer banking business, which consists of
attracting deposits from the areas served by its banking offices. It also
provides internet banking services through its web site:
www.intervestnatbank.com, which can attract deposit customers from outside its
primary market areas. The deposits, together with funds derived from other
sources, are used to originate a variety of real estate, commercial and consumer
17
loans and to purchase investment securities. The Bank emphasizes multifamily and
commercial real estate lending.
Intervest Corporation of New York is also located in Rockefeller Center in New
York City and is in the business of originating and acquiring commercial and
multifamily loans. On March 10, 2000, the Holding Company acquired all the
outstanding capital stock of Intervest Corporation of New York in exchange for
1,250,000 shares of the Holding Company's Class A common stock. As a result of
the acquisition, Intervest Corporation of New York became a wholly owned
subsidiary of the Holding Company. Former shareholders of Intervest Corporation
of New York are officers and directors of both the Holding Company and Intervest
Corporation of New York. The acquisition was also accounted for at historical
cost similar to the pooling-of-interests method of accounting.
Intervest Statutory Trust I was formed in December 2001 in connection with the
issuance of $15,000,000 of Capital Securities. See the section entitled
"Debentures Payable and Accrued Interest Payable on Debentures" for further
discussion.
The Company's profitability depends primarily on net interest income, which is
the difference between interest income generated from its interest-earning
assets less the interest expense incurred on its interest-bearing liabilities.
Net interest income is dependent upon the interest-rate spread, which is the
difference between the average yield earned on interest-earning assets and the
average rate paid on interest-bearing liabilities. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income. The interest rate spread is impacted
by interest rates, deposit flows and loan demand.
The Company's profitability is also affected by the level of its noninterest
income and expenses, the provision for loan loss reserves, and its effective
income tax rate. Noninterest income consists primarily of loan and other banking
fees. Noninterest expense consists of compensation and benefits, occupancy and
equipment related expenses, data processing expenses, advertising expense,
deposit insurance premiums and other operating expenses. The Company's
profitability is also significantly affected by general economic and competitive
conditions, changes in market interest rates, government policies and actions of
regulatory authorities.
Comparison of Results of Operations for the Years Ended December 31, 2001 and
2000.
General
- -------
Consolidated net earnings for the full year 2001 increased 45% to $3,778,000, or
$0.97 per fully diluted share, from $2,608,000, or $0.67 per fully diluted
share, for 2000. Net earnings for 2001 represent the highest level of earnings
reported by the Company since its inception in 1993. The growth was due to an
increase of $2,165,000 in net interest and dividend income and an increase of
$672,000 in noninterest income. These items were partially offset by an $801,000
increase in the provision for income taxes, a $735,000 increase in noninterest
expense, and a $337,000 increase in the provision for loan losses. Results for
2000 included an extraordinary charge, net of taxes, of $206,000, in connection
with the early retirement of various debentures.
Selected information regarding results of operations for the Holding Company and
its subsidiaries for 2001 follows:
Intervest Intervest Inter-
Holding National Corporation company
($ in thousands) Company (1) Bank of New York Balances Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Interest and dividend income $ 818 $27,126 $ 7,624 $ (106) $ 35,462
Interest expense 1,124 17,185 6,511 (106) 24,714
------------------------------------------------------------------------
Net interest and dividend (expense) income (306) 9,941 1,113 - 10,748
Provision for loan loss reserves 19 575 18 - 612
Noninterest income 176 925 1,152 (598) 1,655
Noninterest expenses 226 4,500 1,175 (598) 5,303
------------------------------------------------------------------------
(Loss) earnings before taxes (375) 5,791 1,072 - 6,488
(Credit) provision for income taxes (172) 2,387 495 - 2,710
- ------------------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings $ (203) $ 3,404 $ 577 $ - $ 3,778
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes the net activity of Intervest Statutory Trust I.
18
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.
Net interest and dividend income increased to $10,748,000 in 2001, from
$8,583,000 in 2000. The improvement was attributable to growth in the Company's
balance sheet and a higher net interest margin. The average loan portfolio
increased by $64,207,000 during 2001, funded by a similar increase in average
deposits. The net interest margin increased to 2.47% in 2001, from 2.34% in 2000
due to the Company's cost of funds decreasing at a faster pace than the yield on
its interest-earning assets.
The Company's yield on interest-earning assets decreased 53 basis points to
8.15% in 2001 due to the steady decline in market interest rates resulting from
the Federal Reserve Board decreasing the federal funds target rate on 11
occasions during 2001 for a total of 475 basis points. The lower rate
environment resulted in originations of new loans with lower rates than the
average yield of the loan portfolio in 2000, prepayments of higher-yielding
loans, early calls of security investments by the issuers with the resulting
proceeds being invested in lower yielding securities, and lower rates earned on
overnight and short-term investments.
The Company's cost of funds decreased 77 basis points to 6.27% in 2001 also due
to the lower rate environment, which resulted in lower rates paid on deposit
accounts and variable-rate debentures indexed to the prime rate.
The following table provides information on average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for 2001 and 2000. The yields and rates shown
are based on a computation of income/expense (including any related fee income
or expense) for each year divided by average interest-earning
assets/interest-bearing liabilities during each year. Average balances are
derived mainly from daily balances. Net interest margin is computed by dividing
net interest and dividend income by the average of total interest-earning assets
during each year.
For the Year Ended December 31,
--------------------------------
2001 2000
----------------------------------- ------------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- -------------------------------------------------------------------------------------------------------------------------------
Assets
Interest-earning assets:
Loans $315,148 $30,187 9.58% $250,941 $24,923 9.93%
Securities 75,117 3,423 4.56 101,532 6,056 5.96
Other interest-earning assets 44,848 1,852 4.13 14,925 929 6.22
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 435,113 $35,462 8.15% 367,398 $31,908 8.68%
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 11,973 12,257
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $447,086 $379,655
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest checking deposits $ 8,089 $ 238 2.94% $ 7,611 $ 232 3.05%
Savings deposits 19,629 778 3.96 17,070 897 5.25
Money market deposits 65,581 2,640 4.03 52,182 2,832 5.43
Certificates of deposit 222,743 13,423 6.03 175,552 10,892 6.20
---------------------------------------------------------------------------
Total deposit accounts 316,042 17,079 5.40 252,415 14,853 5.88
Federal funds purchased - - - 2,544 150 5.90
Debentures and accrued interest payable 78,257 7,635 9.76 76,546 8,322 10.87
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 394,299 $ 24,714 6.27% 331,505 $23,325 7.04%
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 6,338 5,696
Noninterest-bearing liabilities 8,460 7,599
Stockholders' equity 37,989 34,855
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 447,086 $379,655
- -------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $ 10,748 1.88% $ 8,583 1.64%
- -------------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 40,814 2.47% $ 35,893 2.34%
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.10x 1.11x
- -------------------------------------------------------------------------------------------------------------------------------
19
The following table provides information regarding changes in interest and
dividend income and interest expense. For each category of interest-earning
assets and interest-bearing liabilities, information is provided on changes
attributable to (1) changes in rate (change in rate multiplied by prior volume),
(2) changes in volume (change in volume multiplied by prior rate) and (3)
changes in rate-volume (change in rate multiplied by change in volume).
For the Year Ended December 31, 2001 vs. 2000
---------------------------------------------
Increase (Decrease) Due To Change In:
-------------------------------------
($ in thousands) Rate Volume Rate/Volume Total
- -----------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans $ (886) $ 6,377 $ (227) $ 5,264
Securities (1,429) (1,576) 372 (2,633)
Other interest-earning assets (313) 1,863 (627) 923
- -----------------------------------------------------------------------------------------------------------------
Total interest-earning assets (2,628) 6,664 (482) 3,554
- -----------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest checking deposits (8) 15 (1) 6
Savings deposits (220) 134 (33) (119)
Money market deposits (731) 727 (188) (192)
Certificates of deposit (313) 2,928 (84) 2,531
---------------------------------------------------
Total deposit accounts (1,272) 3,804 (306) 2,226
Federal funds purchased (150) (150) 150 (150)
Debentures and accrued interest payable (854) 186 (19) (687)
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities (2,276) 3,840 (175) 1,389
- -----------------------------------------------------------------------------------------------------------------
Net change in interest and dividend income $ (352) $ 2,824 $ (307) $ 2,165
- -----------------------------------------------------------------------------------------------------------------
Provision for Loan Loss Reserves
- --------------------------------
The provision for loan loss reserves is based on management's ongoing assessment
of the adequacy of the allowance for loan loss reserves, which takes into
consideration a number of factors, including the level of outstanding loans. See
the section "Comparison of Financial Condition at December 31, 2001 and 2000,"
for a discussion of these factors. The provision amounted to $612,000 in 2001,
compared to $275,000 in 2000. The increase was primarily due to the growth in
the loan portfolio.
Noninterest Income
- ------------------
Noninterest income, which is comprised mainly of fees from customer service
charges and income from mortgage lending activities, increased to $1,655,000 in
2001, from $983,000 in 2000. The increase was due to a higher level of income
($631,000) from the early repayment of loans, which consists of the recognition
of unearned fees and discounts associated with such loans and the receipt of
prepayment penalties in certain cases. The number of instances of prepayment of
mortgage loans tends to increase during periods of declining interest rates and
tends to decrease during periods of increasing interest rates, although the
amount and timing of prepayments, if any, cannot be predicted. Many of the
Company's mortgage loans include prepayment provisions, and others prohibit
prepayment of indebtedness entirely.
Noninterest Expenses
- --------------------
Noninterest expenses increased to $5,303,000 in 2001, from $4,568,000 in 2000.
Expenses for the 2001 period include approximately $150,000 of nonrecurring
expenses associated with the merger of Intervest Bank into Intervest National
Bank. Expenses for the 2000 period include approximately $210,000 of
nonrecurring expenses (consisting of $51,000 of attorney fees, consulting fees
20
and printing costs, and $159,000 of stock compensation) associated with the
acquisition of Intervest Corporation of New York.
Absent the aforementioned expenses, noninterest expenses totaled $5,153,000 in
2001, compared to $4,358,000 in 2000. The increase was due to a $382,000
increase in compensation and benefits (of which $254,000 was the result of
salary increases, additional staff and increased benefit expenses, and the
remainder due to a lower amount of SFAS No. 91 deferred origination costs), a
$212,000 increase in data processing expenses (due to Intervest National Bank's
growth in assets) and a $87,000 increase in occupancy expenses (due to higher
taxes and other charges), and a $145,000 increase in all other noninterest
expenses (primarily due to $40,000 of higher FDIC insurance premiums and
increases in general insurance, telephone and director expenses aggregating
$47,000). These increases were partially offset by lower advertising expenses
and professional fees aggregating $28,000.
Provision for Income Taxes
- --------------------------
The provision for income taxes increased to $2,710,000 in 2001, from $1,909,000
in 2000, largely due to higher pre-tax earnings. The Company's effective tax
rate (inclusive of state and local taxes) amounted to 41.8% in 2001, compared to
40.4% in 2000. The increase in the effective tax rate was primarily due to
higher earnings generated from the Company's New York operations, which is taxed
at a higher rate than Florida.
Extraordinary Item
- ------------------
In 2000, Intervest Corporation of New York redeemed debentures totaling
$24,000,000 in principal prior to maturity for the outstanding principal amount
plus accrued interest aggregating $3,970,000. In connection with these
redemptions, $382,000 of unamortized deferred debenture offering costs was
charged to expense and reported as an extraordinary charge, net of a tax benefit
of $176,000, in the consolidated statement of earnings for the year ended
December 31, 2000.
Comparison of Results of Operations for the Years Ended December 31, 2000 and
1999.
General
- -------
Consolidated net earnings for 2000 increased to $2,608,000, or $0.67 per fully
diluted share, from $1,767,000, or $0.44 per fully diluted share in 1999, or a
48% year-to-year increase. The growth in earnings was primarily due to a
$1,501,000 increase in net interest and dividend income and a $555,000 decrease
in the provision for loan loss reserves. These items were partially offset by a
$711,000 increase in the provision for income taxes, an increase in operating
expenses of $299,000 resulting largely from a full year of operations of the
Bank's New York office (which opened on April 1, 1999), and approximately
$210,000 of nonrecurring expenses associated with the acquisition of Intervest
Corporation of New York in March of 2000.
Selected information regarding results of operations for the Holding Company and
its subsidiaries for 2000 follows:
Intervest Intervest Inter-
Holding National Corporation company
($ in thousands) Company Bank of New York Balances Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Interest and dividend income $ 672 $ 22,982 $ 8,519 $ (265) $ 31,908
Interest expense 686 15,268 7,636 (265) 23,325
-------------------------------------------------------------------
Net interest and dividend (expense) income (14) 7,714 883 - 8,583
Provision for loan loss reserves 17 258 - - 275
Noninterest income 165 479 563 (224) 983
Noninterest expenses 405 3,564 823 (224) 4,568
-------------------------------------------------------------------
(Loss) earnings before taxes and extraordinary item (271) 4,371 623 - 4,723
(Credit) provision for income taxes (131) 1,752 288 - 1,909
Extraordinary item, net of tax - - (206) - (206)
- ------------------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings $(140) $ 2,619 $ 129 - $ 2,608
- ------------------------------------------------------------------------------------------------------------------------------------
21
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. Net interest
and dividend income increased to $8,583,000 in 2000, from $7,082,000 in 1999.
The improvement was attributable to a $74,961,000 increase in the average loan
portfolio, partially offset by a decline in the Company's interest rate spread
from 1.69% to 1.64%. The growth in the loan portfolio was funded primarily by a
$78,008,000 increase in average deposits.
The Company's cost of funds increased 16 basis points to 7.04% in 2000 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. This resulted in higher rates paid
for deposit accounts and floating-rate debentures, as well as an increase in
depositors' preference for certificates of deposit accounts, which normally have
higher rates than savings and money market accounts.
The Company's yield on earning assets in 2000 increased 11 basis point to 8.68%
due to higher yields earned on investment securities and other short-term
investments, partially offset by a decline in the yield on the loan portfolio.
Despite the higher rate environment, the average yield on the loan portfolio
declined to 9.93% from 10.68%, due to competitive lending conditions (which
resulted in originations of new loans with lower rates than the average yield of
the portfolio in 1999, as well as prepayments of higher-yielding loans). The
effect of the preceding was partially offset by rate increases on floating-rate
loans.
The following table provides information on average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for 2000 and 1999. The yields and rates shown
are based on a computation of income/expense (including any related fee income
or expense) for each year divided by average interest-earning
assets/interest-bearing liabilities during each year. Average balances are
derived mainly from daily balances. Net interest margin is computed by dividing
net interest and dividend income by the average of total interest-earning assets
during each year.
For the Year Ended December 31,
--------------------------------
2000 1999
----------------------------------- ------------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- -------------------------------------------------------------------------------------------------------------------------------
Assets
Interest-earning assets:
Loans $ 250,941 $ 24,923 9.93% $175,980 $ 18,794 10.68%
Securities 101,532 6,056 5.96 108,336 6,123 5.65
Other interest-earning assets 14,925 929 6.22 13,089 584 4.46
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 367,398 $ 31,908 8.68% 297,405 $ 25,501 8.57%
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 12,257 13,610
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $ 379,655 $ 311,015
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest checking deposits $ 7,611 $ 232 3.05% $ 7,687 $ 238 3.10%
Savings deposits 17,070 897 5.25 25,160 1,059 4.21
Money market deposits 52,182 2,832 5.43 42,078 1,882 4.47
Certificates of deposit 175,552 10,892 6.20 99,482 5,524 5.55
--------------------------------------------------------------------------
Total deposit accounts 252,415 14,853 5.88 174,407 8,703 4.99
Federal funds purchased 2,544 150 5.90 517 29 5.61
Debentures and accrued interest payable 76,546 8,322 10.87 92,888 9,687 10.43
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 331,505 $ 23,325 7.04% 267,812 $ 18,419 6.88%
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 5,696 4,436
Noninterest-bearing liabilities 7,599 6,529
Stockholders' equity 34,855 32,238
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 379,655 $ 311,015
- -------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $ 8,583 1.64% $ 7,082 1.69%
- -------------------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 35,893 2.34% $ 29,593 2.38%
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.11x 1.11x
- -------------------------------------------------------------------------------------------------------------------------------
22
The following table provides information regarding changes in interest and
dividend income and interest expense. For each category of interest-earning
assets and interest-bearing liabilities, information is provided on changes
attributable to (1) changes in rate (change in rate multiplied by prior volume),
(2) changes in volume (change in volume multiplied by prior rate) and (3)
changes in rate-volume (change in rate multiplied by change in volume).
For the Year Ended December 31, 2000 vs. 1999
---------------------------------------------
Increase (Decrease) Due To Change In:
-------------------------------------
($ in thousands) Rate Volume Rate/Volume Total
- -------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans $ (1,320) $ 8,006 $ (557) $ 6,129
Securities 336 (384) (19) (67)
Other interest-earning assets 230 82 33 345
- -------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets (754) 7,704 (543) 6,407
- -------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest checking deposits (4) (2) - (6)
Savings deposits 262 (341) (83) (162)
Money market deposits 404 452 94 950
Certificates of deposit 647 4,222 499 5,368
------------------------------------------------------------
Total deposit accounts 1,309 4,331 510 6,150
Federal funds purchased 1 114 6 121
Debentures and accrued interest payable 409 (1,704) (70) (1,365)
- -------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,719 2,741 446 4,906
- -------------------------------------------------------------------------------------------------------------------------
Net change in interest and dividend income $ (2,473) $ 4,963 $ (989) $ 1,501
- -------------------------------------------------------------------------------------------------------------------------
Provision for Loan Loss Reserves
- --------------------------------
The provision for loan loss reserves is based on management's ongoing assessment
of the adequacy of the allowance for loan loss reserves, which takes into
consideration a number of factors, including the level of outstanding loans. See
the section "Comparison of Financial Condition at December 31, 2001 and 2000,"
for a discussion of these factors. The provision amounted to $275,000 in 2000,
compared to $830,000 in 1999. The 1999 provision included an initial provision
of $444,000 recorded by the Bank in conjunction with approximately $42,000,000
of new loan originations generated by its New York office in 1999.
Noninterest Income
- ------------------
Noninterest income, which is comprised mainly of fees from customer service
charges and income from mortgage lending activities, increased to $983,000 in
2000, from $900,000 in 1999. The increase was due to a higher level of income
from the early repayment of loans, which consists of the recognition of unearned
fees and discounts associated with such loans and the receipt of prepayment
penalties in certain cases. The number of instances of prepayment of mortgage
loans tends to increase during periods of declining interest rates and tends to
decrease during periods of increasing interest rates, although the amount and
timing of prepayments, if any cannot be predicted. Many of the Company's
mortgage loans include prepayment provisions, and others prohibit prepayment of
indebtedness entirely.
23
Noninterest Expenses
- --------------------
Noninterest expenses increased to $4,568,000 in 2000, from $4,059,000 in 1999.
The increase was due to approximately $210,000 of nonrecurring expenses
(consisting of $51,000 of attorney fees, consulting fees and printing costs, and
$159,000 of stock compensation) associated with the acquisition of Intervest
Corporation of New York. The remaining $299,000 increase was due to higher
compensation, occupancy and equipment expenses resulting from a full year of
operations of the Bank's New York office in 2000, compared to nine months of
operations in 1999.
Provision for Income Taxes
- --------------------------
The provision for income taxes increased to $1,909,000 in 2000, from $1,198,000
in 1999, due to higher pre-tax earnings. The Company's effective tax rate
(inclusive of state and local taxes) amounted to 40.4% in 2000, compared to
38.7% in 1999. The increase in the effective tax rate was primarily due to
higher earnings generated from the Company's New York operations, which is taxed
at a higher rate than Florida.
Extraordinary Item
- ------------------
In 2000, Intervest Corporation of New York redeemed debentures totaling
$24,000,000 in principal prior to maturity for the outstanding principal amount
plus accrued interest aggregating $3,970,000. In connection with these
redemptions, $382,000 of unamortized deferred debenture offering costs was
charged to expense and reported as an extraordinary charge, net of a tax benefit
of $176,000, in the consolidated statement of earnings for the year ended
December 31, 2000.
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.
Comparison of Financial Condition at December 31, 2001 and December 31, 2000.
Overview
- --------
Total assets at December 31, 2001 increased to $512,622,000, from $416,927,000
at December 31, 2000. The increase was reflected in the growth in mortgage
loans. Total liabilities at December 31, 2001 increased to $472,227,000, from
$380,699,000 at December 31, 2000, due to growth in deposit accounts and an
increase in debentures payable. Stockholders' equity increased to $40,395,000 at
December 31, 2001, from $36,228,000 at year-end 2000, due almost entirely to
earnings for 2001. Book value per common share increased to $10.36 per share at
December 31, 2001, from $9.29 at December 31, 2000.