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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2002
Commission File No. 33-22976-NY
INTERVEST CORPORATION OF NEW YORK
(Exact name of registrant as specified in its charter)
New York 13-3415815
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State or other jurisdiction of (I.R.S. employer
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)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: YES X NO ___.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Title of Each Class: Shares Outstanding:
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Common Stock, no par value per share 100 shares outstanding at July 31, 2002
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INTERVEST CORPORATION OF NEW YORK AND SUBSIDIARIES
FORM 10-Q
June 30, 2002
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 2002 (Unaudited) and December 31, 2001 ................................ 2
Condensed Consolidated Statements of Operations (Unaudited)
for the Quarters and Six-Months Ended June 30, 2002 and 2001.......................... 3
Condensed Consolidated Statements of Changes in Stockholder's Equity (Unaudited)
for the Six-Months Ended June 30, 2002 and 2001....................................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Six-Months Ended June 30, 2002 and 2001....................................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited) ........................ 6
Review by Independent Certified Public Accountants ...................................... 9
Report on Review by Independent Certified Public Accountants ............................ 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................ 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk...................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................... 15
Item 2. Changes in Securities and Use of Proceeds....................................... 15
Item 3. Defaults Upon Senior Securities................................................. 15
Item 4. Submission of Matters to a Vote of Security Holders............................. 15
Item 5. Other Information............................................................ 15
Item 6. Exhibits and Reports on Form 8-K ............................................... 15
Signatures........................................................................................ 16
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-Q that are not statements of
historical fact may include forward-looking statements that involve a number of
risks and uncertainties. Such forward-looking statements are made based on
management's expectations and beliefs concerning future events impacting the
Company and are subject to uncertainties and factors relating to the Company's
operations and economic environment, all of which are difficult to predict and
many of which are beyond the control of the Company, that could cause actual
results of the Company to differ materially from those matters expressed in or
implied by forward-looking statements. The following factors are among those
that could cause actual results to differ materially from the forward-looking
statements: changes in general economic, market and regulatory conditions, the
development of an interest rate environment that may adversely affect the
Company's net interest income, other income or cash flow anticipated from the
Company's operations, investment and lending activities; and changes in laws and
regulations affecting the Company.
1
PART I. FINANCIAL INFORMATION
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ITEM 1. Financial Statements
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Intervest Corporation of New York and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
($ in thousands) 2002 2001
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ASSETS
Cash and due from banks $ 1,884 $ 1,050
Short-term investments 4,853 15,702
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Total cash and cash equivalents 6,737 16,752
Mortgage loans receivable net of unearned fees and discounts and allowance for loan losses (note 2) 76,689 62,647
Accrued interest receivable 812 523
Fixed assets, net 73 61
Deferred debenture offering costs, net (note 3) 2,403 2,348
Other assets 809 752
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Total assets $87,523 $83,083
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LIABILITIES
Mortgage escrow funds payable $ 672 $ 658
Subordinated debentures payable (note 4) 66,250 63,000
Debenture interest payable at maturity (note 4) 9,558 9,113
Other liabilities 443 465
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Total liabilities 76,923 73,236
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STOCKHOLDER'S EQUITY
Common stock (no par value, 100 shares issued and outstanding) 2,100 2,100
Additional paid-in-capital 3,509 3,509
Retained earnings 4,991 4,238
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Total stockholder's equity 10,600 9,847
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Total liabilities and stockholder's equity $87,523 $83,083
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See accompanying notes to condensed consolidated financial statements.
2
Intervest Corporation of New York and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Quarter Ended Six-Months Ended
June 30, June 30,
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($ in thousands) 2002 2001 2002 2001
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REVENUES
Interest and fee income on mortgages $2,267 $1,680 $4,161 $3,224
Interest income on short-term investments 27 156 114 445
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Total interest income 2,294 1,836 4,275 3,669
Gain on early repayment of mortgages 48 327 83 331
Other income (note 5) 429 97 732 239
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Total revenues 2,771 2,260 5,090 4,239
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EXPENSES
Interest on debentures 1,316 1,458 2,617 3,075
Amortization of deferred debenture offering costs 202 156 392 313
General and administrative 354 311 692 614
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Total expenses 1,872 1,925 3,701 4,002
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Income before income taxes 899 335 1,389 237
Income tax expense 410 154 636 111
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Net income $ 489 $ 181 $ 753 $ 126
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See accompanying notes to condensed consolidated financial statements.
3
Intervest Corporation of New York and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholder's Equity
(Unaudited)
Six-Months Ended
June 30,
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($ in thousands)
2002 2001
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COMMON STOCK
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Balance at beginning and end of period $ 2,100 $ 2,100
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ADDITIONAL PAID-IN-CAPITAL, COMMON
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Balance at beginning and end of period 3,509 3,509
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RETAINED EARNINGS
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Balance at beginning of period 4,238 3,660
Net income for the period 753 126
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Balance at end of period 4,991 3,786
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Total stockholder's equity at end of period $10,600 $ 9,395
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See accompanying notes to condensed consolidated financial statements.
4
Intervest Corporation of New York and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six-Months Ended
June 30,
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($ in thousands) 2002 2001
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OPERATING ACTIVITIES
Net income $ 753 $ 126
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 13 11
Amortization of deferred debenture offering costs 392 313
Amortization of premiums, fees and discounts, net (313) (336)
Provision for loan losses 56 -
Gain on early repayment of mortgages (83) (331)
Increase in mortgage escrow funds payable 15 (120)
Increase in debenture interest payable at maturity 444 856
Change in all other assets and liabilities, net 117 700
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Net cash provided by operating activities 1,394 1,219
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INVESTING ACTIVITIES
Principal repayments of mortgage loans receivable 8,399 17,894
Originations of mortgage loans receivable (22,580) (24,893)
Purchases of premises and equipment (24) (8)
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Net cash used in investing activities (14,205) (7,007)
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FINANCING ACTIVITIES
Proceeds from issuance of debentures, net of offering costs 5,296 (84)
Principal repayments of debentures (2,500) (1,400)
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Net cash provided by (used in) financing activities 2,796 (1,484)
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Net (decrease) in cash and cash equivalents (10,015) (7,272)
Cash and cash equivalents at beginning of period 16,752 19,476
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Cash and cash equivalents at end of period $ 6,737 $ 12,204
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SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 2,172 $ 2,218
Income taxes 697 40
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See accompanying notes to condensed consolidated financial statements.
5
Intervest Corporation of New York and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
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Note 1 - General
The condensed consolidated financial statements of Intervest Corporation of New
York and Subsidiaries (the "Company") in this report have not been audited
except for the information derived from the audited Consolidated Balance Sheet
as of December 31, 2001. The financial statements in this report should be read
in conjunction with the consolidated financial statements and related notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
The condensed consolidated financial statements include the accounts of
Intervest Corporation of New York and its wholly owned subsidiaries, Intervest
Distribution Corporation and Intervest Realty Servicing Corporation. All
material intercompany accounts and transactions have been eliminated in
consolidation.
The Company is engaged in the real estate business, including the origination
and purchase of real estate mortgage loans, consisting of first mortgage, junior
mortgage and wraparound mortgage loans. The Company's investment policy
emphasizes the investment in mortgage loans on income producing properties.
The Company is 100% owned by Intervest Bancshares Corporation (the "Parent
Company"). Officers of the Company are also shareholders and officers of the
Parent Company and serve on the Boards of Directors of both companies.
In the opinion of management, all material adjustments necessary for a fair
presentation of financial condition and results of operations for the interim
periods presented in this report have been made. These adjustments are of a
normal recurring nature. The results of operations for the interim periods are
not necessarily indicative of results that may be expected for the entire year
or any other interim period. In preparing the condensed consolidated financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses. Actual
results could differ from those estimates.
Note 2 - Allowance for Loan Losses
The allowance for loan losses is netted against loans receivable and is
increased by provisions charged to operations and decreased by chargeoffs (net
of recoveries). The adequacy of the allowance is evaluated monthly with
consideration given to the nature and volume of the loan portfolio, overall
portfolio quality, loan concentrations, specific problem loans and commitments
and estimates of fair value thereof; historical chargeoffs and recoveries,
adverse situations which may affect the borrowers' ability to repay, and
management's perception of the current and anticipated economic conditions in
the Company's lending areas. In addition, Statement of Financial Accounting
Standards (SFAS) No. 114 specifies the manner in which the portion of the
allowance for loan losses is computed related to certain loans that are
impaired. A loan is normally deemed impaired when, based upon current
information and events, it is probable the Company will be unable to collect
both principal and interest due according to the contractual terms of the loan
agreement. Impaired loans normally consist of loans on nonaccrual status.
Interest income on impaired loans is recognized on a cash basis. Impairment for
commercial real estate and residential loans is measured based on the present
value of expected future cash flows, discounted at the loan's effective interest
rate, or the observable market price of the loan or the estimated fair value of
the loan's collateral, if payment of the principal and interest is dependent
upon the collateral. When the fair value of the property is less than the
recorded investment in the loan, this deficiency is recognized as a valuation
allowance and a charge through the provision for loan losses. The Company
normally charges off any portion of the recorded investment in the loan that
exceeds the fair value of the collateral Management believes that all loans at
6
Intervest Corporation of New York and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
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Note 2 - Allowance for Loan Losses, continued
June 30, 2002 and December 31, 2001 were collectible. The allowance for loan
losses was $74,000 at June 30, 2002 and $18,000 at December 31, 2001. For the
quarter and six months ended June 30, 2002, the provision for loan losses was
$38,000 and $56,000, respectively. There was no provision for the same periods
of 2001. There were no loan chargeoffs, or loans classified as nonaccrual or
impaired during the reporting periods of this report.
Note 3 - Deferred Debenture Offering Costs
Costs related to offerings of debentures are deferred and amortized over the
respective terms of the debentures. Deferred debenture offering costs consist
primarily of underwriter's commissions. At June 30, 2002, deferred debenture
offering costs, net of accumulated amortization of $3,243,000, amounted to
$2,403,000. At December 31, 2001, deferred debenture offering costs, net of
accumulated amortization of $2,851,000, amounted to $2,348,000
Note 4 - Subordinated Debentures Payable
The following table summarizes debentures payable.
At June 30, At December 31,
($ in thousands) 2002 2001
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Series 05/12/95 - interest at 2% above prime - due April 1, 2004 $ 9,000 $ 9,000
Series 10/19/95 - interest at 2% above prime - due October 1, 2004 9,000 9,000
Series 05/10/96 - interest at 2% above prime - due April 1, 2005 10,000 10,000
Series 10/15/96 - interest at 2% above prime - due October 1, 2005 5,500 5,500
Series 04/30/97 - interest at 1% above prime - due October 1, 2005 8,000 8,000
Series 11/10/98 - interest at 8 1/2% fixed - due January 1, 2003 1,400 1,400
Series 11/10/98 - interest at 9% fixed - due January 1, 2005 2,600 2,600
Series 06/28/99 - interest at 8% fixed - due July 1, 2002 2,500
Series 06/28/99 - interest at 8 1/2% fixed - due July 1, 2004 2,000 2,000
Series 06/28/99 - interest at 9% fixed - due July 1, 2006 2,000 2,000
Series 09/18/00 - interest at 8% fixed - due January 1, 2004 1,250 1,250
Series 09/18/00 - interest at 8 1/2% fixed - due January 1, 2006 1,250 1,250
Series 09/18/00 - interest at 9% fixed - due January 1, 2008 1,250 1,250
Series 08/01/01 - interest at 7 1/2% fixed - due April 1, 2005 1,750 1,750
Series 08/01/01 - interest at 8% fixed - due April 1, 2007 2,750 2,750
Series 08/01/01 - interest at 8 1/2% fixed - due April 1, 2009 2,750 2,750
Series 01/17/02 - interest at 7 1/4% fixed - due October 1, 2005 1,250 -
Series 01/17/02 - interest at 7 1/2% fixed - due October 1, 2007 2,250 -
Series 01/17/02 - interest at 7 3/4% fixed - due October 1, 2009 2,250 -
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$ 66,250 $ 63,000
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The "prime" in the preceding table refers to the prime rate of JP Morgan Chase
Bank, which was 4.75% at June 30, 2002 and December 31, 2001.
The Company has filed a registration statement relating to the issuance of
additional subordinated debentures. It is anticipated that debentures in an
aggregate principal amount of up to $7,750,000 will be issued in the third
quarter of 2002
The Series 5/12/95, 10/19/95, 5/10/96, 10/15/96 and 4/30/97 debentures have a
maximum interest rate of 12%. Interest on an aggregate of $6,370,000 of these
debentures at June 30, 2002 is accrued and compounded quarterly, and is due and
7
Intervest Corporation of New York and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
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Note 4 - Subordinated Debentures Payable, Continued
payable at maturity. The payment of interest on the remaining debentures is made
quarterly. Any debenture holder in the aforementioned Series whose interest
accrues and is due at maturity may at any time elect to receive the accrued
interest and subsequently receive regular payments of interest.
The Series 11/10/98, 6/28/99 and 9/18/00 and $770,000 of Series 8/1/01
debentures accrue and compound interest quarterly, with such interest due and
payable at maturity. The holders of Series 11/10/98, 6/28/99 and 9/18/00
debentures can require the Company to repurchase the debentures for face amount
plus accrued interest each year (beginning July 1, 2002 for the Series 6/28/99
and January 1, 2004 for the Series 9/18/00) provided, however, that in no
calendar year will the Company be required to purchase more than $100,000 in
principal amount of each maturity, in each series of debentures, on a
non-cumulative basis.
All the debentures may be redeemed, in whole or in part, at any time at the
option of the Company, for face value, except for Series 8/1/01 and Series
1/17/02 debentures. The Series 8/1/01 debentures would be redeemable at a
premium of 1% if the redemption were prior to October 1, 2002. The Series
1/17/02 debentures would be redeemable at a premium of 1% if the redemption were
prior to April 1, 2003. All the debentures are unsecured and subordinate to all
present and future senior indebtedness, as defined in the indenture related to
the debenture.
In the first quarter of 2002, the Company notified holders of the Series 6/28/99
debentures due July 1, 2002 that those debentures would be redeemed on April 1,
2002. On such date, those debentures were redeemed for a total of $3,086,000,
which is comprised of $2,500,000 of principal and $586,000 of accrued interest.
Scheduled contractual maturities of debentures as of June 30, 2002 are
summarized as follows:
($ in thousands) Principal Accrued Interest
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For the six-months ended December 31, 2002 - $846
For the year ended December 31, 2003 1,400 489
For the year ended December 31, 2004 21,250 4,693
For the year ended December 31, 2005 29,100 2,502
For the year ended December 31, 2006 3,250 779
Thereafter 11,250 249
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$66,250 $9,558
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Note 5 - Related Party Transactions
The Company entered into a service agreement in June 1999 with Intervest
National Bank, (also a wholly owned subsidiary of the parent Company) with
respect to providing mortgage loan origination and servicing services to
Intervest National Bank. The Company received $672,000, and $187,000 from
Intervest National Bank for the six months ended June 30, 2002 and 2001,
respectively, and $399,000 and $75,000 for the quarter ended June 30, 2002 and
2001, respectively, in connection with this service agreement. These amounts are
included in other income in the consolidated statements of operations.
The Company participates with Intervest National Bank in certain mortgage loans.
The balances of the Company's participation in these mortgages were $6,461,000
and $3,919,000 at June 30, 2002 and December 31, 2001, respectively.
The Company has interest-bearing and noninterest-bearing deposit accounts with
Intervest National Bank totaling $765,000 at June 30, 2002 and $3,030,000 at
December 31, 2001. The Company received interest income of $37,000 and $13,000
for the six months ended June 30, 2002 and 2001, respectively, and $4,000 and
$6,000 for the quarter ended June 30, 2002 and 2001, respectively, in connection
with such deposits. These amounts are included in interest income in the
statement of operations.
8
Intervest Corporation of New York and Subsidiaries
Review by Independent Certified Public Accountants
Eisner LLP (formerly Richard A. Eisner & Company, LLP), the Company's
independent certified public accountants, have made a limited review of the
financial data as of June 30, 2002, and for the three- and six-month periods
ended June 30, 2002 and 2001 presented in this document, in accordance with
standards established by the American Institute of Certified Public Accountants.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
9
Report on Review by Independent Certified Public Accountants
Board of Directors and Stockholder
Intervest Corporation of New York
New York, New York:
We have reviewed the condensed consolidated balance sheet of Intervest
Corporation of New York and Subsidiaries (the "Company") as of June 30, 2002,
and the related condensed consolidated statements of operations for the three-
and six-month periods ended June 30, 2002 and 2001, and the related condensed
consolidated statements of changes in stockholder's equity and cash flows for
the six-month periods ended June 30, 2002 and 2001. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
for them to be in conformity with accounting principles generally accepted in
the United States of America.
We previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2001 and the related consolidated statements of operations, changes
in stockholder's equity and cash flows for the year then ended, and in our
report dated January 21, 2002, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 2001 is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
/s/ Eisner LLP
New York, New York
July 30, 2002
10
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
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Intervest Corporation of New York is engaged in the real estate business,
including the origination and purchase of real estate mortgage loans, consisting
of first mortgage, junior mortgage and wraparound mortgage loans. Intervest
Corporation of New York has two wholly owned subsidiaries, Intervest
Distribution Corporation and Intervest Realty Servicing Corporation (hereafter
referred to as the "Company" on a consolidated basis), The subsidiaries are
nonoperating entities that provide administrative services to Intervest
Corporation of New York.
The Company is 100% owned by Intervest Bancshares Corporation (the "Parent
Company"). Officers of the Company are also shareholders and officers of the
Parent Company and serve on the Boards of Directors of both companies. The
Parent Company also owns Intervest National Bank, a national bank with its
headquarters and full-service banking office located in New York, New York, four
full-service banking offices in Clearwater, Florida and one in South Pasadena,
Florida.
The Company's results of operations are affected by general economic trends in
real estate markets, as well as by trends in the general economy and the
movement of interest rates. Since the properties underlying the Company's
mortgages are concentrated in the New York City area, the economic conditions in
that area also have an impact on the Company's operations. While none of the
properties underlying these mortgages were directly impacted by the terrorist
acts of September 11, 2001, it is impossible to predict the impact such events
will have on real estate generally in the City of New York.
The Company has historically invested primarily in short-term real estate
mortgage loans secured by income producing real property that mature in
approximately five years. The properties to be mortgaged are personally
inspected by management and mortgage loans are made only on those types of
properties where management is knowledgeable as to operating income and expense.
The Company generally relies upon management in connection with the valuation of
properties. From time to time, however, it may engage independent appraisers and
other agents to assist in determining the value of income-producing properties
underlying mortgages, in which case the costs associated with such services are
generally paid by the mortgagor. The Company does not finance new construction.
While the Company has not previously made acquisitions of real property, it may
also, from time to time, acquire interests in real property, including fee
interests.
The Company's mortgage portfolio is composed predominantly of mortgages on
multi-family residential properties, most of which are subject to applicable
rent control and rent stabilization statutes and regulations. In both cases, any
increases in rent are subject to specific limitations. As such, properties of
the nature of those constituting the most significant portion of the Company's
mortgage portfolio are not affected by the general movement of real estate
values in the same manner as other income-producing properties.
The prepayment of mortgage loans tends to increase during periods of declining
interest rates and tends to decrease during periods of increasing interest
rates. Certain of the Company's mortgages include prepayment provisions, and
others prohibit prepayment of indebtedness entirely.
Comparison of Financial Condition at June 30, 2002 and December 31, 2001
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Total assets at June 30, 2002 increased to $87,523,000, from $83,083,000 at
December 31, 2001. The increase is reflective of the issuance of subordinated
debentures with a principal amount of $5,750,000, partially offset by the
redemption of subordinated debentures with a principal amount of $2,500,000.
This net increase of $3,250,000 combined with net income for the six months
ended June 30, 2002 of $753,000 were the primary cause of the increase in total
assets.
11
Cash and cash equivalents amounted to $6,737,000 at June 30, 2002, compared to
$16,752,000 at December 31, 2001. The decrease was mostly due to a decrease in
short term commercial paper. The resulting funds were invested in mortgage
loans.
Mortgage loans receivable, net of unearned income and allowance for loan losses,
amounted to $76,689,000 at June 30, 2002, compared to $62,647,000 at December
31, 2001. The increase was due to new originations exceeding maturities and
early repayments of loans. At June 30, 2002 and December 31, 2001, the Company
did not have any nonperforming loans.
Deferred debenture offering costs, net of accumulated amortization, increased to
$2,403,000 at June 30, 2002, from $2,348,000 at December 31, 2001. The increase
was primarily due to offering costs related to the issuance of subordinated
debentures, which was partially offset by normal amortization.
Total liabilities at June 30, 2002 increased to $76,923,000, from $73,236,000 at
December 31, 2001. The increase was primarily due to the issuance of
subordinated debentures with a principal amount of $5,750,000, partially offset
by the redemption of subordinated debentures with a principal amount of
$2,500,000.
Subordinated debentures outstanding at June 30, 2002 increased to $66,250,000,
from $63,000,000 at December 31, 2001 due to the issuance of subordinated
debentures with a principal amount of $5,750,000 partially offset by the
redemption of subordinated debentures with a principal amount of $2,500,000.
Debenture interest payable increased to $9,558,000 at June 30, 2002, from
$9,113,000 at December 31, 2001. The increase was the result of the accrual of
interest on outstanding debentures which was partially offset by the payment of
interest on the $2,500,000 of subordinated debentures that were redeemed in the
second quarter.
Stockholder's equity increased to $10,600,000 at June 30, 2002, from $9,847,000
at year-end 2001. The increase was due to net income of $753,000 for the
six-months ended June 30, 2002.
Comparison of Results of Operations for the Quarter Ended June 30, 2002 and 2001
- --------------------------------------------------------------------------------
The Company recorded net income of $489,000 for the second quarter of 2002,
compared to $181,000 for the second quarter of 2001.
Interest income was $2,294,000 for the quarter ended June 30, 2002, compared to
$1,836,000 for the same period a year ago. The increase of $458,000 was
primarily due to an increase in mortgage loans, which was partially offset by a
decrease in rates on new mortgage loans, repayments of higher-yielding loans and
lower rates earned on short-term investments.
Gain on early repayment of mortgages decreased to $48,000 for the quarter ended
June 30, 2002 from $327,000 in the same period a year ago. The decrease was
primarily due to one large prepayment in the second quarter of 2001 that did not
recur in 2002.
Other income increased to $429,000 for the quarter ended June 30, 2002, compared
to $97,000 for the quarter ended June 30, 2001. This increase was primarily due
to an increase in the service fees from Intervest National Bank.
Interest expense on debentures was $1,316,000 for the quarter ended June 30,
2002, compared $1,458,000 for the same period of 2001. The decrease of $142,000
was primarily due to interest rate decreases on floating-rate debentures. The
floating-rate debentures are indexed to the JP Morgan Chase Prime Rate, which
decreased by 325 basis points from the quarter ended June 30, 2001 to the
quarter ended June 30, 2002. The effect of the decrease in rates was mostly
offset by interest expense on a higher level of subordinated debentures.
Amortization of deferred debenture offering costs was $202,000 for the quarter
ended June 30, 2002, compared to $156,000 for the same period of 2001. The
increase of $46,000 reflected the increased amount of debentures outstanding.
General and administrative expenses increased to $354,000 for the quarter ended
June 30, 2002, from $311,000 for the same period of 2001. The increase primarily
reflected an increase in the provision for loan losses of $38,000.
12
Income tax expense for the quarter ended June 30, 2002 amounted to $410,000
compared to $154,000 for the quarter ended June 30, 2001. The Company's
effective tax rate was 46% for each period.
Comparison of Results of Operations for the Six-Months Ended June 30, 2002 and
- --------------------------------------------------------------------------------
2001
- ----
The Company recorded net income $753,000 for the six-months ended June 30, 2002,
compared $126,000 for the same period of 2001. The increase in earnings was
primarily due to: a $606,000 increase in interest income, a $493,000 increase in
other income and a $458,000 decrease in interest expense on debentures. These
increases were partially offset by a $525,000 increase in tax expense and a
$248,000 reduction in gain on early repayment of mortgages.
Interest income was $4,275,000 for the six-months ended June 30, 2002, compared
to $3,669,000 for the same period a year ago, or an increase of $ 606,000. This
increase was primarily due to an increase in mortgage loans, which was partially
offset by a decrease in rates on new mortgage loans, repayments of
higher-yielding loans and lower rates earned on short-term investments
Other income was $732,000 for the six-months ended June 30, 2002, compared to
$239,000 for the same period a year ago, or an increase of $ $493,000 which was
primarily the result of an increase in service fees from Intervest National
Bank.
Interest expense on debentures was $2,617,000 for the six-months ended June 30,
2002, compared to $3,075,000 for the same period of 2001, or a $458,000 decrease
which was primarily related to a 400 basis point decrease on floating-rate
debentures.
Amortization of deferred debenture offering costs was $392,000 for the
six-months ended June 30, 2002, compared to $313,000 for the same period of
2001, or an increase of $79,000 related to an increase in the amount of
debentures outstanding.
General and administrative expenses aggregated $692,000 for the six-months ended
June 30, 2002, compared to $614,000 for the same period of 2001, or an increase
of $78,000. The increase is primarily due to an $56,000 increase in the
allowance for loan losses.
The provision for income taxes amounted to $636,000 and $111,000 for the
six-months ended June 30, 2002 and 2001, respectively. The provision represented
46% of pretax income for each period.
Liquidity and Capital Resources
- -------------------------------
The Company manages its liquidity position on a daily basis to assure that funds
are available to meet operations, loan and investment funding commitments and
the repayment of borrowed funds. The Company's principal sources of funds have
consisted of borrowings (through the issuance of its subordinated debentures),
mortgage repayments and cash flow generated from ongoing operations. For
information about the cash flows from the Company's operating, investing and
financing activities, see the condensed consolidated statements of cash flows in
this report.
At June 30, 2002, the Company's total commitment to lend aggregated
approximately $5,795,000.
The Company considers its current liquidity and sources of funds sufficient to
satisfy its outstanding lending commitments and its maturing liabilities.
Asset and Liability Management
Interest rate risk arises from differences in the repricing of assets and
liabilities within a given time period. The Company uses "gap analysis," which
measures the difference between interest-earning assets and interest-bearing
liabilities that mature or reprice within a given time period, to monitor its
interest rate sensitivity. An asset or liability is normally considered to be
13
interest-rate sensitive if it will reprice or mature within one year or less.
The interest-rate sensitivity gap is the difference between interest-earning
assets and interest-bearing liabilities scheduled to mature or reprice within a
one-year time period. A gap is considered positive when the amount of interest
rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities.
Conversely, a gap is considered negative when the opposite is true.
During a period of rising interest rates, a negative gap would tend to adversely
affect net interest income, while a positive gap would tend to result in an
increase in net interest income. During a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive gap would tend to adversely affect net interest income. If the
repricing of the Company's assets and liabilities were equally flexible and
moved concurrently, the impact of any increase or decrease in interest rates on
net interest income would be minimal.
A simple interest rate gap analysis by itself may not be an accurate indicator
of how net interest income will be affected by changes in interest rates for the
following reasons. Income associated with interest-earning assets and costs
associated with interest bearing liabilities may not be affected uniformly by
changes in interest rates. In addition, the magnitude and duration of changes in
interest rates may have a significant impact on net interest income. For
example, although certain assets and liabilities may have similar maturities or
periods of repricing, they may react in different degrees to changes in market
interest rates. Interest rates on certain types of assets and liabilities
fluctuate in advance of changes in general market interest rates, while interest
rates on other types may lag behind changes in market rates. The ability of many
borrowers to service their debts also may decrease in the event of an
interest-rate increase
The Company has a "floor," or minimum rate, on many of its floating-rate loans.
The floor for each specific loan is determined in relation to the prevailing
market rates on the date of origination and most adjust upwards in the event of
increases in the loan's interest rate.
Notwithstanding all of the above, there can be no assurances that a sudden and
substantial increase in interest rates may not adversely impact the Company's
earnings, to the extent that the interest rates borne by assets and liabilities
do not change at the same speed, to the same extent, or on the same basis.
The following table summarizes information relating to the Company's
interest-earning assets and interest-bearing liabilities as of June 30, 2002,
that are scheduled to mature or reprice within the periods shown. Floating-rate
loans, which are subject to adjustment at any time, are included in the 0-3
month period rather than in the period in which the loans mature. Fixed-rate
loans are scheduled, including repayments, according to their contractual
maturities.
0-3 4-12 Over 1-4 Over 4
($ in thousands) Months Months Years Years Total
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Floating- rate loans $ 62,352 - $ 340 $ - $ 62,692
Fixed- rate loans - - 9,421 5,662 15,083
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Total loans 62,352 - 9,761 5,662 77,775
Short-term investments 4,853 - - - 4,853
- ------------------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive assets $ 67,205 - $ 9,761 $ 5,662 $ 82,628
- ------------------------------------------------------------------------------------------------------------------------------------
Debentures payable $ 41,500 $ 1,400 $ 10,100 $ 13,250 $ 66,250
Accrued interest on debentures 6,328 489 1,901 840 9,558
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Total rate-sensitive liabilities $ 47,828 $ 1,889 $ 12,001 $ 14,090 $ 75,808
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GAP (repricing differences) $ 19,377 $ (1,889) $ (2,240) $ (8,428) $ 6,820
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative GAP $ 19,377 $ 17,488 $ 15,248 $ 6,820 $ 6,820
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative GAP to total assets 22.1% 20.0% 17.4% 7.8% 7.8%
- ------------------------------------------------------------------------------------------------------------------------------------
14
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Company's market risk arises primarily from interest rate
risk inherent in its lending activities and its issuance of debentures. The
Company has not engaged in and accordingly has no risk related to trading
accounts, commodities or foreign exchange. The measurement of market risk
associated with financial instruments is meaningful only when all related and
offsetting on-and off-balance sheet transactions are aggregated, and the
resulting net positions are identified. Disclosures about the fair value of
financial instruments as of December 31, 2001 and 2000, which reflect changes in
market prices and rates, can be found in note 12 to the consolidated financial
statements included in the Company's December 31, 2001 Form 10-K. Management
believes that there have been no significant changes in the Company's market
risk exposure since December 31, 2001.
Management actively monitors and manages the Company's interest rate risk
exposure. The primary objective in managing interest rate risk is to limit,
within established guidelines, the adverse impact of changes in interest rates
on the Company's net interest income and capital. For a further discussion, see
the asset and liability management section.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Not Applicable
ITEM 2. Changes in Securities and Use of Proceeds
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
ITEM 3. Defaults Upon Senior Securities
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
By written consent of the sole shareholder of the Company (Intervest
Bancshares Corporation) Dated April 12, 2002, The Company's board of
directors was re-elected in its entirety.
TEM 5. Other Information
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) No exhibits are filed with this report.
(b) No reports on Form 8-K were filed during the reporting period covered
by this report.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INTERVEST CORPORATION OF NEW YORK AND SUBSIDIARIES
Date: August 9, 2002 By: /s/ Lowell S. Dansker
----------------------------------------------
Lowell S. Dansker, President (Principal
Executive Officer), Treasurer (Principal
Financial Officer and Principal Accounting
Officer) and Director
Date: August 9, 2002 By: /s/ Lawrence G. Bergman
----------------------------------------------
Lawrence G. Bergman, Vice President,
Secretary and Director
16