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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, 2002
Commission File Number 33-22976-NY
INTERVEST MORTGAGE CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-3415815
- -------------------------------------------------- ------------------------------------------------
(State or other jurisdiction of incorporation) (I.R.S. employer 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
None
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(Title of class)
Indicate by check mark whether the registrant: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days: Yes XX No .
Indicate 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
amendment of this Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): Yes__No__
As of February 1, 2003, there were 100 shares of the registrant's common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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None
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Intervest Mortgage Corporation
2002 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Page
----
Item 1 Description of Business ........................................... 2
Item 2 Description of Properties.......................................... 5
Item 3 Legal Proceedings ................................................. 5
Item 4 Submission of Matters to Vote of Security Holders.................. 5
PART II
Item 5 Market for Common Equity and Related Stockholder Matters........... 6
Item 6 Selected Financial Data............................................ 6
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................... 7
Item 7A Quantitative and Qualitative Disclosures about Market Risk......... 11
Item 8 Financial Statements and Supplementary Data........................ 12
Item 9 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure ........................... 32
PART III
Item 10 Directors and Executive Officers of the Registrant................. 32
Item 11 Executive Compensation ............................................ 33
Item 12 Security Ownership of Certain Beneficial Owners and Management .... 34
Item 13 Certain Relationships and Related Transactions..................... 34
Item 14 Controls and Procedures............................................ 34
PART IV
Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K ... 35
Signatures ................................................................. 38
Certification .............................................................. 40
PART I
Item 1. Description of Business
-----------------------
Private Securities Litigation Reform Act Safe Harbor Statement
The Company is making this statement in order to satisfy the "Safe Harbor"
provision contained in the Private Securities Litigation Reform Act of 1995. The
statements contained in this report on Form 10-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 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.
General
In the third quarter of 2002, Intervest Corporation of New York changed its name
to Intervest Mortgage Corporation.
Intervest Mortgage Corporation and its wholly owned subsidiaries, Intervest
Distribution Corporation and Intervest Realty Servicing Corporation (hereafter
referred to as the "Company" on a consolidated basis), are 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 principal office of the Company is located at 10 Rockefeller Plaza,
Suite 1015, New York, New York 10020-1903, and its telephone number is
212-218-2800.
On March 10, 2000, Intervest Bancshares Corporation (hereafter referred to as
the "Parent Company") acquired all the outstanding capital stock of the Company
in exchange for shares of the Parent Company's Class A common stock. As a result
of the acquisition, the Company became a wholly owned subsidiary of the Parent
Company, which is a bank holding company. Former shareholders of the Company are
officers and directors of both the Company and the Parent Company. The Parent
Company also owns Intervest National Bank, a national bank with its headquarters
and full-service banking office in New York, New York, four full-service banking
offices in Clearwater, Florida and one in South Pasadena, Florida.
Market Area and Competition
The Company's lending activities have been concentrated in the New York City
metropolitan region. The Company also makes loans in other states, including
Connecticut, Florida, Georgia, Maryland, New Jersey, North Carolina,
Pennsylvania, Virginia and Washington D.C.
In connection with originating mortgage loans, the Company 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 in part to the Company's. 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 from such investments.
Lending Activities
The Company's lending activities include both long-term and short-term mortgage
loans on income producing properties, such as multifamily residential apartment
buildings, and office and commercial properties. The Company also may acquire or
originate mortgage loans on other types of properties, and may resell mortgages.
At December 31, 2002, the Company's loan portfolio amounted to $74,305,000,
compared to $63,594,000 at December 31, 2001. At December 31, 2002, $41,921,000,
or thirty-two (32) mortgage loans receivable, were secured by multi-family
2
apartment buildings located in the City of New York. These loans represent
approximately 56% of the principal balance of the Company's portfolio.
Mortgage loans originated and acquired are solicited directly by the Company's
officers, from existing borrowers, through advertising and from broker
referrals. The Company has in the past and may in the future participate in
mortgages originated by its affiliates, including Intervest National Bank.
The Company's mortgage loans 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. Forty-nine (49) of the mortgage loans in the
Company's portfolio, representing approximately 84% of the principal balance of
the Company's portfolio, have balloon payments due at the time of their
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. To the extent that the
aggregate net revenues from the Company's mortgage investments are insufficient
to provide funds equal to the payments due under the Company's debt obligations,
then the Company would be required to utilize its working capital for such
purposes or otherwise obtain the necessary funds from outside sources. No
assurance can be given that such funds would be available to the Company. The
Company's mortgage loans are generally not personal obligations of the borrower
and are not insured or guaranteed by governmental agencies.
In determining whether to make mortgage loans, the Company analyzes relevant
real property and financial factors, which may include factors such as: 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. The Company requires that all mortgaged properties be covered by property
insurance in amounts deemed adequate in the opinion of management. In addition,
representatives of the Company, as part of the approval process, makes physical
inspections of properties being considered for mortgage loans.
The Company's mortgage loans include first mortgage loans and junior mortgage
loans. The Company owns thirty-six (36) junior mortgages. The mortgages owned by
the Company that are junior mortgages are subordinate in right of payment to
senior mortgages on the various properties. In all cases, in the opinion of
management, the current value of the underlying property collateralizing the
mortgage loan is in excess of the stated amount of its junior mortgage loan plus
the senior loan. Therefore, in the opinion of management of the Company, each
property on which a mortgage owned by the Company is a lien constitutes adequate
collateral for the related mortgage loan. Accordingly, in the event the owner of
a property fails to make required debt service payments, management believes
that, based upon current value, upon a foreclosure of the mortgage and sale of
the property, the Company would recover its entire investment. However, there
can be no assurance that the current value of the underlying property will be
maintained.
The Company does not have a formal policy regarding the percentage of its assets
that may be invested in any single mortgage, or in any type of mortgage
investment, or regarding the geographic location of properties collateralizing
the mortgages owned by the Company.
Substantially all of the Company's mortgages are non-recourse. It is expected
that most mortgages that the Company acquires in the future will be non-recourse
mortgages as well. Under the terms of non-recourse mortgages, the owner of the
property subject to the mortgage has no personal obligation to pay the mortgage
note which the mortgage secures. Therefore, in the event of default, the
Company's ability to recover its investment is solely dependent upon the value
of the mortgaged property and balances of any loans secured by mortgages and
liens that are senior in right to the Company, which must be paid from the net
proceeds of any foreclosure proceeding. Any loss the Company may incur as a
result of the foregoing factors may have a material adverse effect on the
Company's business, financial condition and results of operations. At December
31, 2002: six of the mortgages in the Company's portfolio (representing
approximately 14% of the principal balance in the Company's portfolio) allowed
recourse against the mortgagor only with respect to liabilities related to
tenant security deposits; forty-one (41) of the mortgages (representing
approximately 68% of the principal balance in the Company's portfolio) allowed
recourse against the mortgagor only with respect to liabilities relating to
3
tenant security deposits, proceeds from insurance policies, losses arising under
environmental laws and losses resulting from waste or acts of malfeasance; ten
loans (representing approximately 16% of the portfolio), are full recourse; four
loans were without recourse. In addition, at December 31, 2002, ten of the
Company's mortgages were guaranteed by third parties.
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, in appropriate circumstances, 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, its management has had
substantial experience in the acquisition and management of properties and, in
particular, multifamily residential properties.
Temporary Investment Activities
The Company has historically invested its excess cash (after meeting its lending
commitments) in commercial paper and certificate of deposits issued by large
commercial banks and U.S. government securities. The level of such investments
fluctuates based on various factors, including liquidity needs, loan demand and
scheduled repayments of debentures. Cash and short-term investments at December
31, 2002 amounted to $17,946,000, compared to $16,752,000 at December 31, 2001.
Loan Loss Experience
For financial reporting purposes, the Company considers a loan as delinquent or
non-performing when it is contractually past due 90 days or more as to principal
or interest payments. The Company evaluates its portfolio of mortgage loans
based on various factors to determine the need for an allowance for loan losses.
At December 31, 2002, the allowance was $101,000, compared to $18,000 at
December 31, 2001. The Company did not have any nonperforming assets or impaired
loans at December 31, 2002 and 2001.
Sources of 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. Subordinated debentures outstanding at
December 31, 2002 totaled $74,000,000, compared to $63,000,000 at December 31,
2001.
Employees
At December 31, 2002, the Company employed thirteen (13) full-time employees.
The Company provides a health care insurance benefit plan and a 401K plan to its
employees. The employees are not covered by a collective bargaining agreement
and the Company believes its employee relations are good.
Federal and State Taxation
The Company files consolidated federal, New York State and City income tax
returns with its Parent Company on a calendar year basis. Consolidated returns
have the effect of eliminating intercompany distributions, including dividends,
from the computation of consolidated taxable income for the taxable year in
which the distributions occur. Income taxes are provided in the consolidated
financial statements as if the Company filed a separate consolidated tax return
with its subsidiaries.
4
Investment in Subsidiaries
The following table provides information regarding Intervest Mortgage
Corporation's subsidiaries:
At December 31, 2002
---------------------------------------------- Subsidiaries
($ in thousands) % of Equity in Earnings (Loss) for the
Voting Total Underlying Year Ended Dec. 31,
Subsidiary Stock Investment Net Assets 2002 2001 2000
- --------------------------- --------- ---------- ---------- ----------------------
Intervest Distribution Corporation 100% $ 32 $ 32 $ (1) $ (1) $ (1)
Intervest Realty Servicing Corporation 100% $ 689 $ 689 $ 6 $ 11 $ 18
There were no dividends paid to the Company by its subsidiaries in 2002, 2001 or
2000.
Effect of Government Regulation
Investment in mortgages on real properties may be impacted by government
regulation in several ways. Residential properties may be subject to rent
control and rent stabilization laws. As a consequence, the owner of the property
may be restricted in its ability to raise the rents on apartments. If real
estate taxes, fuel costs and maintenance of and repairs to the property were to
increase substantially, and such increases are not offset by increases in rental
income, the ability of the owner of the property to make the payments due on the
mortgage as and when they are due might be adversely affected.
Laws and regulations relating to asbestos have been adopted in many
jurisdictions, including New York City, which require that whenever any work is
undertaken in a property in an area in which asbestos is present, the asbestos
must be removed or encapsulated in accordance with such applicable local and
federal laws and regulations. The cost of asbestos removal or encapsulation may
be substantial, and if there were not sufficient cash flow from the property,
after debt service on mortgages, to fund the required work, and the owner of the
property fails to fund such work from other sources, the value of the property
could be adversely affected, with consequent impairment of the security for the
mortgage.
Laws regulating the storage, disposal and clean up of hazardous or toxic
substances at real property have been adopted at the federal, state and local
levels. Such laws may impose a lien on the real property superior to any
mortgages on the property. In the event such a lien were imposed on any
property, which serves as security for a mortgage owned by the Company, the
security for such mortgage could be impaired.
In addition, as a bank holding company, the Parent Company is extensively
regulated under both federal and state laws and regulations.
Item 2. Description of Properties
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The office of the Company is located in leased premises (of approximately 5,000
square feet) on the tenth floor of 10 Rockefeller Plaza, New York, N.Y, 10020.
The lease expires on September 30, 2004.
Item 3. Legal Proceedings
-----------------
The Company may periodically be 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 real property loans, and
other issues incident to the Company's business. Management does not believe
that there is any pending or threatened proceeding against the Company which, if
determined adversely, would have a material effect on the business, results of
operations, or financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
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None
5
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
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There is no established trading market for the Company's shares of common stock.
At December 31, 2002 and 2001, the Company's outstanding common stock was 100%
owned by the Parent Company.
The payment of dividends by the Company to the Parent Company is subject to
restrictions. The Company cannot declare or pay any dividend or make any
distribution on its capital stock (other than dividends or distributions payable
in capital stock), or purchase, redeem or otherwise acquire or retire for value,
or permit any subsidiary to purchase or otherwise acquire for value, capital
stock of the Company, if at the time of such payment, the Company is not in
compliance with the indentures under which the Company's debentures were issued.
The Company declared and paid a $3,000,000 cash dividend to the Parent Company
in 2000. The payment of dividends is determined by the Company's Board of
Directors and in addition to the restrictions noted above, is dependent upon
results of operations and financial condition of the Company, and tax
considerations of both the Company and the Parent Company. The actual amount, if
any, and timing of future dividends will depend on such factors.
Item 6. Selected Financial Data
-----------------------
The table below presents selected consolidated financial data. This data should
be read in conjunction with, and are qualified in their entirety by, the
Consolidated Financial Statements and the Notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this report.
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At or For The Year Ended December 31,
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($ in thousands) 2002 2001 2000 1999 1998
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Financial Condition Data:
Total assets $97,311 $83,083 $74,860 $98,740 $99,605
Cash and short-term investments 17,946 16,752 19,476 30,754 27,452
Mortgage loans receivable, net of deferred fees 73,499 62,665 51,992 63,290 67,251
Subordinated debentures and related interest payable (1) 84,751 72,113 64,347 84,600 85,791
Stockholder's equity 11,413 9,847 9,269 12,140 11,568
Allowance for loan loss reserve 101 18 - - -
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Operations Data:
Interest income $8,420 $7,625 $8,519 $10,552 $11,743
Service fee income 1,597 463 285 223 -
Gain on early repayment of mortgages receivable 334 582 340 369 291
Other income 125 106 130 75 59
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Total revenues 10,476 8,776 9,274 11,219 12,093
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Interest expense 5,483 5,849 6,922 8,150 8,510
Amortization of deferred debenture offering costs 805 662 714 899 891
General and administrative expenses 1,415 1,192 1,015 1,118 944
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Total expenses 7,703 7,703 8,651 10,167 10,345
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Earnings before income taxes and extraordinary item 2,773 1,073 623 1,052 1,748
Provision for income taxes 1,207 495 288 480 801
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Income before extraordinary item 1,566 578 335 572 947
Extraordinary item, net of taxes (2)
- - (206) - -
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Net income $1,566 $578 $129 $572 $947
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Ratios and Other Data
Ratio of earnings to fixed charges (3) 1.4x 1.2x 1.1x 1.1x 1.2x
Dividends paid to Parent Company $ - $ - $3,000 $ - $ -
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(1) Includes current portion of obligations.
(2) Represents a charge, net of taxes, in connection with the early retirement
of certain debentures.
(3) The ratio of earnings to fixed charges has been computed by dividing
earnings (before the provision for income taxes and fixed charges) by fixed
charges. Fixed charges consist of interest expense incurred during the period
and amortization of deferred debenture offering costs.
6
Item 7. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
-------------
General
Intervest Mortgage Corporation and its wholly owned subsidiaries, Intervest
Distribution Corporation and Intervest Realty Servicing Corporation (hereafter
referred to as the "Company" on a consolidated basis), are 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.
On March 10, 2000, Intervest Bancshares Corporation (hereafter referred to as
the "Parent Company") acquired all the outstanding capital stock of the Company
in exchange for shares of the Parent Company's Class A common stock. As a result
of the acquisition, the Company became a wholly owned subsidiary of the Parent
Company, which is a bank holding company. Former shareholders of the Company are
officers and directors of both the Company and the Parent Company. 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.
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 inspected by
representatives of the Company and mortgage loans are made only on those type 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, many 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. Of the sixty-one (61)
mortgages in the portfolio: five allow prepayment without penalty; four prohibit
prepayment; twenty-five (25) permit prepayment only after passage of a specific
period; and twenty-seven (27) permit prepayment after payment of penalties
ranging from 0.5% up to 5% of the principal balance.
Comparison of Financial Condition at December 31, 2002 and December 31, 2001
Total assets at December 31, 2002 increased to $97,311,000, from $83,083,000 at
December 31, 2001. The increase is primarily reflected in new loan originations.
7
Cash and cash equivalents increased to $17,946,000 at December 31, 2002, from
$16,752,000 at December 31, 2001.
Mortgage loans receivable, net of unearned income and allowance for loan loss
reserves, amounted to $73,398,000 at December 31, 2002, compared to $62,647,000
at December 31, 2001. At December 31, 2002 and 2001, the Company did not have
any loans on a nonaccrual status. The Company's policy is to discontinue the
accrual of interest income and classify a loan as nonaccrual when principal or
interest is past due 90 days or more and the loan is not adequately
collateralized and in the process of collection, or when in the opinion of the
Company's management, principal or interest is not likely to be paid in
accordance with the terms of the loan.
Management's periodic evaluation of the need for or adequacy of the allowance
for loan loss reserves is based on the Company's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay (including the timing of future payments), the
estimated value of the underlying collateral and other relevant factors. This
evaluation is inherently subjective as it requires material estimates including
the amounts and timing of future cash flows expected to be received on any
impaired loans that may be susceptible to significant change. The allowance for
loan losses amounted to $101,000 at December 31, 2002 and $18,000 at December
31, 2001. An allowance was not maintained at any time during 2000. Although
management believes it uses the best information available to make
determinations with respect to the need for and amount of the allowance, future
adjustments may be necessary if economic conditions, or other factors, differ
from those assumed.
Deferred debenture offering costs, net of accumulated amortization, increased to
$2,556,000 at December 31, 2002, from $2,348,000 at December 31, 2001. The
increase was primarily due to $1,012,000 of additional deferred costs associated
with the issuance of new debentures in 2002, which was mostly offset by normal
amortization of $805,000.
Total liabilities at December 31, 2002 increased to $85,898,000, from
$73,236,000 at December 31, 2001. The increase primarily reflected an increase
in debentures. Subordinated debentures outstanding at December 31, 2002
increased to $74,000,000, from $63,000,000 at December 31, 2001. This increase
is a result of the issuance of series 1/17/02 debentures in the principal amount
of $5,750,000 and series 8/5/02 debentures in the principal amount of
$7,750,000, partially offset by the maturity of series 6/28/99 debentures in the
principal amount of $2,500,000.
Stockholder's equity increased to $11,413,000 at December 31, 2002, from
$9,847,000 at December 31, 2001. The increase was due to net income for 2002 of
$1,566,000.
Comparison of Results of Operations for the Year Ended December 31, 2002 and
2001
The Company had net income of $1,566,000 in 2002, compared to net income of
$578,000 in 2001. The increase in earnings was primarily due to: a $1,134,000
increase in service fee income received from Intervest National Bank, a related
party, and an increase in net interest income of $1,018,000. These increases
were partially offset by a $712,000 increase in income tax expense and a
$223,000 increase in general and administrative expenses.
Total interest and fee income was $8,420,000 in 2002, compared to $7,625,000 in
2001. The increase of $795,000 was due to a $12,200,000 increase in average
loans outstanding, which was partially offset by a decrease in market interest
rates during 2002.
Service agreement income from Intervest National Bank was $1,597,000 in 2002,
compared to $463,000 in 2001. The increase of $1,134,000 was due to fees earned
on increased loan origination services provided to the Bank.
Gain on early repayment of mortgages was $334,000 in 2002, compared to $582,000
in 2001. The decrease of $248,000 was due mostly to a large prepayment fee in
2001 which did not recur.
8
Interest expense on debentures was $5,483,000 in 2002, compared to $5,849,000 in
2001. The decrease of $366,000 was primarily due to interest rate decreases on
various floating-rate debentures indexed to the JPMorgan Chase Bank prime rate,
which decreased a total of 525 basis points from January 1, 2001 to December 31,
2002. The decrease in rates was partially offset by additional interest expense
on new fixed-rate debentures issued in 2002.
Amortization of deferred debenture offering costs was $805,000 in 2002, compared
to $662,000 in 2001. The increase reflected the amortization of costs on new
issues, partially offset by the effect of the maturity of various debentures.
General and administrative expenses aggregated $1,415,000 in 2002, compared to
$1,192,000 in 2001. The increase of $223,000 was primarily the result of an
increase in salary expense due to additional staff, salary increases and a
higher cost of benefits.
The provision for income taxes amounted to $1,207,000 and $495,000 for 2002 and
2001, respectively. The provision represented 44% and 46% of pretax income for
2002 and 2001, respectively.
Comparison of Results of Operations for the Year Ended December 31, 2001 and
2000
The Company had net income of $578,000 in 2001, compared to net income of
$129,000 in 2000. The increase in earnings was primarily due to: an increase in
gain on early repayment of mortgages of $242,000; an increase in net interest
income of $231,000; and a $178,000 increase in service fee income received from
Intervest National Bank. These increases were partially offset by a $177,000
increase in general and administrative expenses.
Total interest income was $7,625,000 in 2001, compared to $8,519,000 in 2000.
The decrease of $894,000 was mostly due to declines in market interest rates
during 2001.
Total noninterest income was $1,151,000 in 2001, compared to $755,000 in 2000.
The increase of $396,000 was due to an increase of $242,000 in gains on early
repayment of mortgages and an increase of $178,000 in service fee income
received from Intervest National Bank.
Interest expense on debentures was $5,849,000 in 2001, compared to $6,922,000 in
2000. The decrease of $1,073,000 was primarily due to interest rate decreases on
various floating-rate debentures indexed to the JPMorgan Chase Bank prime rate,
which decreased a total of 475 basis points during 2001.
Amortization of deferred debenture offering costs was $662,000 in 2001, compared
to $714,000 in 2000. The decrease reflected the retirement of various debentures
partially offset by new issues during 2001 and 2000.
General and administrative expenses aggregated $1,192,000 in 2001, compared to
$1,015,000 in 2000. The increase of $177,000 was primarily the result of an
increase in salary expense due to salary increases and additional staff.
The provision for income taxes amounted to $495,000 and $288,000 for 2001 and
2000, respectively. The provision represented 46% of pretax income for each
period.
The extraordinary charge of $206,000 in 2000 represents $382,000 of unamortized
deferred debenture offering costs that were charged to expense in the second
quarter of 2000 in connection with the earlier retirement of debentures, less a
related tax benefit of $176,000.
Liquidity and Capital Resources
The Company manages its liquidity position on a daily basis to assure that funds
are available to meet operations, lending commitments and the repayment of
debentures. 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 consolidated statements of cash flows in this report.
9
On January 1, 2001, $1,400,000 was repaid to debenture holders pursuant to the
scheduled maturity of series 11/10/98 debentures. Accrued interest of $248,000
was also paid on these debentures. On April 1, 2002, $2,500,000 was repaid
relating to series 6/28/99 debentures due July 1, 2002. Accrued interest of
$586,000 was also paid off on these debentures. In September of 2001, February
of 2002 and August of 2002, the Company completed the sale of debentures in the
principal amount of $7,250,000, $5,750,000 and $7,750,000, respectively, which
resulted in net proceeds of approximately $6,636,000, $5,299,000 and $7,172,000,
respectively, after underwriter's commissions and other issuance costs. The
Company has commenced an offering relating to the issuance of additional
subordinated debentures. It is anticipated that debentures in an aggregate
amount of up to $7,500,000 will be issued in the first quarter of 2003.
At December 31, 2002, the Company's total commitment to lend aggregated
$8,650,000. 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
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. This feature reduces the effect on
interest income in a falling rate environment.
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 December 31,
2002, that are scheduled to mature or reprice within the periods shown.
10
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 according to their contractual maturities.
0-3 4-12 Over 1-4 Over 4
($ in thousands) Months Months Years Years Total
- ------------------------------------------------------------------------------------------------------------------------------------
Floating- rate loans $ 50,947 $ - $ 338 $ - $ 51,285
Fixed- rate loans 1,199 9,026 7,450 5,345 23,020
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans 52,146 9,026 7,788 5,345 74,305
Short-term investments 14,721 - - - 14,721
Time deposits with banks - 2,000 - - 2,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive assets $ 66,867 $ 11,026 $ 7,788 $ 5,345 $ 91,026
- ------------------------------------------------------------------------------------------------------------------------------------
Debentures payable $ 42,900 $ - $ 13,850 $ 17,250 $ 74,000
Accrued interest on debentures 7,351 - 3,020 380 10,751
- ------------------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive liabilities $ 50,251 $ - $ 16,870 $ 17,630 $ 84,751
- ------------------------------------------------------------------------------------------------------------------------------------
GAP (repricing differences) $ 16,616 $ 11,026 $ (9,082) $(12,285) $ 6,275
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative GAP $ 16,616 $ 27,642 $ 18,560 $ 6,275 $ 6,275
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative GAP to total assets 17.1% 28.4% 19.1% 6.4% 6.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Impact of Inflation and Changing Prices
The financial statements and related financial data concerning the Company
presented herein have been prepared in accordance with accounting principles
generally accepted in the United States of America, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation.
The primary impact of inflation on the operations of the Company is reflected in
increased operating costs. Virtually all of the assets and liabilities of the
Company are monetary in nature. As a result, changes in interest rates have a
more significant impact on the performance of the Company than do the effects of
changes in the general rate of inflation and changes in prices. Additionally,
interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services.
In a rising rate environment, it is possible that the Company would have to
devote a higher percentage of the interest payments it receives from its
fixed-rate mortgages to meet the interest payments due on variable-rate
Debentures. However, it should be noted that the interest rate on variable-rate
debentures is limited to a maximum of 12%.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Company's market risk arises primarily from interest rate
risk inherent in its lending and debenture-selling activities. 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, 2002 and 2001, which reflect changes in market prices and rates,
can be found in note 12 of the notes to consolidated financial statements.
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 section "Asset and Liability Management."
11
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Financial Statements
The following consolidated financial statements of the Company are included
herein:
- - Independent Auditors' Report (page 13)
- -------------------------------------------
- - Consolidated Balance Sheets at December 31, 2002 and 2001 (page 14)
- ------------------------------------------------------------------------
- - Consolidated Statements of Operations for the Years Ended December 31,
- --------------------------------------------------------------------------------
2002, 2001 and 2000 (page 15)
-----------------------------
- - Consolidated Statements of Changes in Stockholders' Equity for the Years
- --------------------------------------------------------------------------------
Ended December 31, 2002, 2001 and 2000 (page 16)
------------------------------------------------
- - Consolidated Statements of Cash Flows for the Years Ended December 31,
- --------------------------------------------------------------------------------
2002, 2001 and 2000 (page 17)
------------------------------
- - Notes to the Consolidated Financial Statements (pages 18 to 29)
- --------------------------------------------------------------------
- - Schedule IV - Mortgage Loans on Real Estate (page 30)
- ----------------------------------------------------------
Other financial statement schedules and inapplicable periods with respect to
schedules listed above are omitted because the conditions requiring their filing
do not exist or the information required thereby is included in the financial
statements filed, including the notes thereto.
12
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Intervest Mortgage Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of Intervest
Mortgage Corporation (formerly Intervest Corporation of New York) and
Subsidiaries as of December 31, 2002 and 2001 and the related consolidated
statements of operations, changes in stockholder's equity and cash flows for
each of the years in the three-year period ended December 31, 2002. Our audits
also included Schedule IV - mortgage loans on real estate as of December 31,
2002. These financial statements and related schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and the related schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Intervest Mortgage
Corporation and subsidiaries as of December 31, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. Also
in our opinion, the schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ Eisner LLP
New York, New York
January 23, 2003
13
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Consolidated Balance Sheets
At December 31,
-----------------------------
($ in thousands) 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 3,225 $ 1,050
Short-term investments (note 2) 14,721 15,702
-----------------------------
Total cash and cash equivalents 17,946 16,752
Time deposits with banks 2,000 -
Mortgage loans receivable (net of unearned fees and discounts and
allowance for loan losses (note 3)) 73,398 62,647
Accrued interest receivable 583 523
Fixed assets, net (note 4) 67 61
Deferred debenture offering costs, net (note 5) 2,556 2,348
Other assets 761 752
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $97,311 $83,083
===================================================================================================================================
LIABILITIES
Mortgage escrow funds payable $ 660 $ 658
Subordinated debentures payable (note 6) 74,000 63,000
Debenture interest payable at maturity (note 6) 10,751 9,113
Other liabilities 487 465
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 85,898 73,236
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (notes 4 and 11)
STOCKHOLDER'S EQUITY
Class A common stock (no par value, 200 shares authorized, 100 issued and outstanding) 2,100 2,100
Class B common stock ( no par value, 100 shares authorized, none issued ) - -
Additional paid-in-capital 3,509 3,509
Retained earnings (note 7) 5,804 4,238
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 11,413 9,847
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $97,311 $83,083
===================================================================================================================================
See accompanying notes to consolidated financial statements
14
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Consolidated Statements of Operations
Year Ended December 31,
---------------------------------------
($ in thousands) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
REVENUES
Interest and fee income on mortgages $ 8,131 $ 7,009 $ 7,576
Interest income on short-term investments 289 616 943
---------------------------------------
Total interest and fee income 8,420 7,625 8,519
Service agreement income - related party (note 9) 1,597 463 285
Gain on early repayment of mortgages 334 582 340
Other income 125 106 130
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 10,476 8,776 9,274
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Interest on debentures 5,483 5,849 6,922
Amortization of deferred debenture offering costs 805 662 714
General and administrative 1,415 1,192 1,015
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 7,703 7,703 8,651
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary item 2,773 1,073 623
Provision for income taxes 1,207 495 288
---------------------------------------
Income before extraordinary item 1,566 578 335
Extraordinary item, net of tax (note 6) - - (206)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,566 $ 578 $ 129
===================================================================================================================================
See accompanying notes to consolidated financial statements.
15
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Consolidated Statements of Changes in Stockholder's Equity
Year Ended December 31,
-----------------------------------------
($ in thousands) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A COMMON STOCK
Balance at beginning of year $ 2,100 $ 2,100 $ 2,000
Retirement of 31.84 shares
- - (2,000)
Issuance of 100 shares to Parent Company - - 2,100
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 2,100 2,100 2,100
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B COMMON STOCK
Balance at beginning of year - - 100
Retirement of 15.89 shares - - (100)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year - - -
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN-CAPITAL
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at beginning and end of year 3,509 3,509 3,509
- -----------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of year 4,238 3,660 6,531
Cash dividend declared and paid to Parent Company - - (3,000)
Net income 1,566 578 129
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 5,804 4,238 3,660
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity at end of year $11,413 $ 9,847 $ 9,269
===================================================================================================================================
See accompanying notes to consolidated financial statements
16
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Consolidated Statements of Cash Flows
Year Ended December 31,
-----------------------------------------
($ in thousands) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 1,566 $ 578 $ 129
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation
28 24 21
Amortization of deferred debenture offering costs 805 662 1,096
Amortization of premiums, fees and discounts, net (640) (608) (451)
Gain on early repayment of mortgage loans (334) (582) (340)
Increase (decrease) in mortgage escrow funds payable 2 (170) (1,026)
Increase (decrease) in debenture interest payable at maturity 1,638 1,917 (3)
Change in all other assets and liabilities, net 883 1,023 1,478
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,948 2,844 904
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Principal repayments of mortgage loans receivable 25,494 38,294 39,164
Originations and purchases of mortgage loans receivable (36,205) (49,088) (27,846)
Increase in interest-earning time deposits (2,000) - -
Purchases of fixed assets (31) (10) -
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (12,742) (10,804) 11,318
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of debentures, net of offering costs 12,488 6,636 3,500
Principal repayments of debentures (2,500) (1,400) (24,000)
Dividends paid to Parent Company - - (3,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 9,988 5,236 (23,500)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,194 (2,724) (11,278)
Cash and cash equivalents at beginning of year 16,752 19,476 30,754
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 17,946 $ 16,752 $ 19,476
===================================================================================================================================
SUPPLEMENTAL DISCLOSURES Cash paid (received) during the year for:
Interest $ 3,845 $ 3,933 $ 6,925
Income taxes 1,214 490 (340)
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
17
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
In the third quarter of 2002, the Company changed its name from Intervest
Corporation of New York to Intervest Mortgage Corporation. Intervest
Mortgage Corporation and Subsidiaries (the "Company") is engaged in the
real estate business, including the origination and purchase of real estate
mortgage loans on income producing properties. The Company is a wholly
owned subsidiary of Intervest Bancshares Corporation (the Parent Company).
Officers of the Company are officers and directors of the Company and the
Parent Company.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Intervest
Mortgage Corporation and its wholly owned subsidiaries, Intervest
Distribution Corporation and Intervest Realty Servicing Corporation. All
material intercompany accounts and transactions have been eliminated in
consolidation. Certain reclassifications have been made to prior year
amounts to conform to the current year's presentation. The accounting and
reporting policies of the Company conform to accounting principals
generally accepted in the United States of America.
Use of Estimates
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent assets and
liabilities, as of the date of the financial statements and revenues and
expenses during the reporting periods. Actual results could differ from
those estimates. Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance for loan
losses.
Cash Equivalents
For purposes of the statements of cash flows, cash equivalents include
short-term investments that have maturities of three months or less when
purchased.
Mortgage Loans Receivable
Mortgage loans receivable are stated at their outstanding principal
balances, net of any deferred fees or costs on originated mortgage loans
receivable, unamortized discounts on purchased mortgage loans receivable
and the allowance for loan losses. Purchased mortgage loans receivable, all
of which have been made from affiliated companies, are recorded at cost,
which is equivalent to the carrying amount of the seller. The purchase
price is deemed equivalent to fair value of the mortgage loans receivable
based on their variable or floating interest rates. Interest income is
accrued on the unpaid principal balance. Discounts are amortized to income
over the life of the related mortgage loans receivable using the constant
interest method. Loan origination fees net of certain direct origination
costs are deferred and recognized as an adjustment of the yield of the
related mortgage loans receivable. When a loan is paid off or sold, or if a
commitment expires unexercised, any unamortized net deferred amount is
credited or charged to earnings accordingly.
18
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
1. Description of Business and Summary of Significant Accounting Policies,
Continued
Mortgage loans receivable are placed on nonaccrual status when principal or
interest becomes 90 days or more past due. Accrued interest receivable
previously recognized is reversed and amortization of net deferred fee
income is discontinued for mortgage loans receivable placed on a nonaccrual
status. Interest payments received on mortgage loans receivable in a
nonaccrual status are recognized as income on a cash basis unless future
collections on principal are doubtful, in which case the payments received
are applied as a reduction of principal. Mortgage loans receivable remain
on nonaccrual status until principal and interest payments are current.
Allowance for Mortgage Loans Losses
The allowance for mortgage loan losses is netted against mortgage 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 mortgage loans receivable 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
mortgage loans receivable 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 mortgage
loans receivable normally consist of mortgage loans receivable on
nonaccrual status. Interest income on impaired mortgage loans receivable is
recognized on a cash basis. Impairment for commercial real estate and
residential mortgage loans receivable 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 to 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.
Fixed Assets
Fixed assets are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful life of the asset. Maintenance, repairs and minor improvements are
charged to operating expense as incurred.
Deferred Debenture Offering Costs
Costs relating to offerings of debentures are amortized over the terms of
the debentures. Deferred debenture offering costs consist primarily of
underwriters' commissions.
19
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
1. Description of Business and Summary of Significant Accounting Policies,
Continued
Income Taxes
Under SFAS No. 109, "Accounting for Income Taxes," deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the year in which those
temporary differences are expected to be reversed or settled. The effect on
deferred tax assets and liabilities of a change in tax law or rates is
recognized in income in the period that includes the enactment date of
change. A valuation allowance is recorded if it is more likely than not
that some portion or all of the deferred tax assets will not be realized
based on a review of available evidence.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Company enters into off-balance
sheet financial instruments consisting of commitments to extend credit.
Such financial instruments are recorded in the consolidated financial
statements when they are funded and related fees are recorded when incurred
or received.
Recently Issued Accounting Standards
In April 2002, the FASB issued SFAS No. 145, " Rescission of SFAS's no. 4,
44 and 64, Amendment of FASB 13 and Technical Corrections." The Company was
required to implement SFAS No.. 145 for financial statements issued on or
after May 15 2002. The adoption of this standard had no effect on the
financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The Company is required to
implement SFAS No. 146 for financial statements issued after December 31,
2002. Management does not expect this statement to have a material impact
on the Company's financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, " Accounting for Stock
Based Compensation." This statement amends SFAS No. 123 by introducing two
additional conversion methods when converting to the fair value method from
the intrinsic value method of accounting for stock options. The company is
required to implement SFAS No. 148 for financial statements for fiscal
years ending after December 15, 2002. The adoption of this standard had no
effect on the financial statements.
Short-Term Investments
At December 31, 2002 and 2001, short-term investments was comprised of bank
commercial paper, money market accounts and savings accounts.
20
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
2. Mortgage Loans Receivable
Mortgage loans receivable are summarized as follows:
At December 31, 2002 At December 31, 2001
-------------------- --------------------
($ in thousands) # of loans Amount # of loans Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Residential multifamily mortgage loans receivable 39 $ 45,590 35 $ 45,906
Commercial real estate mortgage loans receivable 22 28,715 13 17,688
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage loans receivable 61 74,305 48 63,594
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred loan fees and unamortized discount (806) (929)
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage loans receivable, net of fees and discount 73,499 62,665
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (101) (18)
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage loans receivable, net $ 73,398 $ 62,647
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31, 2002, the loan portfolio consisted of $50,419,000 and
$23,886,000 of first mortgage loans and junior mortgage loans,
respectively. These loans were comprised of $23,020,000 of fixed-rate loans
and $51,285,000 of adjustable-rate loans. At December 31, 2001, the loan
portfolio consisted of $43,187,000 and $20,407,000 of first mortgage loans
and junior mortgage loans receivable, respectively. These loans were
comprised of $10,485,000 of fixed-rate mortgage loans receivable and
$53,109,000 of adjustable-rate mortgage loans receivable.
At December 31, 2002, effective interest rates on mortgages ranged from
6.98% to 14.03%, compared to 6.88% to 18.55% at December 31, 2001. Many of
the mortgage loans receivable 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.
During 2002, 2001 and 2000, certain mortgages were repaid in full prior to
their maturity date. The prepayments resulted in the recognition of
unearned fees and discounts associated with such mortgage loans receivable,
as well as the receipt of prepayment penalties in certain cases. For 2002,
2001 and 2000, income associated with the prepayments of mortgages was
$334,000, $582,000 and $340,000, respectively.
Credit risk, which represents the possibility of the Company not recovering
amounts due from its borrowers, is significantly related to local economic
conditions in the areas the properties are located, as well as the
Company's underwriting standards. Economic conditions affect the market
value of the underlying collateral as well as the levels of occupancy of
income-producing properties (such as office buildings, shopping centers and
rental and cooperative apartment buildings).
21
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
3. Mortgage Loans Receivable, Continued
The geographic distribution of the properties that collateralize the loan
portfolio is summarized as follows:
At December 31, 2002 At December 31, 2001
-------------------- --------------------
($ in thousands) Amount % of Total Amount % of Total
- --------------------------------------------------------------------------------
New York $59,694 80.3% $50,260 79.0%
New Jersey 8,331 11.2 8,176 12.9
Florida 3,462 4.7 1,087 1.7
Pennsylvania 1,940 2.6 1,916 3.0
Connecticut - - 1,660 2.6
All other 878 1.2 495 0.8
- --------------------------------------------------------------------------------
$74,305 100.0% $63,594 100.0%
- --------------------------------------------------------------------------------
The table below shows the scheduled contractual principal repayments of the
loan portfolio at December 31, 2002:
($ in thousands)
- --------------------------------------------------------------------------------
Year ended December 31, 2003 $36,064
Year ended December 31, 2004 9,526
Year ended December 31, 2005 10,725
Year ended December 31, 2006 2,528
Year ended December 31, 2007 1,172
Thereafter 14,290
- -------------------------------------------------------------------------------
$74,305
- --------------------------------------------------------------------------------
At December 31, 2002, $25,446,000 of mortgage loans receivable with
adjustable rates and $12,795,000 of mortgage loans receivable with fixed
rates were due after one year. At December 31, 2002 and 2001, the Company
did not have any mortgage loans receivable on a nonaccrual status,
classified as impaired or ninety days past due and still accruing interest.
At December 31, 2002 and 2001, the allowance for loan losses was $101,000
and $18,000, respectively; no allowance was maintained in 2000. The
provision for loan losses was $83,000 in 2002 and $18,000 in 2001.
4. Fixed Assets, Lease Commitments and Rental Expense
Fixed assets are summarized as follows:
At December 31,
---------------
($ in thousands) 2002 2001
- --------------------------------------------------------------------------------
Furniture, fixtures and equipment $ 85 $ 53
Automobiles 58 58
- --------------------------------------------------------------------------------
Total cost 143 111
- --------------------------------------------------------------------------------
Less accumulated deprecation (76) (50)
- --------------------------------------------------------------------------------
Fixed assets, net $ 67 $ 61
- --------------------------------------------------------------------------------
22
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
4. Fixed Assets, Lease Commitments and Rental Expense, Continued
The Company occupies its office space under a lease which terminates on
September 30, 2004. In addition to minimum rents, the Company is required
to pay its proportionate share of increases in the building's real estate
taxes and costs of operation and maintenance as additional rent. Rent
expense amounted to $218,000 in 2002, $183,000 in 2001 and $179,000 in
2000. The Company shares its rented space with affiliates who were charged
rent of $1,000 in 2002, 2001 and 2000. The Company's future minimum annual
lease payments under the office lease at December 31, 2002, are as follows:
$236,000 in 2003 and $177,000 in 2004 for an aggregate of $413,000.
5. Deferred Debenture Offering Costs
Deferred debenture offering costs are summarized as follows:
At December 31,
---------------
($ in thousands) 2002 2001
- --------------------------------------------------------------------------------
Deferred debenture offering costs $ 6,044 $ 5,199
Less accumulated amortization (3,488) (2,851)
- --------------------------------------------------------------------------------
Deferred debenture offering costs, net $ 2,556 $ 2,348
- --------------------------------------------------------------------------------
6. Subordinated Debentures Payable and Extraordinary Item
The following table summarizes debenture payable.
At December 31,
---------------
($ in thousands) 2002 2001
- -----------------------------------------------------------------------------------------------------
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 -
Series 08/05/02 - interest at 7 1/4% fixed - due January 1, 2006 1,750 -
Series 08/05/02 - interest at 7 1/2% fixed - due January 1, 2008 3,000 -
Series 08/05/02 - interest at 7 3/4% fixed - due January 1, 2010 3,000 -
- -----------------------------------------------------------------------------------------------------
$ 74,000 $ 63,000
- -----------------------------------------------------------------------------------------------------
23
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
6. Subordinated Debentures Payable and Extraordinary Item, Continued
The "Prime" in the preceding table refers to the prime rate of JPMorgan
Chase Bank, which was 4.25% on December 31, 2002 and 4.75% at December 31,
2001.
On March 1, 2000, Series 6/29/92 debentures totaling $7,000,000 in
principal and maturing on April 1, 2000 were redeemed for outstanding
principal plus accrued interest of $1,435,000. In the second quarter of
2000, Series 9/13/93, 1/28/94 and 10/28/94 debentures maturing on October
1, 2001, April 1, 2002 and April 1, 2003, respectively, were redeemed for
outstanding principal aggregating $17,000,000 plus accrued interest
totaling $2,535,000. In connection with these early redemptions,
approximately $382,000 of unamortized deferred debenture offering costs,
net of a tax benefit of $176,000, was charged to expense and reported as an
extraordinary item in 2000.
In February of 2002, the Company issued its Series 01/17/02 debentures in
the principal amount of $5,750,000. Net proceeds, after deferred offering
costs, amounted to $5,299,000, of which $5,480,000 accrue and pay interest
quarterly and $270,000 accrue and compound interest quarterly until
maturity.
The Company's Series 6/28/99 debentures due July 1, 2002 were 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.
In August of 2002, the Company issued its Series 08/05/02 debentures in the
aggregate principal amount of $7,750,000. Net proceeds, after deferred
offering costs, amounted to $7,173,000. Of the $7,750,000, $6,230,000
accrue and pay interest quarterly and $1,520,000 accrue and compound
interest quarterly until maturity.
On January 1, 2003, series 11/10/98 debentures totaling $1,400,000 in
principal plus accrued interest of $570,000 matured and were repaid.
The Company has commenced an offering relating to the issuance of
additional subordinated debentures. It is anticipated that debentures in an
aggregate principal amount of up to $7,500,000 will be issued in the first
quarter of 2003.
The Series 5/12/95, 10/19/95, 5/10/96, 10/15/96 and 4/30/97 floating-rate
debentures have a maximum interest rate of 12%. Interest on an aggregate of
$6,350,000 of these debentures is accrued and compounded quarterly, and is
due and 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, 9/18/00, $770,000 of Series 8/1/01, $270,000
of Series 1/17/02 and $1,520,000 of Series 8/5/02 debentures accrue and
compound interest quarterly, with such interest due and payable at
maturity. Interest is paid quarterly on the remaining debentures in series
8/1/01, 1/17/02 and 8/5/02. The holders of Series 11/10/98, 6/28/99,
9/18/00, 1/17/02 and 8/5/02 debentures can require the Company to
repurchase the debentures for face amount plus accrued interest each year
(beginning January 1, 2004 for Series 9/18/00, October 1, 2005 for Series
1/17/02 and January 1, 2006 for Series 8/5/02) provided, however, that in
no calendar year will the Company be required to purchase more than
$100,000 in principal amount of each maturity, in each series of
debentures, on a non-cumulative basis
24
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
6. Subordinated Debentures Payable and Extraordinary Item, Continued
All the debentures may be redeemed, in whole or in part, at any time at the
option of the Company, for face value, except for Series 1/17/02 and Series
8/5/02 debentures. The Series 1/17/02 debentures would be redeemable at a
premium of 1% if the redemption were prior to April 1, 2003. The Series
8/5/02 debentures would be redeemable at a premium of 1% if the redemption
were prior to October 1, 2003. All the debentures are unsecured and
subordinate to all present and future senior indebtedness, as defined in
the indenture related to the debenture.
Scheduled contractual maturities of debentures as of December 31, 2002 are
summarized as follows:
($ in thousands) Principal Accrued Interest
- --------------------------------------------------------------------------------
Year ended December 31, 2003 $1,400 $1,539
Year ended December 31, 2004 21,250 5,094
Year ended December 31, 2005 29,100 2,769
Year ended December 31, 2006 5,000 969
Year ended December 31, 2007 5,000 34
Thereafter 12,250 346
- --------------------------------------------------------------------------------
$74,000 $10,751
- --------------------------------------------------------------------------------
7. Dividend Restriction
The payment of dividends by the Company to the Parent Company is subject to
restrictions. The Company cannot declare or pay any dividend or make any
distribution on its capital stock (other than dividends or distributions
payable in capital stock), or purchase, redeem or otherwise acquire or
retire for value, or permit any subsidiary to purchase or otherwise acquire
for value, capital stock of the Company, if at the time of such payment,
the Company is not in compliance with the indentures under which the
Company's debentures were issued. The Company declared and paid a
$3,000,000 cash dividend to the Parent Company in 2000.
8. Profit Sharing Plan
In 2000, the Company established a tax-qualified, profit sharing plan and
trust in accordance with the provisions of Section 401(k) of the Internal
Revenue Code. The plan is available to each of the Company's eligible
employees who elect to participate after meeting certain length-of-service
requirements. The Company makes discretionary matching contributions up to
3% of employee compensation, which vest to the employees over a period of
time. Total cash contributions to the plan for 2002, 2001 and 2000 were
$13,000, $7,000 and $1,000, respectively.
9. Related Party Transactions
The Company participates with Intervest National Bank (a wholly owned
subsidiary of the Parent Company) in certain mortgage loans receivable. The
balances of the Company's participation in these mortgages were $6,224,000
and $3,919,000 at December 31, 2002 and 2001, respectively.
25
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
9. Related Party Transactions, Continued
The Company has a service agreement, which renews each January 1, unless
terminated by either party, with Intervest National Bank with respect to
providing mortgage loan origination and servicing services to Intervest
National Bank. The Company earned $1,597,000, $463,000 and $285,000 from
Intervest National Bank for 2002, 2001 and 2000, respectively, in
connection with this service agreement.
The Company has interest-bearing and noninterest-bearing deposit accounts
with Intervest National Bank totaling $4,255,000 at December 31, 2002 and
$3,030,000 at December 31, 2001. The Company received interest income of
$81,000, $41,000 and $90,000, in 2002, 2001 and 2000, respectively, in
connection with such deposits. These amounts are included in interest
income in the consolidated statements of operations.
In connection with the placement of subordinated debentures of the Company,
Intervest Securities Corporation, an affiliate of the Company, received
commissions and fees aggregating $58,000 in 2002, $0 in 2001 and $34,000 in
2000.
The Company paid fees of approximately $115,000 in 2002, $140,000 in 2001
and $25,000 in 2000 for legal services rendered by a law firm, a principal
of which is a director of the Company. The Company paid commissions and
fees in connection with the placement of debentures aggregating $515,000 in
2002, $301,000 in 2001 and $89,000 in 2000 to an investment firm, a
principal of which is a director of the Company.
10. Income Taxes
Commencing in 2000, the Company files consolidated federal and combined New
York State and City income tax returns with its Parent Company on a
calendar year basis. Income taxes are provided as if the Company filed a
separate consolidated tax return with its subsidiaries.
At December 31, 2002 and 2001, the Company's net deferred tax asset was
$201,000 and $171,000, respectively, which is included in other assets on
the balance sheet. The asset relates to the unrealized benefit for net
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. A valuation
allowance was not maintained at any time during 2002, 2001 or 2000.
Income tax expense (benefit) consists of the following:
For the Year Ended December 31,
-------------------------------
($ in thousands) 2002 2001 2000
- --------------------------------------------------------------------------------
Provision for income taxes $1,207 $ 495 $ 288
Income tax effect of extraordinary item - - (176)
- --------------------------------------------------------------------------------
$1,207 $ 495 $ 112
- --------------------------------------------------------------------------------
26
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
10. Income Taxes, Continued
Income tax expense (benefit) attributable to income before extraordinary
item consists of the following:
($ in thousands) Current Deferred Total
- --------------------------------------------------------------------------------
Year Ended December 31, 2002:
Federal $736 $(24) $712
State and Local 501 (6) 495
- --------------------------------------------------------------------------------
$1,237 $(30) $1,207
- --------------------------------------------------------------------------------
Year Ended December 31, 2001:
Federal $406 $(119) $287
State and Local 250 (42) 208
- --------------------------------------------------------------------------------
$656 $(161) $495
- --------------------------------------------------------------------------------
Year Ended December 31, 2000:
Federal $189 $ 10 $199
State and Local 85 4 89
- --------------------------------------------------------------------------------
$274 $ 14 $288
- --------------------------------------------------------------------------------
The components of deferred tax expense (benefit) are summarized as follows:
For the Year Ended December 31,
-------------------------------
($ in thousands) 2002 2001 2000
- --------------------------------------------------------------------------------
Deferred loan fees and discount $ 13 $(148) $ 16
Allowance for loan losses (38) (9) -
Depreciation (5) (4) (2)
- --------------------------------------------------------------------------------
$ (30) $(161) $ 14
- --------------------------------------------------------------------------------
The tax effects of the temporary differences that give rise to the deferred
tax asset are summarized as follows:
At December 31,
---------------
($ in thousands) 2002 2001
- --------------------------------------------------------------------------------
Attributable to: Deferred loan fees and discount $144 $157
Allowance for loan losses 46 8
Depreciation 11 6
- --------------------------------------------------------------------------------
$201 $171
- --------------------------------------------------------------------------------
A reconciliation between the statutory federal income tax rate and the
Company's effective tax rate follows:
For the Year Ended December 31,
-------------------------------
($ in thousands) 2002 2001 2000
- --------------------------------------------------------------------------------
Tax provision at statutory rate 34.0% 34.0% 34.0%
Increase in taxes resulting from:
State and local income taxes, net of federal benefit 9.4 12.0 12.1
All other 0.1 0.2 0.1
- --------------------------------------------------------------------------------
43.5% 46.2% 46.2%
- --------------------------------------------------------------------------------
27
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
11. Commitments and Contingencies
The Company has an employment agreement with Jerome Dansker that expires
June 30, 2005. The agreement provides for an annual salary in the present
amount of $187,954, which is subject to increase annually by six percent or
by the percentage increase in the consumer price index, if higher. The
agreement also provides for monthly expense payments, the use of a car and
medical benefits. In the event of Mr. Dansker's death or disability,
monthly payments of one-half of this amount which otherwise would have been
paid to Mr. Dansker will continue until the longer of (i) the balance of
the term of employment, or (ii) three years. The agreement also provides
for additional compensation of $1,000 per month for each $10,000,000 of
gross assets of the Company in excess of $100,000,000. No additional
compensation has been paid for the three years ended December 31, 2002,
2001, or 2000.
The Company issues commitments to extend credit in the normal course of
business, which may involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the consolidated
balance sheets. Commitments to extend credit are agreements to lend funds
under specified conditions. Such commitments generally have fixed
expiration dates or other termination clauses and may require payment of
fees. Since some of the commitments are expected to expire without being
drawn upon, the total commitment amount does not necessarily represent
future cash requirements. Commitments to extend credit amounted to
$8,650,000 at December 31, 2002 all of which will expire within twelve
months.
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 $7,500,000 will be issued in the first
quarter of 2003.
The Company is periodically party to or otherwise involved in legal
proceedings arising in the normal course of business, such as claims to
enforce liens, claims involving the making and servicing of mortgage loans
receivable, 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.
12. Estimated Fair Value of Financial Instruments
Fair value estimates are made at a specific point in time based on
available information about each financial instrument. Where available,
quoted market prices are used. However, a significant portion of the
Company's financial instruments, such as commercial real estate and
multifamily mortgage loans receivable, do not have an active marketplace in
which they can be readily sold or purchased to determine fair value.
Consequently, fair value estimates for such instruments are based on
assumptions made by management that include the financial instrument's
credit risk characteristics and future estimated cash flows and prevailing
interest rates. As a result, these fair value estimates are subjective in
nature, involve uncertainties and matters of significant judgment and
therefore, cannot be determined with precision. Accordingly, changes in any
of management's assumptions could cause the fair value estimates to deviate
substantially. The fair value estimates also do not reflect any additional
premium or discount that could result from offering for sale, at one time,
the Company's entire holdings of a particular financial instrument, nor
estimated transaction costs. Further, the tax ramifications related to the
realization of unrealized gains and losses can have a significant effect on
and have not been considered in the fair value estimates. Finally, fair
value estimates do not attempt to estimate the value of anticipated future
business and the Company's customer relationships.
28
Intervest Mortgage Corporation and Subsidiaries
(formerly Intervest Corporation of New York and Subsidiaries)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
12. Estimated Fair Value of Financial Instruments, Continued
The carrying and estimated fair values of the Company's financial
instruments are as follows:
At December 31, 2002 At December 31, 2001
-------------------------- ---------------------------
Carrying Fair Carrying Fair
($ in thousands) Value Value Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents $17,946 $17,946 $16,752 $16,752
Time deposits with banks 2,000 2,000 - -
Mortgage loans receivable, net 73,398 75,270 62,647 64,595
Accrued interest receivable 583 583 523 523
Financial Liabilities:
Debentures payable plus accrued interest 84,751 86,070 72,113 73,141
Off balance sheet instruments:
Commitments to lend 41 41 65 65
- ------------------------------------------------------------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Mortgage Loans Receivable. The estimated fair value of mortgage loans
receivable is based on a discounted cash flow analysis, using interest
rates currently being offered for mortgage loans receivable with similar
terms to borrowers of similar credit quality. Management can make no
assurance that its perception and quantification of credit risk would be
viewed in the same manner as that of a potential investor. Therefore,
changes in any of management's assumptions could cause the fair value
estimates of mortgage loans receivable to deviate substantially.
Debentures and Accrued Interest Payable. The estimated fair value of
debentures and related accrued interest payable is based on a discounted
cash flow analysis. The discount rate used in the present value computation
was estimated by comparison to what management believes to be the Company's
incremental borrowing rate for similar arrangements.
All Other Financial Assets and Liabilities. The estimated fair value of
cash and cash equivalents, time deposits with banks and accrued interest
receivable approximates their carrying values since these instruments are
payable on demand or have short-term maturities.
Off-Balance Sheet Instruments. The carrying amounts of commitments to lend
approximated estimated fair value. The fair value of commitments to lend is
based on fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreement and the counter-party's
credit standing.
29
INTERVEST MORTGAGE CORPORATION
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
As of DECEMBER 31, 2002
Effective Stated Final Face Carrying
Interest Interest Maturity Payment Prior Amount of Amount of Prepayment Penalty/
Description Rate Rate Date Terms Liens Mortgage Mortgage Other Fees
---- ---- ---- ----- ----- -------- -------- ----------
- ---------------------------------
Commercial first Mortgages
Office Buildings
New City, New York 12.22% 6.20% 12/08/10 Y $ $ 147,000 $ 115,000 none
Tampa, Florida 7.23% 7.00% 7/01/09 M 338,000 338,000 1.00%
Newark, New Jersey 10.89% 9.50% 2/1/03 M 4,445,000 4,443,000 1.00%
New York, New York 7.10% 6.88% 1/01/05 M 2,170,000 2,170,000 1.00%
New York, New York 6.98% 6.75% 4/1/08 M 2,549,000 2,549,000 5% prior to 4/1/03,
4% prior to 4/1/04
3% prior to 4/1/05,
2% prior to 4/1/06
Restaurants then 1%
Decatur and
Jonesboro, Georgia 12.38% 8.50% 4/1/13 M 383,000 318,000 none
Manassas, Virginia 13.50% 6.50% 12/01/05 Y 71,000 63,000 0.50%
Irondequoint, New York 12.44% 7.20% 12/01/12 Y 196,000 158,000 1.00%
Warehouse
New York, New York 9.93% 7.50% 7/1/03 M 3,500,000 3,437,000 none prior to
5/1/03 then 1%
Hotel
New York, New York 9.96% 9.00% 2/01/04 M 2,835,000 2,817,000 2% prior to 2/03,
then 1%
Residential first Mortgages
Rental Apartment Buildings
Bronx, New York 11.28% 11.00% 11/01/12 M 1,800,000 1,777,000 none
Bronx, New York 12.75% 12.75% 1/1/11 M 918,000 918,000 no prepayment
permitted
Bronx, New York 13.25% 12.00% 6/1/13 M 1,805,000 1,706,000 no prepayment
permitted
Bronx, New York 13.08% 12.75% 11/1/11 M 1,606,000 1,584,000 not prepayable
until 1/1/03
Bronx, New York 13.50% 13.50% 11/1/13 M 4,279,000 4,279,000 no prepayment
permitted
Chester Pennsylvania 12.00% 10.50% 4/1/03 M 1,768,000 1,763,000 1.00%
Brooklyn, New York 9.30% 9.00% OPEN M 2,657,000 2,657,000 1.00%
New York, New York 10.36% 9.00% 06/01/03 M 2,462,000 2,452,000 1.00%
Brooklyn, New York 8.14% 7.88% 10/1/04 M 1,167,000 1,167,000 not prepayable
until 1/1/04, then
1%
New York, New York 11.76% 10.00% 11/1/03 M 8,613,000 8,518,000 none prior to
6/1/03, then 1%
New York, New York 8.63% 7.00% 11/1/03 M 2,778,000 2,748,000 none prior to
6/1/03, then 1%
Brooklyn, New York 10.12% 8.00% 9/1/04 M 532,000 525,000 none prior to
4/1/03, then 1%
New York, New York 10.81% 8.00% 9/1/03 M 2,500,000 2,458,000 none prior to
8/1/03, then 1%
New York, New York 12.95% 12.00% 6/1/05 M 600,000 590,000 none prior to
9/1/04, then 1%
Commercial Junior Mortgages
Office Buildings
Tampa, Florida 11.60% 10.50% 6/1/04 M 5,039,000 481,000 476,000 1.00%
Newark, New Jersey 11.00% 9.50% 2/1/03 M 4,445,000 3,259,000 3,257,000 1.00%
Wall township, New Jersey 11.04% 9.00% 10/1/04 M 3,450,000 389,000 379,000 2% prior to 9/1/03,
then 1%,
New York, New York 12.19% 11.00% 1/1/05 M 4,636,000 2,286,000 2,256,000 2% prior to 1/1/03,
then 1%
New York, New York 12.15% 11.00% 07/01/05 M 6,516,000 747,000 736,000 none till 10/1/04,
then 1%
Clearwater, Florida 10.12% 8.00% 01/31/03 M 1,534,000 1,199,000 1,199,000 none
Bronx, New York 13.22% 12.00% 03/01/04 M 797,000 199,000 198,000 prior to 10/15/03:
int through
10/15/03 then 1%
Retail
Vorhees, New Jersey 12.60% 11.00% 08/01/04 M 2,189,000 238,000 236,000 not prepayable
until 2/1/02, then
1%
Hauppauge, New York 11.79% 11.00% 03/01/07 M 2,176,000 147,000 146,000 5% till 3/1/03, 4%
till 3/1/04, 3%
till 3/1/05
2% till 3/1/06,
then 1%
Storage
Lakeland, Florida 12.15% 11.00% 04/01/07 M 5,915,000 538,000 530,000 5% till 4/1/03, 4%
till 4/1/04, 3%
till 4/1/05 2% till
4/1/06, then 1%
Supermarket
New York, New York 13.17% 12.00% 06/01/05 M 3,729,000 598,000 589,000 none till 9/1/04,
then 31 days
interest
Warehouse
Long Island City, New York 13.03% 12.00% 01/01/06 M 7,500,000 2,000,000 1,963,000 2% till 1/1/04,
1.5% till 4/1/05,
then 1%
30
INTERVEST MORTGAGE CORPORATION
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
As of DECEMBER 31, 2002
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE , continued
Residential Junior Mortgages
Rental Apartment Buildings
New York, New York 11.00% 9.50% 06/01/03 M 1,945,000 1,046,000 1,040,000 1.00%
New York, New York 9.58% 10.50% 06/01/03 M (1) 300,000 293,000 1.00%
New York, New York 11.61% 10.50% 04/01/04 M 3,128,000 1,578,000 1,565,000 not prepayable
until 7/1/03,
then 1%
New York, New York 11.82% 10.50% 05/01/03 M 1,566,000 890,000 888,000 1.00%
New York, New York 10.99% 10.00% 09/01/04 M 1,701,000 230,000 228,000 no prepayment
allowed, 1%
due 9/1/04
Brooklyn, New York 11.64% 10.50% 10/01/04 M 5,095,000 717,000 710,000 not prepayable
until 1/1/04,
then 1%
New York, New York 11.00% 10.00% 10/01/04 M 2,317,000 256,000 253,000 not prepayable
until 1/1/04,
then 1%
New York, New York 11.00% 10.00% 12/01/05 M 3,154,000 297,000 294,000 2% prior to
12/1/03, then
1%
Ocala, Florida 13.36% 12.00% 12/01/03 M 1,235,000 248,000 246,000 not prepayable
until 1/1/04,
then 31 days
New York, New York 12.19% 11.00% 01/01/05 M 415,000 1,183,000 1,168,000 not prepayable
until 4/1/04,
then 1%
Bronx, New York 11.37% 11.00% 02/01/08 M 1,804,000 269,000 269,000 no prepayment
permitted
Miami, Florida 12.23% 12.00% 02/01/04 M 1,214,000 162,000 160,000 not prepayable
until 2/1/03,
then 1%
New York, New York 12.19% 11.00% 02/01/05 M 3,329,000 1,738,000 1,715,000 not prepayable
until 5/1/04,
then 1%
Tampa, Florida 10.34% 9.00% 03/01/04 M 3,726,000 497,000 492,000 not prepayable
until 9/1/03,
then 1%
New York, New York 11.92% 11.00% 03/01/07 M 969,000 318,000 314,000 not prepayable
until 12/1/05,
then 1%
Philadelphia, Pennsylvania 12.65% 11.00% 03/01/05 M 1,634,000 172,000 168,000 3% till
3/1/03, then
1%
Bronx, New York 10.42% 10.00% 07/01/04 M 2,336,000 170,000 170,000 none
New York, New York 12.74% 12.00% 07/01/07 M 2,612,000 168,000 167,000 3% till
6/30/04, 2%
till 6/30/05,
then 1%
Baltimore, Maryland 13.12% 8.00% 08/01/05 M 4,031,000 424,000 418,000 not prepayable
until 11/1/04,
then 1%
Laurleton, New York 14.03% 12.00% 09/01/03 M 1,993,000 399,000 395,000 not prepayable
until 6/1/03,
then 1%
New York, New York 12.87% 12.00% 03/01/06 M 1,684,000 128,000 127,000 not prepayable
until 3/1/05,
then 1%
New York, New York 12.88% 12.00% 10/01/05 M 708,000 115,000 114,000 not prepayable
until 1/1/05,
then 1%
Brooklyn, New York 10.93% 10.00% 10/01/04 M 411,000 75,000 74,000 1.00%
New York, New York 12.99% 12.00% 09/01/06 M 2,247,000 400,000 395,000 4% prior to
10/1/03, 3%
prior to
10/1/04 then
1%
New York, New York 13.11% 12.00% 12/01/05 M 2,425,000 325,000 321,000 3% till
12/1/03, 2%
till 12/1/04,
then 1%
-----------------------------------------------
TOTAL $99,605,000 $74,305,000 $73,499,000
===============================================
Notes:
(Y) Yearly principal and interest payments (M) Monthly principal and
interest payments (1) Prior lien amount included in preceding mortgage.
The following summary reconciles the carrying value of mortgages receivable
Year Ended December 31,
-------------------------------------------------
2002 2001 2000
---- ---- ----
Balance at beginning of period $62,647,000 $ 51,992,000 $ 63,290,000
Additions during period
Mortgages originated and acquired 36,205,000 49,088,000 27,846,000
Deductions during period
Collections of principal, net of amortization of (25,371,000) (38,415,000) (39,144,000)
fees and discounts
Change in allowance for loan losses (83,000) (18,000) -
-------------------------------------------------
Balance at end of period $73,398,000 $ 62,647,000 $ 51,992,000
-------------------------------------------------
31
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The current Directors and Executive Officers of the Company are as follows:
Lawrence G. Bergman, age 58, serves as a Director, and as Vice President
and Secretary of the Company and has served in such capacities since the Company
was organized in 1987. Mr. Bergman received a Bachelor of Science degree and a
Master of Engineering (Electrical) degree from Cornell University, and a Master
of Science in Engineering and a Ph.D. degree from The Johns Hopkins University.
Mr. Bergman is also a Director, Vice-President and Secretary of Intervest
Bancshares Corporation, the Parent Company, and Director and a member of the
Loan Committee of Intervest National Bank, a wholly owned subsidiary of
Intervest Bancshares Corporation.
Michael A. Callen, age 62, serves as a Director of the Company, and has
served in such capacity since October, 1992. Mr. Callen received a Bachelor of
Arts degree from the University of Wisconsin in Economics and Russian. Mr.
Callen is President of Avalon Argus Associates, a financial consulting firm.
Previously, Mr. Callen had been Senior Advisor, The National Commercial Bank,
Jeddah, Kingdom of Saudi Arabia and was a Director and Sector Executive at
Citicorp/Citibank , responsible for corporate banking activities in North
America, Europe and Japan. Mr. Callen is a Director of Intervest Bancshares
Corporation and Intervest National Bank, and also serves as a Director of AMBAC,
Inc.
Jerome Dansker, age 84, serves as a Director and as Executive Vice
President of the Company, and has served in such capacity since November, 1993.
Mr. Dansker became Chairman of the Board of Directors in June, 1996. Mr. Dansker
received a Bachelor of Science degree from the New York University School of
Commerce, Accounts and Finance, a law degree from the New York University School
of Law, and is admitted to practice as an attorney in the State of New York. Mr.
Dansker is a Director, Chairman of the Board and Executive Vice President of
Intervest Bancshares Corporation. He is also Chairman of the Board of Directors
and Chairman of the Loan Committee of Intervest National Bank.
Lowell S. Dansker, age 52, serves as a Director, and as President and
Treasurer of the Company, and has served in such capacities since the Company
was organized in 1987. Mr. Dansker received a Bachelor of Science in Business
Administration from Babson College, a law degree from the University of Akron
School of Law, and is admitted to practice as an attorney in New York, Ohio,
Florida and the District of Columbia. Mr. Dansker is also a Director, President
and Treasurer of Intervest Bancshares Corporation, and Chief Executive Officer,
Director and a member of the Loan Committee of Intervest National Bank.
Paul DeRosa, age 61, serves as a Director of the Company, and has served in
such capacity since February, 2003. Mr. DeRosa is a graduate of Columbia
University with a Ph.D in Economics. Mr. DeRosa has been a principal of Mt.
Lucas Management Corporation, an investment firm, since 1998. He was an Officer
of Eastbridge Holdings Inc., an investment firm, from 1988 to 1998 and served as
its Chief Executive Officer from 1995 to 1998. Mr. DeRosa is also a Director of
Intervest Bancshares Corporation and Intervest National Bank.
Wayne F. Holly, age 46, serves as a Director of the Company and has served
in such capacity since June, 1999. Mr. Holly received a Bachelor of Science
degree in Economics from Alfred University. Mr. Holly is President of Sage,
Rutty & Co., Inc., a member of the Boston Stock Exchange, with offices in
Rochester, New York and Canandaigua, New York, and is also a Director of
Intervest Bancshares Corporation and Intervest National Bank.
32
Edward J. Merz, age 71, served as a Director of the Company from February,
1998 to February 2003. Mr. Merz received a Bachelor of Business Administration
from City College of New York and is a graduate of the Stonier School of Banking
at Rutgers University. Mr. Merz is Chairman of the Board of Directors of the
Suffolk County National Bank of Riverhead and of its parent, Suffolk Bancorp and
has been an officer and Director of those companies for more than five years.
Lawton Swan, III, age 60, serves as a Director of the Company, and has
served in such capacity since February, 2000. Mr. Swan received a Bachelor of
Science degree from Florida State University in Business Administration and
Insurance. Mr. Swan is President of Interisk Corporation, a consulting firm
specializing in risk management and employee benefit plans, which he founded in
1978. He is also a Director of Intervest Bancshares Corporation and Intervest
National Bank.
Thomas E. Willett, age 55, serves as a Director of the Company, and has
served in such capacity since March, 1999. Mr. Willett received a Bachelor of
Science Degree from the United States Air Force Academy and a law degree from
Cornell University School of Law. Mr. Willett has been a partner of Harris Beach
LLP, a law firm in Rochester, New York, for more than five years and is a
Director of Intervest Bancshares Corporation and Intervest National Bank.
David J. Willmott, age 64, serves as a Director of the Company, and has
served in such capacity since June, 1989. Mr. Willmott is a graduate of Becker
Junior College and attended New York University Extension and Long Island
University Extension of Southampton College. Mr. Willmott is the Editor and
Publisher of Suffolk Life Newspapers, which he founded more than 25 years ago.
Mr. Willmott is also a Director of Intervest Bancshares Corporation and
Intervest National Bank.
Wesley T. Wood, age 60, serves as a Director of the Company, and has served
in such capacity since April, 1992. Mr. Wood received a Bachelor of Science
degree from New York University, School of Commerce. Mr. Wood is President of
Marketing Capital Corporation, an international marketing consulting and
investment firm which he founded in 1973. He is also a Director of Intervest
Bancshares Corporation and Intervest National Bank, a Director of the Center of
Direct Marketing at New York University, a member of the Marketing Committee at
Fairfield University in Connecticut, and a Trustee of St. Dominics in Oyster
Bay, New York.
All of the Directors of the Company have been elected to serve as Directors
until the next annual meeting of the Company's shareholders. Each of the
officers of the Company has been elected to serve as an officer until the next
annual meeting of the Company's Directors.
Jerome Dansker is the father of Lowell S. Dansker.
Item 11. Executive Compensation
Each of the directors receives a fee of $250 for each meeting of the Board of
Directors attended.
The Mortgage Company has an employment agreement with Jerome Dansker that
expires June 30, 2005. The agreement provides for an annual salary in the
present amount of $187,954, which is subject to increase annually by six percent
or by the percentage increase in the consumer price index, if higher. The
agreement also provides for monthly expense payments, the use of a car and
medical benefits. In the event of Mr. Dansker's death or disability, monthly
payments of one-half of this amount which otherwise would have been paid to Mr.
Dansker will continue until the longer of (i) the balance of the term of
employment, or (ii) three years. The agreement also provides for additional
compensation of $1,000 per month for each $10,000,000 of gross assets of the
Company in excess of $100,000,000. No additional compensation has been paid for
the three years ended December 31, 2002, 2001, or 2000.
33
The following table sets forth information concerning total compensation paid
during the last three years to Mr. Jerome Dansker. No other executive officer of
the Company received annual compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
---------------------------------------------------------------------------------
Other Annual
Name and Principal Position Year Salary(1) Bonuses Compensation(2) Awards Pay-Outs
- -----------------------------------------------------------------------------------------------------------------------------
Jerome Dansker,
Chairman and Executive Vice President 2002 $209,424 $ - $2,400 $ - $ -
2001 $214,057 $ - $1,700 $ - $ -
2000 $157,810 $ - $1,300 $ - $ -
- -----------------------------------------------------------------------------------------------------------------------------
(1) Includes unused vacation and medical expense reimbursement paid by the
Company.
(2) Represents director and committee fees.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Since March of 2000, 100% of the outstanding stock of the Company has been owned
by: Intervest Bancshares Corporation, 10 Rockefeller Plaza, Suite 1015 New York,
New York 10020.
Item 13. Certain Relationships and Related Transactions
In connection with its acquisition by Intervest Bancshares Corporation in March
2000, the former shareholders of the Company received an aggregate of 1,250,000
shares of the Class A Common Stock of Intervest Bancshares Corporation in
exchange for all of the issued and outstanding shares of capital stock of the
Company.
Mr. Wayne F. Holly, who is a director of the Company, also serves as President
of Sage, Rutty & Co., Inc., which firm has acted as an underwriter/placement
agent in connection with the Company's offerings of debentures, including the
offering of debentures conducted during fiscal 2002, 2001 and 2000. Sage, Rutty
and Co., Inc. received fees and commissions of $515,000 in 2002, $306,000 in
2001 and $89,000 in 2000.
Mr. Thomas E. Willett, who is a director of the Company, also is a partner in
the law firm of Harris Beach LLP, which firm has provided legal services to the
Company and the Parent Company in 2002, 2001 and 2000. Harris Beach LLP,
received fees of $115,000 in 2002, $140,000 in 2001 and $25,000 in 2000.
In connection with the placement of subordinated debentures of the Company,
Intervest Securities Corporation, an affiliate of the Company, received
commissions and fees aggregating $58,000 in 2002, $0 in 2001 and $34,000 in
2000.
Item 14. Controls and Procedures
a) Evaluation of disclosure controls and procedures. The Company maintains
controls and procedures designed to ensure that information required to be
disclosed in the reports that the Company files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange
Commission. Based upon their evaluation of those controls and procedures
performed within 90 days of the filing date of this report, the Chief Executive
and Chief Financial Officer of the Company concluded that the Company's
disclosure controls and procedures were adequate.
b) Changes in internal controls. The Company made no significant changes in its
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the Chief
Executive and Chief Financial officer.
34
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents Filed as Part of this Report
(1) Financial Statements:
See Item 8 "Financial Statements and Supplementary Data"
(2) Financial Statement Schedules:
IV - Mortgage loans receivable on Real Estate (See Item 8 "Financial
Statements and Supplementary Data")
All other schedules have been omitted because they are inapplicable,
not required, or the information is included in the Financial Statements or
Notes thereto.
(3) Exhibits: The following exhibits are filed herein as part of this Form
10-K:
Exhibit No. Description of Exhibit
- ----------- ----------------------
2. Agreement and Plan of Merger dated as of November 1, 1999 by and
among the Company, Intervest Bancshares Corporation and ICNY
Acquisition Corporation, incorporated by reference to the
Company's annual report on Form 10-K for the year ended December
31, 1999, wherein such document was filed as Exhibit 2.0.
3.1 Certificate of Incorporation of the Company, incorporated by
reference to Registrant's Registration Statement on Form S-18
(File No. 33-27404-NY), declared effective May 12, 1989.
3.2 Certificate of Amendment to Certificate of Incorporation dated
August 17, 1998, incorporated by reference to the Company's
annual report on Form 10-K for the year ended December 31, 1998,
wherein such document was filed as Exhibit 3.
3.3 Certificate of Amendment to Certificate of Incorporation, dated
August 22, 2002, and filed on September 9, 2002, relating to the
change of the registrant's name to Intervest Mortgage
Corporation.
3.4 By-laws of the Company, incorporated by reference to the
Company's Registration Statement on Form S-11 (File No.
33-39971), declared effective on May 13, 1991.
4.1 Form of Indenture between the Company and First American Bank of
Georgia, as trustee, dated as of April 15, 1990, incorporated by
reference to the Company's Registration Statement on Form S-11
(No. 33-33500), declared effective on March 28, 1990.
4.2 Form of Indenture between the Company and First American Bank of
Georgia, as trustee, dated as of June 1, 1991, incorporated by
reference to the Company's Registration Statement on Form S-11
(No. 33-39971), declared effective on May 13, 1991.
4.3 Form of Indenture between the Company and The Bank of New York,
as trustee, dated as of March 1, 1992, incorporated by reference
to the Company's Registration Statement on Form S-11 (File No.
33-44085), declared effective on February 20, 1992.
4.4 Form of Indenture between the Company and The Bank of New York,
as trustee, dated as of July 1, 1992, incorporated by reference
to the Company's Registration Statement on Form S-11 (File No.
33-47801), declared effective on June 29, 1992.
35
Exhibit No. Description of Exhibit
- ----------- ----------------------
4.5 Form of Indenture between the Company and The Bank of New York,
as trustee, dated as of September 15, 1993, incorporated by
reference to the Company's Registration Statement on Form S-11
(File No. 33-65812), declared effective on September 13, 1993.
4.6 Form of Indenture between the Company and The Bank of New York,
as trustee, dated as of February 1, 1994, incorporated by
reference to the Company's Registration Statement on Form S-11
(File No. 33-73108), declared effective on January 28, 1994.
4.7 Form of Indenture between the Company and The Bank of New York,
as trustee, dated as of November 1, 1994, incorporated by
reference to the Company's Registration Statement on Form S-11
(File No. 33-84812), declared effective on October 28, 1994.
4.8 Form of Indenture between the Company and The Bank of New York,
as trustee, dated as of June 1, 1995, incorporated by reference
to the Company's Registration Statement on Form S-11 (File No.
33-90596) declared effective on May 12, 1995.
4.9 Form of Indenture between the Company and The Bank of New York,
as trustee, dated as of November 1, 1995, incorporated by
reference to the Company's Registration Statement on Form S-11
(File No. 33-96662), declared effective on October 19, 1995.
4.10 Form of Indenture between the Company and The Bank of New York,
as trustee, dated as of June 1, 1996, incorporated by reference
to the Company's Registration Statement on Form S-11 (File No.
333-2459), declared effective on May 10, 1996.
4.11 Form of Indenture between the Company and The Bank of New York,
as trustee, dated as of November 1, 1996, incorporated by
reference to the Company's Registration Statement on Form S-11
(File No. 333-11413), declared effective on October 15, 1996.
4.12 Form of Indenture between the Company and The Bank of New York,
as trustee, dated as of May 1, 1997, incorporated by reference to
the Company's Registration Statement on Form S-11 (File No.
333-23093), declared effective on April 30, 1997.
4.13 Form of Indenture between the Company and the Bank of New York,
as trustee, dated as of July 1, 1999, incorporated by reference
to the Company's Registration statement in Form S-11 (File No.
333-78135), declared effective on June 28, 1999.
4.14 Indenture between the Company and the Bank of New York, as
Trustee, dated December 1, 1998, incorporated by reference to the
Company's annual report on Form 10-K for the year ended December
31, 1998, wherein such document was filed as Exhibit 4.
4.15 Agreements of Resignation, Appointment and Acceptance dated as of
April 30, 1992, by and among the Company, First American Bank of
Georgia, N.A. and The Bank of New York, incorporated by reference
to the Company's annual report on Form 10K for the year ended
December 31, 1992 wherein such documents were filed as Exhibit
4.8.
4.16 Indenture between the Company and the Bank of New York, as
Trustee, dated September 15, 2000, incorporated by reference to
the Company's report on Form 10-K for the year ended December 31,
2000, wherein such document was filed as exhibit 4.16
36
Exhibit No. Description of Exhibit
- ----------- ----------------------
4.17 Indenture between the Company and the Bank of New York, as
trustee, dated August 1, 2001, incorporated by reference to the
Company's Registration Statement on Form S-11 (File No.
333-57324), declared effective September 1, 2001.
4.18 Indenture between the Company and the Bank of New York, as
trustee, dated February 1, 2002, incorporated by reference to the
Company's Registration Statement on Form S-11 (File No.
333-73580), declared effective January 17, 2002.
4.19 Indenture between the Company and the Bank of New York, as
trustee, dated August 1, 2002, incorporated by reference to the
Company's Registration Statement on Form S-11 (File No.
333-90346), declared effective August 5, 2002.
4.20 Indenture between the Company and the Bank of New York, as
trustee, dated January 1, 2003, incorporated by reference to the
Company's Registration Statement on Form S-11 (File No.
333-101722), declared effective January 21, 2003.
10.0 Employment Agreement between the Company and Jerome Dansker dated
as of July 1, 1995, incorporated by reference to the Company's
Registration Statement on Form S-11 (File #33-96662), declared
effective on October 19, 1995.
10.1 Amendment to Employment Agreement between the Company and Jerome
Dansker dated August 3, 1998, incorporated by reference to the
Company's annual report on Form 10-K for the year ended December
31, 1998, wherein such document was filed as Exhibit 10.
10.2 Mortgage Servicing Agreement dated April 1, 2002, between the
Company and Intervest National Bank.
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley act of 2002.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the date indicated.
INTERVEST MORTGAGE CORPORATION
(Registrant)
By: /s/ Lowell S. Dansker Date: February 26, 2003
----------------------------------- ------------------
Lowell S. Dansker, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Chairman of the Board, Executive Vice President and Director:
By: /s/ Jerome Dansker Date: February 26, 2003
----------------------------------- ------------------
Jerome Dansker
President, Treasurer and Director
(Principal Executive, Financial and Accounting Officer):
By: /s/ Lowell S. Dansker Date: February 26, 2003
----------------------------------- ------------------
Lowell S. Dansker
Vice President, Secretary and Director:
By: /s/ Lawrence G. Bergman Date: February 26, 2003
--------------------------- ------------------
Lawrence G. Bergman
Directors:
By: /s/ Michael A. Callen Date: February 26, 2003
----------------------------------- ------------------
Michael A. Callen
By: /s/ Paul DeRosa Date: February 26, 2003
--------------------------- ------------------
Paul DeRosa
By: /s/ Wayne F. Holly Date: February 26, 2003
----------------------------------- ------------------
Wayne F. Holly
By: /s/ Lawton Swan, III Date: February 26, 2003
----------------------------------- ------------------
Lawton Swan, III
By: /s/ Thomas E. Willett Date: February 26, 2003
----------------------------------- ------------------
Thomas E. Willett
By: /s/ David J. Willmott Date: February 26, 2003
----------------------------------- ------------------
David J. Willmott
By: /s/ Wesley T. Wood Date: February 26, 2003
----------------------------------- ------------------
Wesley T. Wood
38
Supplemental Information to be Furnished with Reports Filled Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act:
Registrant does not solicit proxies or proxy statements to holders of its
securities. The annual report to holders of its Debentures has not as yet been
distributed.
When the annual report has been distributed to the holders of Debentures, four
copies will be sent to the Commission.
39
CERTIFICATION
I, Lowell S. Dansker, as the principal executive and principal financial
officer of Intervest Mortgage Corporation and Subsidiaries (the Company),
certify, that:
1. I have reviewed this annual report on Form 10-K of the Company;
2. Based on my knowledge, the annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Company and I have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to me by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report my conclusions about the effectiveness
of the disclosure controls and procedures based on my evaluation as of
the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the Company's
auditors and the Audit Committee of the Company's Board of Directors (or
persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of the
internal controls which could adversely affect the Company's ability
to record, process, summarize and report financial data and have
identified for the Company's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect the internal controls subsequent to the date of my
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Lowell S. Dansker
Lowell S. Dansker, President
(Principal Executive and Financial Officer)
February 26, 2003