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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
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Commission File No. 000-23377
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INTERVEST BANCSHARES CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3699013
---------------------------------- -------------------------------
(State or other jurisdiction (I.R.S. employer
of incorporation) identification no.)
10 ROCKEFELLER PLAZA, SUITE 1015
NEW YORK, NEW YORK 10020-1903
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(Address of principal executive offices)
(212) 218-2800
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the 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 whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act):
YES NO XX.
-- --
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Title of Each Class: Shares Outstanding:
- -------------------- -------------------
Class A Common Stock, $1.00 par value per share 5,663,075 Outstanding at April 30, 2004
- ----------------------------------------------- ---------------------------------------
Class B Common Stock, $1.00 par value per share 385,000 Outstanding at April 30, 2004
- ----------------------------------------------- ---------------------------------------
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INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 2004
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
as of March 31, 2004 (Unaudited) and December 31, 2003 . . . . . . . . 2
Condensed Consolidated Statements of Earnings (Unaudited)
for the Quarters Ended March 31, 2004 and 2003 . . . . . . . . . . . . 3
Condensed Consolidated Statements of Changes in Stockholders'
Equity (Unaudited) for the Quarters Ended March 31, 2004 and 2003 . . 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Quarters Ended March 31, 2004 and 2003 . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements (Unaudited) . . . . 6
Review by Independent Certified Public Accountants . . . . . . . . . . . 13
Report on Reviews by Independent Certified Public Accountants . . . . . 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . 23
ITEM 4. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . 23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . 24
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES
OF EQUITY SECURITIES . . . . . . . . . . . . . . . . . . . . 24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . 24
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 24
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
The Company is making this statement in order to satisfy the "Safe Harbor"
provision contained in the Private Securities Litigation Reform Act of 1995. The
statements contained in this report on Form 10-Q that are not statements of
historical fact may include forward-looking statements that involve a number of
risks and uncertainties. Such forward-looking statements are made based on
management's expectations and beliefs concerning future events impacting the
Company and are subject to uncertainties and factors relating to the Company's
operations and economic environment, all of which are difficult to predict and
many of which are beyond the control of the Company, that could cause actual
results of the Company to differ materially from those matters expressed in or
implied by forward-looking statements. The following factors are among those
that could cause actual results to differ materially from the forward-looking
statements: changes in general economic, market and regulatory conditions, the
development of an interest rate environment that may adversely affect the
Company's interest rate spread, other income or cash flow anticipated from the
Company's operations, investment and lending activities; and changes in laws and
regulations affecting banks and bank holding companies.
1
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
($in thousands, except par value) 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
Cash and due from banks $ 11,075 $ 8,833
Federal funds sold 41,783 36,816
Commercial paper - 5,580
Other short-term investments 12,518 12,899
---------------------------
Total cash and cash equivalents 65,376 64,128
Securities held to maturity, net (estimated fair value of $142,584 and $152,995, respectively) 142,116 152,823
Federal Reserve Bank and Federal Home Loan Bank stock, at cost 3,255 3,075
Loans receivable (net of allowance for loan losses of $7,657 and $6,580, respectively) 755,451 664,545
Accrued interest receivable 4,916 4,995
Loan fees receivable 6,050 5,622
Premises and equipment, net 5,665 5,752
Deferred income tax asset 3,447 2,960
Deferred debenture offering costs, net 4,808 4,023
Other assets 1,926 3,600
============================================================================================================================
TOTAL ASSETS $ 993,010 $ 911,523
============================================================================================================================
LIABILITIES
Deposits:
Noninterest-bearing demand deposit accounts $ 6,162 $ 6,210
Interest-bearing deposit accounts:
Checking (NOW) accounts 9,947 9,146
Savings accounts 31,234 30,784
Money market accounts 177,822 162,214
Certificate of deposit accounts 511,985 467,159
---------------------------
Total deposit accounts 737,150 675,513
Subordinated debentures 95,560 94,690
Subordinated debentures - capital securities 46,392 30,928
Accrued interest payable on all debentures 12,830 14,510
Mortgage note payable 252 255
Accrued interest payable on deposits 1,153 1,080
Mortgage escrow funds payable 14,697 10,540
Official checks outstanding 1,900 6,122
Other liabilities 4,325 2,500
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 914,259 836,138
- ----------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock (300,000 shares authorized, none issued) - -
Class A common stock ($1.00 par value, 9,500,000 shares authorized,
5,663,075 and 5,603,377 shares issued and outstanding, respectively) 5,663 5,603
Class B common stock ($1.00 par value, 700,000 shares authorized,
385,000 shares issued and outstanding) 385 385
Additional paid-in-capital, common 36,559 35,988
Retained earnings 36,144 33,409
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 78,751 75,385
============================================================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 993,010 $ 911,523
============================================================================================================================
See accompanying notes to condensed consolidated financial statements.
2
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
QUARTER ENDED
MARCH 31,
----------------------
($in thousands, except per share data) 2004 2003
- -----------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Loans receivable $ 13,792 $ 10,670
Securities 705 887
Other interest-earning assets 96 68
- -----------------------------------------------------------------------------------------
TOTAL INTEREST AND DIVIDEND INCOME 14,593 11,625
- -----------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 5,312 4,453
Subordinated debentures 2,233 1,957
Subordinated debentures - capital securities 666 374
Mortgage note payable 4 4
- -----------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 8,215 6,788
- -----------------------------------------------------------------------------------------
NET INTEREST AND DIVIDEND INCOME 6,378 4,837
Provision for loan losses 1,077 344
- -----------------------------------------------------------------------------------------
NET INTEREST AND DIVIDEND INCOME AFTER PROVISION FOR LOAN LOSSES 5,301 4,493
- -----------------------------------------------------------------------------------------
NONINTEREST INCOME
Customer service fees 59 38
Income from mortgage lending activities 190 153
Income from the early repayment of mortgage loans 1,156 141
Commission and fees 56 -
Loss from early call of investment securities (5) (3)
- -----------------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME 1,456 329
- -----------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and employee benefits 961 867
Occupancy and equipment, net 344 320
Data processing 129 148
Professional fees and services 103 107
Stationery, printing and supplies 44 42
Postage and delivery 25 25
FDIC and general insurance 64 57
Director and committee fees 88 25
Advertising and promotion 13 15
All other 147 178
- -----------------------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSES 1,918 1,784
- -----------------------------------------------------------------------------------------
Earnings before income taxes 4,839 3,038
Provision for income taxes 2,104 1,237
=========================================================================================
NET EARNINGS $ 2,735 $ 1,801
=========================================================================================
BASIC EARNINGS PER SHARE $ 0.45 $ 0.38
DILUTED EARNINGS PER SHARE $ 0.41 $ 0.32
DIVIDENDS PER SHARE $ - $ -
- -----------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
3
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
QUARTER ENDED MARCH 31,
---------------------------------------
2004 | 2003
---------------------------------------
($ in thousands) SHARES AMOUNT | SHARES AMOUNT
- ---------------------------------------------------------------------------------------|-------------------
|
CLASS A COMMON STOCK |
Balance at beginning of period 5,603,377 $ 5,603 | 4,348,087 $ 4,348
Issuance of shares upon the exercise of warrants 42,510 43 | - -
Issuance of shares upon the conversion of debentures 17,188 17 | - -
- ---------------------------------------------------------------------------------------|-------------------
Balance at end of period 5,663,075 5,663 | 4,348,087 4,348
- ---------------------------------------------------------------------------------------|-------------------
|
CLASS B COMMON STOCK |
- ---------------------------------------------------------------------------------------|-------------------
Balance at beginning and end of period 385,000 385 | 355,000 355
- ---------------------------------------------------------------------------------------|-------------------
|
ADDITIONAL PAID-IN-CAPITAL, COMMON |
Balance at beginning of period 35,988 | 24,134
Compensation related to vesting of certain Class B stock warrants 7 | 6
Compensation related to certain Class A stock warrants modified - | 67
Issuance of shares upon the exercise of warrants 383 | -
Issuance of shares upon the conversion of debentures 181 | -
- ---------------------------------------------------------------------------------------|-------------------
Balance at end of period 36,559 | 24,207
- ---------------------------------------------------------------------------------------|-------------------
|
RETAINED EARNINGS |
Balance at beginning of period 33,409 | 24,289
Net earnings for the period 2,735 | 1,801
- ---------------------------------------------------------------------------------------|-------------------
Balance at end of period 36,144 | 26,090
- ---------------------------------------------------------------------------------------|-------------------
|
=======================================================================================|===================
TOTAL STOCKHOLDERS' EQUITY AT END OF PERIOD 6,048,075 $78,751 | 4,703,087 $55,000
=======================================================================================|===================
See accompanying notes to condensed consolidated financial statements.
4
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
QUARTER ENDED
MARCH 31,
--------------------
($in thousands) 2004 2003
- ----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 2,735 $ 1,801
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 176 131
Provision for loan losses 1,077 344
Deferred income tax benefit (487) (248)
Amortization of deferred debenture offering costs 315 245
Compensation expense related to common stock warrants 7 73
Amortization of premiums, fees and discounts, net (575) (197)
Net (decrease) increase in accrued interest payable on debentures (1,607) 473
Net decrease in official checks outstanding (4,222) (2,256)
Net change in all other assets and liabilities 5,780 1,097
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,199 1,463
- ----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Maturities and calls of securities held to maturity 24,315 27,665
Purchases of securities held to maturity (14,220) (19,815)
Net increase in loans receivable (92,889) (43,112)
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock, net (180) (6)
Purchases of premises and equipment, net (89) (62)
Investment in unconsolidated subsidiaries (464) -
- ----------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (83,527) (35,330)
- ----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in deposits 61,637 32,140
Net increase in mortgage escrow funds payable 4,157 3,065
Principal repayments of debentures and mortgage note payable (9,003) (1,403)
Gross proceeds from issuance of debentures 25,464 7,500
Debenture issuance costs (1,105) (554)
Proceeds from issuance of common stock 426 -
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 81,576 40,748
- ----------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,248 6,881
Cash and cash equivalents at beginning of period 64,128 30,849
==========================================================================================================
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 65,376 $ 37,730
==========================================================================================================
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 9,434 $ 6,036
Income taxes 1,508 963
Noncash activities:
Conversion of debentures and accrued interest into Class A common stock 203 -
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
5
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - PRINCIPLES OF CONSOLIDATION, BASIS OF PRESENTATION AND USE OF ESTIMATES
The condensed consolidated financial statements of Intervest Bancshares
Corporation and Subsidiaries in this report have not been audited except for
information derived from the 2003 audited consolidated financial statements and
notes thereto. The condensed consolidated financial statements in this report
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2003.
The financial statements include the accounts of Intervest Bancshares
Corporation (a financial holding company referred to by itself as the "Holding
Company") and its subsidiaries, Intervest National Bank (the "Bank"), Intervest
Mortgage Corporation and Intervest Securities Corporation. The entities are
referred to collectively as the "Company" on a consolidated basis. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain reclassifications have been made to prior period amounts
to conform to the current period's presentation. The accounting and reporting
policies of the Company conform to accounting principles generally accepted in
the United States of America and to general practices within the banking
industry.
Intervest Statutory Trust I, II and II are wholly owned subsidiaries of the
Holding Company that are unconsolidated entities as required by FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" as revised
in December 2003. FIN 46 requires bank holding companies that have used
controlled business trusts to raise financing by issuing trust preferred
securities (capital securities) to deconsolidate their investments in those
trusts. The Company adopted FIN 46 in the first quarter of 2004 and the
deconsolidation of Intervest Statutory Trust I and II, which were formed prior
to FIN 46, increased both the Company's total assets and borrowed funds
previously reported at December 31, 2003 by $968,000.
Management is required to make estimates and assumptions that affect the
reported amounts of assets, liabilities and disclosure of contingent liabilities
as of the date of the consolidated financial statements, and revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. Estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the need for a
valuation allowance for deferred tax assets. In the opinion of management, all
material adjustments necessary for a fair presentation of financial condition
and results of operations for the interim periods presented in this report have
been made. These adjustments are of a normal recurring nature. The results of
operations for the interim periods are not necessarily indicative of results
that may be expected for the entire year or any other interim period.
NOTE 2 - DESCRIPTION OF BUSINESS
The Holding Company is located at 10 Rockefeller Plaza in New York City and its
primary business is the operation of its subsidiaries. It does not engage in any
other substantial business activities other than a limited amount of real estate
mortgage lending. From time to time, the Holding Company also issues debt
securities to raise funds for working capital purposes. The Company's business
segment is banking.
The Bank is a nationally chartered, full-service commercial bank that has its
headquarters and full-service banking office at One Rockefeller Plaza in New
York City, and a total of five full-service banking offices in Pinellas County,
Florida - four in Clearwater and one in South Pasadena. The Bank conducts a
personalized commercial and consumer banking business and attracts deposits from
the areas served by its banking offices. It also provides internet banking
services through its web site: www.intervestnatbank.com, which can attract
deposit customers from outside its primary market areas. The deposits, together
with funds derived from other sources, are used to originate real estate,
commercial and consumer loans and to purchase investment securities. The Bank
emphasizes multifamily and commercial real estate lending.
Intervest Mortgage Corporation is a mortgage investment company located at 10
Rockefeller Plaza in New York City. It is engaged in the real estate business,
including the origination and purchase of real estate mortgage loans, consisting
of first mortgage and junior mortgage loans. Intervest Mortgage Corporation
issues debentures to provide funding for its business.
Intervest Securities Corporation is a broker/dealer and a NASD and SIPC member
firm located at 10 Rockefeller Plaza in New York City. It participates as a
selected dealer from time to time in offerings of debt securities of the
Company, primarily those of Intervest Mortgage Corporation. On June 2, 2003, the
Holding Company acquired all of
6
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 2 - DESCRIPTION OF BUSINESS - CONTINUED
the outstanding capital stock of Intervest Securities Corporation in exchange
for 30,000 shares of its Class B common stock that was newly issued for this
transaction. Intervest Securities Corporation's total assets consisted of
approximately $218,000 of cash at the time of acquisition. Prior to the
acquisition, Intervest Securities Corporation was an affiliated entity in that
it was wholly owned by the spouse of the Chairman of the Holding Company. The
acquisition was accounted for at historical cost. No restatements of the
Company's prior period consolidated financial statements were made because the
financial results of Intervest Securities Corporation were diminimus.
Intervest Statutory Trust I, Intervest Statutory Trust II and Intervest
Statutory Trust III were formed in December 2001, September 2003 and March 2004,
respectively. Each was formed for the sole purpose of issuing and administering
capital securities as discussed in note 5 below. The Trusts do not conduct any
trade or business.
The Company expects to be moving from its present New York locations to the
entire fourth floor of One Rockefeller Plaza in New York City in May 2004.
NOTE 3 - LOANS RECEIVABLE
Loans receivable is summarized as follows:
At March 31, 2004 At December 31, 2003
--------------------- ---------------------
($in thousands) # of Loans Amount # of Loans Amount
- -------------------------------------------------------------------------------------
Commercial real estate loans 199 $407,064 184 $344,071
Residential multifamily loans 225 342,527 210 310,650
Land development and other land loans 6 20,484 6 20,526
Residential 1-4 family loans 3 130 26 1,628
Commercial business loans 24 1,339 28 1,662
Consumer loans 13 201 16 319
- ------------------------------------------------------------------------------------
Loans receivable 470 771,745 470 678,856
- ------------------------------------------------------------------------------------
Deferred loan fees (8,637) (7,731)
- ------------------------------------------------------------------------------------
Loans receivable, net of deferred fees 763,108 671,125
- ------------------------------------------------------------------------------------
Allowance for loan losses (7,657) (6,580)
- ------------------------------------------------------------------------------------
Loans receivable, net $755,451 $664,545
- ------------------------------------------------------------------------------------
At March 31, 2004, one real estate loan with a princpal balance of $1,036,000
was on nonaccrual status, compared to two real estate loans (aggregate principal
balance of $8,474,000) at December 31, 2003. The loans were considered impaired
but no valuation allowance was maintained since the estimated fair value of the
underlying properties exceeded the Company's recorded investment. Interest
income that was not recorded on nonaccrual loans under their contractual terms
was $28,000 for the first quarter of 2004 and none for the first quarter of
2003. At March 31, 2004 and December 31, 2003, there were no other impaired
loans or loans ninety days past due and still accruing interest.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
Quarter Ended March 31,
-----------------------
($in thousands) 2004 2003
- --------------------------------------------------------------------------------
Balance at beginning of period $ 6,580 $ 4,611
Provision charged to operations 1,077 344
- --------------------------------------------------------------------------------
Balance at end of period $ 7,657 $ 4,955
- --------------------------------------------------------------------------------
NOTE 5 - DEPOSITS
Scheduled maturities of certificates of deposit accounts are as follows:
At March 31, 2004 At December 31, 2003
----------------- --------------------
Wtd-Avg Wtd-Avg
($in thousands) Amount Stated Rate Amount Stated Rate
- -------------------------------------------------------------------------
Within one year $208,062 2.72% $182,693 2.75%
Over one to two years 97,576 3.49 90,936 3.64
Over two to three years 32,465 4.54 30,094 4.43
Over three to four years 94,168 4.67 89,085 4.83
Over four years 79,714 4.19 74,351 4.20
- -------------------------------------------------------------------------
$511,985 3.57% $467,159 3.66%
- -------------------------------------------------------------------------
7
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------------
NOTE 6 - SUBORDINATED DEBENTURES AND MORTGAGE NOTE PAYABLE
Subordinated debentures and mortgage note payable are summarized as follows:
At March 31, At December 31,
------------- ----------------
($in thousands) 2004 2003
- ----------------------------------------------------------------------------------------------------------
INTERVEST MORTGAGE CORPORATION:
Series 05/12/95 - interest at 2% above prime (1) - due April 1, 2004 $ - $ 9,000
Series 10/19/95 - interest at 2% above prime (1) - due October 1, 2004 9,000 9,000
Series 05/10/96 - interest at 2% above prime (1) - due April 1, 2005 10,000 10,000
Series 10/15/96 - interest at 2% above prime (1) - due October 1, 2005 5,500 5,500
Series 04/30/97 - interest at 1% above prime (1) - due October 1, 2005 8,000 8,000
Series 11/10/98 - interest at 9% fixed - due January 1, 2005 2,600 2,600
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 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 1,250
Series 01/17/02 - interest at 7 1/2% fixed - due October 1, 2007 2,250 2,250
Series 01/17/02 - interest at 7 3/4% fixed - due October 1, 2009 2,250 2,250
Series 08/05/02 - interest at 7 1/4% fixed - due January 1, 2006 1,750 1,750
Series 08/05/02 - interest at 7 1/2% fixed - due January 1, 2008 3,000 3,000
Series 08/05/02 - interest at 7 3/4% fixed - due January 1, 2010 3,000 3,000
Series 01/21/03 - interest at 6 3/4% fixed - due July 1, 2006 1,500 1,500
Series 01/21/03 - interest at 7% fixed - due July 1, 2008 3,000 3,000
Series 01/21/03 - interest at 7 1/4% fixed - due July 1, 2010 3,000 3,000
Series 07/25/03 - interest at 6 1/2% fixed - due October 1, 2006 2,500 2,500
Series 07/25/03 - interest at 6 3/4% fixed - due October 1, 2008 3,000 3,000
Series 07/25/03 - interest at 7% fixed - due October 1, 2010 3,000 3,000
Series 11/28/03 - interest at 6 1/4% fixed - due April 1, 2007 2,000 -
Series 11/28/03 - interest at 6 1/2% fixed - due April 1, 2009 3,500 -
Series 11/28/03 - interest at 6 3/4% fixed - due April 1, 2011 4,500 -
-------------------------------
88,350 87,350
INTERVEST BANCSHARES CORPORATION:
Series 05/14/98 - interest at 8% fixed - due July 1, 2008 4,710 4,840
Series 12/15/00 - interest at 8 1/2% fixed - due April 1, 2006 1,250 1,250
Series 12/15/00 - interest at 9% fixed - due April 1, 2008 1,250 1,250
-------------------------------
7,210 7,340
INTERVEST NATIONAL BANK:
Mortgage note payable - interest at 7% fixed - due February 1, 2017 252 255
- ----------------------------------------------------------------------------------------------------------
$ 95,812 $ 94,945
- ----------------------------------------------------------------------------------------------------------
(1) Prime represents prime rate of JPMorganChase Bank, which was 4.00% on March 31, 2004 and December 31,
2003. The debentures have a maximum interest rate of 12%.
In January 2004, Intervest Mortgage Corporation issued $10,000,000 of its Series
11/28/03 debentures for net proceeds, after offering costs, of $9,252,000.
On March 1, 2004, Intervest Mortgage Corporation's Series 5/12/95 debentures due
April 1, 2004 were redeemed for $9,000,000 of principal and $2,749,00 of accrued
interest.
Intervest Mortgage Corporation intends to redeem on May 1, 2004 its Series
6/28/99 debentures due July 1, 2004 for $2,000,000 of principal and $980,000 of
accrued interest through the redemption date. Intervest Mortgage Corporation has
filed an offering to issue additional debentures of up to $11,500,000 in the
second quarter of 2004.
8
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 6 - SUBORDINATED DEBENTURES AND MORTGAGE NOTE PAYABLE, CONTINUED
Interest is paid quarterly on Intervest Mortgage Corporation's debentures except
for the following debentures: $1,950,000 of Series 10/19/95; $1,980,000 of
Series 5/10/96; all of 11/10/98, 6/28/99, 9/18/00; $770,000 of Series 8/01/01;
$270,000 of Series 1/17/02; $1,520,000 of Series 8/05/02; and $1,750,000 of
Series 11/28/03, which accrue and compound interest quarterly, with such
interest due and payable at maturity. Any holder of Series 10/19/95 and 5/10/96
debentures 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 holders of Intervest Mortgage Corporation's Series 11/10/98 through 9/18/00
and 1/17/02 through 11/28/03 debentures can require Intervest Mortgage
Corporation to repurchase the debentures for face amount plus accrued interest
each year (beginning October 1, 2005 for Series 01/17/02, January 1, 2006 for
Series 08/05/02, July 1, 2006 for Series 1/21/03, October 1, 2006 for Series
7/25/03 and January 1, 2007 for Series 11/28/03) provided, however, in no
calendar year will Intervest Mortgage Corporation be required to purchase more
than $100,000 in principal amount of each maturity, in each series of
debentures, on a non-cumulative basis.
Intervest Mortgage Corporation's debentures may be redeemed at its option at any
time, in whole or in part, for face value, except for Series 7/25/03 and
11/28/03. Redemptions would be at a premium of 1% if they occurred prior to July
1, 2004 for Series 7/25/03 and January 1, 2005 for Series 11/28/03. All the
debentures are unsecured and subordinate to all present and future senior
indebtedness, as defined in the indenture related to each debenture.
The Holding Company's Series 5/14/98 subordinated debentures are convertible at
the option of the holders at any time prior to April 1, 2008, unless previously
redeemed by the Holding Company, into shares of its Class A common stock at the
following conversion prices per share: $12.00 in 2004; $14.00 in 2005; $16.00 in
2006; $18.00 in 2007 and $20.00 from January 1, 2008 through April 1, 2008. The
Holding Company has the right to establish conversion prices that are less than
those set forth above for such periods as it may determine. In the first quarter
of 2004, $203,000 of debentures ($130,000 of principal and $73,000 of accrued
interest) were converted into shares of Class A common stock.
At March 31, 2004, interest accrues and compounds quarterly on $4,040,000 of the
convertible debentures at the rate of 8% per annum, while $670,000 of the
debentures pay interest quarterly at the rate of 8% per annum. All accrued
interest is due and payable at maturity whether by acceleration, redemption or
otherwise. Any convertible debenture holder may, on or before July 1 of each
year elect to be paid all accrued interest and to thereafter receive payments of
interest quarterly. All of the Holding Company's debentures may be redeemed, in
whole or in part, at any time at the option of the Holding Company for face
value.
The mortgage note payable cannot be prepaid except during the last year of its
term.
Scheduled contractual maturities as of March 31, 2004 are as follows:
($in thousands) Principal Accrued Interest
- ---------------------------------------------------------------------------
For the nine months ended December 31, 2004 $ 11,010 $ 4,213
For the year ended December 31, 2005 29,116 3,469
For the year ended December 31, 2006 10,269 1,491
For the year ended December 31, 2007 7,022 80
For the year ended December 31, 2008 16,235 2,860
Thereafter 22,160 200
- ---------------------------------------------------------------------------
$ 95,812 $ 12,313
- ---------------------------------------------------------------------------
NOTE 7 - SUBORDINATED DEBENTURES - CAPITAL SECURITIES
Capital Securities (commonly referred to as Trust Preferred Securities) are
summarized as follows:
At March 31, 2004 At December 31, 2003
--------------------- ---------------------
Accrued Accrued
($in thousands) Principal Interest Principal Interest
- --------------------------------------------------------------------------------------------------------
Capital Securities I - debentures due December 18, 2031 $ 15,464 $ 441 $ 15,464 $ 58
Capital Securities II - debentures due September 17, 2033 15,464 41 15,464 39
Capital Securities III - debentures due March 17, 2034 15,464 35 - -
- --------------------------------------------------------------------------------------------------------
$ 46,392 $ 517 $ 30,928 $ 97
- --------------------------------------------------------------------------------------------------------
9
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 7 - SUBORDINATED DEBENTURES - CAPITAL SECURITIES, CONTINUED
The Capital Securities are obligations of the Holding Company's wholly owned
statutory business trusts, Intervest Statutory Trust I, II and III. Each Trust
was formed with a capital contribution of $464,000 from the Holding Company and
for the sole purpose of issuing and administering Capital Securities. The
proceeds from the issuance of the Capital Securities together with the capital
contribution for each Trust were used to acquire the Holding Company's Junior
Subordinated Debentures that are due concurrently with the Capital Securities.
The Capital Securities currently qualify as regulatory capital (see note 10).
The sole assets of the Trusts, the obligors on the Capital Securities, are the
Junior Subordinated Debentures. In addition, for each Trust, the Holding Company
has guaranteed the payment of distributions on, payments on any redemptions of,
and any liquidation distribution with respect to the Capital Securities.
Issuance costs of $469,000, $444,000 and $440,000 associated with Capital
Securities I, II and III, respectively, have been capitalized by the Holding
Company and are being amortized over the life of the securities using the
straight-line method.
Cash distributions are payable in arrears as follows: Capital Securities I -
semi-annually at the fixed rate of 9.875% per annum on December 18 and June 18
of each year; Capital Securities II - quarterly on March 17, June 17, September
17 and December 17 of each year based on a fixed rate of 6.75% per annum for the
first five years and thereafter at the rate of 2.95% over 3 month libor until
maturity; Capital Securities III - quarterly on March 17, June 17, September 17
and December 17 of each year based on a fixed rate of 5.88% per annum for the
first five years and thereafter at the rate of 2.79% over 3 month libor until
maturity.
All of the Capital Securities are subject to mandatory redemption as follows:
(i) in whole, but not in part, upon repayment of the Junior Subordinated
Debentures at stated maturity or earlier, at the option of the Holding Company,
within 90 days following the occurrence and continuation of certain changes in
the tax or capital treatment of the Capital Securities, or a change in law such
that the Trust would be considered an investment company, contemporaneously with
the redemption by the Holding Company of the Junior Subordinated Debentures; and
(ii) in whole or in part at any time on or after December 18, 2006 for Capital
Securities I, September 17, 2008 for Capital Securities II and March 17, 2009
for Capital Securities III, contemporaneously with the optional redemption by
the Holding Company of the Junior Subordinated Debentures in whole or in part.
Any redemption would need prior regulatory approvals.
NOTE 8 - COMMON STOCK WARRANTS
At March 31, 2004, the Holding Company has 696,465 common stock warrants
outstanding that entitle its holder, the Chairman of the Holding Company, to
purchase one share of common stock for each warrant. All warrants are currently
exercisable, except for certain Class B common stock warrants.
Data concerning common stock warrants is as follows:
Exercise Price Per Warrant
------------------------------ Total Wtd-Avg
Class A Common Stock Warrants: $ 6.67 $ 10.01 Warrants Exercise Price
- -----------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2003 501,465 42,510 543,975 $ 6.93
Exercised during the first three months of 2004 - (42,510) (42,510) $ 10.01
- ------------------------------------------------------------------------------------------------
Outstanding at March 31, 2004 501,465 - 501,465 $ 6.67
- ------------------------------------------------------------------------------------------------
Remaining contractual life in years at March 31, 2004 2.8 - 2.8
- ------------------------------------------------------------------------------------------------
(1) The holders of the 42,510 warrants outstanding at December 31, 2003 presented these warrants to the Company
for exercise prior to the expiration date of December 31, 2003. The resulting shares were issued in January 2004.
Exercise Price Per Warrant
------------------------------ Total Wtd-Avg
Class B Common Stock Warrants: $ 6.67 $ 10.00 (1) Warrants Exercise Price
- ----------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2003 and March 31, 2004 145,000 50,000 195,000 $ 7.52
- -----------------------------------------------------------------------------------------------
Remaining contractual life in years at March 31, 2004 3.8 3.8 3.8
- ----------------------------------------------------------------------------------------------------------------
(1) At December 31, 2003 and March 31, 2004, 42,600 of these warrants were immediately exercisable. An
additional 7,100 warrants vested and became exercisable on April 27th of 2004.
10
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 8 - COMMON STOCK WARRANTS, CONTINUED
The Company elects to use the intrinsic value-based method prescribed under APB
Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for
its stock warrants. Under this method, compensation expense related to stock
warrants granted to employees is the excess, if any, of the market price of the
stock as of the grant or modification date over the exercise price of the
warrant.
Compensation expense recorded in connection with warrants is summarized as
follows:
Quarter Ended
March 31,
--------------------
($ in thousands) 2004 2003
- ----------------------------------------------------------------------------------
Compensation expense recorded in connection with vesting
of Class B warrants during the period $ 7 $ 6
Compensation expense recorded in connection with
Class A common stock warrants whose terms were modified - 67
- ----------------------------------------------------------------------------------
$ 7 $ 73
- ----------------------------------------------------------------------------------
NOTE 9 - EARNINGS PER SHARE (EPS)
Basic EPS is calculated by dividing net earnings by the weighted-average number
of shares of common stock outstanding. Diluted EPS is calculated by dividing
adjusted net earnings by the weighted-average number of shares of common stock
and dilutive potential common stock shares that may be outstanding in the
future. Potential common stock shares consist of outstanding dilutive common
stock warrants (which are computed using the "treasury stock method") and
convertible debentures (computed using the "if converted method"). Diluted EPS
considers the potential dilution that could occur if the Company's outstanding
stock warrants and convertible debentures were converted into common stock that
then shared in the Company's earnings (as adjusted for interest expense that
would no longer occur if the debentures were converted).
Net earnings applicable to common stock and the weighted-average number of
shares used for basic and diluted earnings per share computations are summarized
in the table that follows:
Quarter Ended
March 31,
----------------------
($ in thousands, except share and per share amounts) 2004 2003
- -----------------------------------------------------------------------------------------------
Basic earnings per share:
Net earnings applicable to common stockholders $ 2,735 $ 1,801
Average number of common shares outstanding 6,042,847 4,703,087
- -----------------------------------------------------------------------------------------------
Basic net earnings per share amount $ 0.45 $ 0.38
- -----------------------------------------------------------------------------------------------
Diluted earnings per share:
Net earnings applicable to common stockholders $ 2,735 $ 1,801
Adjustment to net earnings from assumed conversion of debentures (1) 82 114
----------------------
Adjusted net earnings for diluted earnings per share computation $ 2,817 $ 1,915
----------------------
Average number of common shares outstanding:
Common shares outstanding 6,042,847 4,703,087
Potential dilutive shares resulting from exercise of warrants (2) 253,362 230,516
Potential dilutive shares resulting from conversion of debentures (3) 592,279 1,010,803
----------------------
Total average number of common shares outstanding used for dilution 6,888,488 5,944,406
- -----------------------------------------------------------------------------------------------
Diluted net earnings per share amount $ 0.41 $ 0.32
- -----------------------------------------------------------------------------------------------
(1) Represents interest expense on dilutive convertible debentures, net of taxes, that
would not occur if they were assumed converted.
(2) All outstanding warrants were considered for the EPS computations.
(3) Convertible debentures (principal and accrued interest) outstanding at March 31, 2004
and 2003 totaling $7,069,000 and $10,118,000, respectively, were convertible into common stock
at a price of $12.00 per share in 2004 and $10.01 per share in 2003 and resulted in additional
common shares (based on average balances outstanding) .
11
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 10 - REGULATORY CAPITAL
The Bank and the Holding Company are required to maintain regulatory defined
minimum Tier 1 leverage and Tier 1 and total risk-based capital ratios.
Management believes that the Bank and the Holding Company meet their capital
adequacy requirements.
Management believes that there are no current conditions or events outstanding
which would change the Bank's designation as a well-capitalized institution.
At March 31, 2004, the actual capital of the Bank on a percentage basis was as
follows:
Actual Minimum To Be Considered
Ratios Requirement Well Capitalized
------- ------------ -----------------
Total capital to risk-weighted assets 13.41% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 12.37% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 10.87% 4.00% 5.00%
At March 31, 2004, the actual capital of the Holding Company on a percentage
basis was as follows:
Actual Minimum To Be Considered
Ratios Requirement Well Capitalized
------- ------------ ----------------
Total capital to risk-weighted assets 15.47% 8.00% NA
Tier 1 capital to risk-weighted assets 12.28% 4.00% NA
Tier 1 capital to total average assets - leverage ratio 10.75% 4.00% NA
On January 1, 2004, the Company adopted FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46") as revised in December
2003. FIN 46 requires bank holding companies that have used controlled business
trusts to raise financing by issuing trust preferred securities (capital
securities) to deconsolidate their investments in those trusts. At March 31,
2004, the Company has $45,000,000 of qualifying capital securities outstanding
that are included in regulatory capital computations.
The Federal Reserve continues to require bank holding companies to include
eligible trust preferred securities in Tier I capital for regulatory capital
purposes until further notice. The Federal Reserve intends to review the
regulatory implications of any accounting treatment changes brought about by FIN
46 and, if necessary, it will provide further regulatory guidance. However,
there can be no assurance that the Federal Reserve will continue to allow
institutions to include trust preferred securities in Tier I capital for
regulatory capital purposes. As of March 31, 2004, assuming the Company was not
allowed to treat any of the trust preferred securities as Tier 1 Capital, it
would still exceed the regulatory threshold for capital adequacy as follows:
total capital to risk-weighted assets ratio - 15.47%; Tier 1 capital to
risk-weighted assets ratio - 9.11%; and Tier 1 capital to total average assets
(leverage ratio) - 7.97%.
Intervest Securities Corporation is subject to the SEC's Uniform Net Capital
Rule [15c3-1 (a) (2) (vi)], which requires the maintenance of minimum net
capital of $5,000. At March 31, 2004, Intervest Securities Corporation's net
capital was $469,000.
12
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Hacker, Johnson & Smith, P.A., P.C. the Company's independent certified
public accountants, have made a limited review of the financial data as of March
31, 2004 and for the three-month periods ended March 31, 2004 and 2003 presented
in this document, in accordance with standards established by the American
Institute of Certified Public Accountants. As part of Hacker, Johnson & Smith,
P.A., P.C.'s review, Eisner, LLP was relied upon for their limited review of
Intervest Mortgage Corporation, a wholly owned subsidiary of the Company.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
13
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholder
Intervest Bancshares Corporation
New York, New York:
We have reviewed the accompanying condensed consolidated balance sheet of
Intervest Bancshares Corporation and Subsidiaries (the "Company") as of March
31, 2004 and the related condensed consolidated statements of earnings, changes
in stockholders' equity and cash flows for the three-month periods ended March
31, 2004 and 2003. These financial statements are the responsibility of the
Company's management.
We were furnished with the report of other accountants on their reviews of the
interim financial information of Intervest Mortgage Corporation, whose total
assets as of March 31, 2004 constituted 10.1% of the related consolidated total,
and whose net interest income, noninterest income and net earnings for the
three-month period then ended, constituted 5.0%, 20.5%, and 18.8%, respectively,
and whose net interest income, noninterest income and net earnings for the
three-month period ended March 31, 2003, constituted 9.0%, 18.5% and 15.8%,
respectively, of the related consolidated totals.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews and the reports of other accountants, we are not aware of
any material modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in conformity with
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2003, and the related consolidated statements of earnings,
comprehensive income, changes in stockholders' equity and cash flows for the
year then ended (not presented herein); and in our report dated February 6,
2004, with respect to note 3 dated March 16, 2004, we, based on our audits and
the report of other auditors, expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 2003 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Hacker, Johnson & Smith, P.A., P.C.
- ---------------------------------------------
HACKER, JOHNSON & SMITH, P.A.,P.C.
Tampa, Florida
May 10, 2004
14
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholder
Intervest Mortgage Corporation
New York, New York:
We have reviewed the condensed consolidated balance sheet of Intervest Mortgage
Corporation and Subsidiaries (the "Company") as of March 31, 2004, and the
related condensed consolidated statements of operations, changes in
stockholder's equity and cash flows for the three-month periods ended March 31,
2004 and 2003 (all of which are not presented separately herein). These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.
We previously audited, in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet of the Company
as of December 31, 2003 and the related consolidated statements of operations,
changes in stockholder's equity and cash flows for the year then ended (not
presented separately herein), and in our report dated February 3, 2004, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the condensed consolidated balance
sheet as of December 31, 2003 (not presented separately herein) is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.
/s/ Eisner, LLP
- -----------------
EISNER,LLP
New York, New York
April 19, 2004
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
-------
At March 31, 2004, Intervest Bancshares Corporation has three wholly owned
consolidated subsidiaries - Intervest National Bank, Intervest Mortgage
Corporation and Intervest Securities Corporation (hereafter referred to
collectively as the "Company" on a consolidated basis). Intervest Bancshares
Corporation and Intervest National Bank may be referred to individually as the
"Holding Company" and the "Bank," respectively. Intervest Bancshares Corporation
also has three wholly owned unconsolidated subsidiaries, Intervest Statutory
Trust I, Intervest Statutory Trust II and Intervest Statutory Trust III. For a
discussion of the Company's business, see note 2 to the condensed consolidated
financial statements in this report.
The Company's profitability depends primarily on its net interest income, which
is the difference between interest income generated from its interest-earning
assets and the interest expense incurred on its interest-bearing liabilities.
Net interest income is dependent upon the interest-rate spread, which is the
difference between the average yield earned on interest-earning assets and the
average rate paid on interest-bearing liabilities. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income. The interest rate spread is impacted
by interest rates, deposit flows and loan demand.
The Company's profitability is also affected by the level of its noninterest
income and expenses, provision for loan losses and provision for income tax
expense. Noninterest income consists mostly of loan and other banking fees as
well as income from loan prepayments. The amount and timing of, as well as
income from, loan prepayments, if any, cannot be predicted and can fluctuate
significantly. Normally, the number of instances of prepayment of mortgage loans
tends to increase during periods of declining interest rates and tends to
decrease during periods of increasing interest rates. Many of the Company's
mortgage loans include prepayment provisions, and others prohibit prepayment of
indebtedness entirely. Noninterest expense consists of compensation and benefits
expense, occupancy and equipment expenses, data processing expenses, advertising
expense, professional fees, insurance expense and other operating expenses.
The Company's profitability is significantly affected by general economic and
competitive conditions, changes in market interest rates, government policies
and actions of regulatory authorities. The Company's loan portfolio has
historically been concentrated in commercial real estate and multifamily
mortgage loans. The properties underlying the Company's mortgages are also
concentrated in New York State and the State of Florida. Many of the New York
properties are located in New York City and are subject to rent control and rent
stabilization laws, which limit the ability of the property owners to increase
rents. 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. Additionally, terrorist acts, such as those that occurred on
September 11, 2001, and armed conflicts, such as the recent Gulf War, may have
an adverse impact on economic conditions.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2004 AND DECEMBER 31, 2003
-------------------------------------------------------------------------
OVERVIEW
- --------
Total assets at March 31, 2004 increased to $993,010,000, from $911,523,000 at
December 31, 2003. Total liabilities at March 31, 2004 increased to
$914,259,000, from $836,138,000 at December 31, 2003, and stockholders' equity
increased to $78,751,000 at March 31, 2004, from $75,385,000 at year-end 2003.
Book value per common share increased to $13.02 per share at March 31, 2004,
from $12.59 at December 31, 2003.
On January 1, 2004, the Company adopted FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46") as revised in December
2003. FIN 46 requires bank holding companies that have used controlled business
trusts to raise financing by issuing trust preferred securities to deconsolidate
their investments in those trusts. The adoption of FIN 46 resulted in the
deconsolidation of the Company's common stock investment in Intervest Statutory
I and Intervest Statutory II, which increased both the Company's total assets
and borrowed funds previously reported at December 31, 2003 by $968,000.
16
Selected balance sheet information as of March 31, 2004 follows:
Intervest Intervest Intervest Inter-
Holding National Mortgage Securities Company
($ in thousands) Company Bank Corp. Corp. Amounts (1) Combined
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 4,961 $ 60,640 $ 23,449 $ 475 $ (24,149) $ 65,376
Security investments - 145,371 - - - 145,371
Loans receivable, net of deferred fees 15,939 654,823 92,346 - - 763,108
Allowance for loan losses (85) (7,340) (232) - - (7,657)
Investment in consolidated subsidiaries 110,969 - - - (110,969) -
All other assets 3,582 18,320 5,097 - (187) 26,812
- ------------------------------------------------------------------------------------------------------------------------
Total assets $135,366 $ 871,814 $ 120,660 $ 475 $ (135,305) $ 993,010
- ------------------------------------------------------------------------------------------------------------------------
Deposits $ - $ 761,555 $ - $ - $ (24,405) $ 737,150
Borrowed funds and related interest payable 56,533 252 98,249 - - 155,034
All other liabilities 82 19,193 2,725 6 69 22,075
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 56,615 781,000 100,974 6 (24,336) 914,259
- ------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 78,751 90,814 19,686 469 (110,969) 78,751
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $135,366 $ 871,814 $ 120,660 $ 475 $ (135,305) $ 993,010
- ------------------------------------------------------------------------------------------------------------------------
(1) All significant intercompany balances and transactions are eliminated in consolidation. Such amounts arise
largely from intercompany deposit accounts and investments.
A comparison of selected balance sheet information as of March 31, 2004 and
December 31, 2003 follows:
At March 31, 2004 At December 31, 2003
------------------------ -----------------------
Carrying % of Carrying % of
($ in thousands) Value Total Assets Value Total Assets
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 65,376 6.6% $ 64,128 7.0%
Security investments 145,371 14.6 155,898 17.1
Loans receivable, net of deferred fees and loan loss allowance 755,451 76.1 664,545 72.9
All other assets 26,812 2.7 26,952 3.0
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 993,010 100.0% $ 911,523 100.0%
- -------------------------------------------------------------------------------------------------------------------
Deposits $ 737,150 74.2% $ 675,513 74.1%
Borrowed funds and related interest payable 155,034 15.6 140,383 15.4
All other liabilities 22,075 2.3 20,242 2.2
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 914,259 92.1 836,138 91.7
- -------------------------------------------------------------------------------------------------------------------
Stockholders' equity 78,751 7.9 75,385 8.3
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 993,010 100.0% $ 911,523 100.0%
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
- -------------------------
Cash and cash equivalents amounted to $65,376,000 at March 31, 2004, relatively
unchanged from $64,128,000 at December 31, 2003.
SECURITY INVESTMENTS
- --------------------
Securities held to maturity decreased to $142,116,000 at March 31, 2004, from
$152,823,000 at December 31, 2003. The decrease was due to maturities and early
calls exceeding new purchases during the period. The composition of the
portfolio was relatively unchanged from December 31, 2003.
The Bank's total investment in the Federal Reserve Bank and the Federal Home
Loan Bank of New York stock increased to $3,255,000 at March 31, 2004, from
$3,075,000 at December 31, 2003, due to an additional purchase of stock.
LOANS RECEIVABLE, NET OF DEFERRED FEES AND ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------
Loans receivable, net of deferred fees and the allowance for loan losses,
increased to $755,451,000 at March 31, 2004, from $664,545,000 at December 31,
2003. The growth reflected new originations of commercial real estate and
multifamily mortgage loans, partially offset by principal repayments. New loan
originations amounted to $162,690,000 in the first quarter of 2004, compared to
$71,389,000 in the first quarter of 2003.
17
In March 2004, two real estate loans with an aggregate principal balance of
$8,474,000 that were on nonaccrual status and considered impaired at December
31, 2003 were brought current and returned to an accrual status. During the
quarter, a real estate loan with a principal balance of $1,036,000 was placed on
nonaccrual status and is considered impaired. For additional information on
loans, see note 3 to the condensed consolidated financial statements in this
report.
At March 31, 2004, the allowance for loan losses amounted to $7,657,000,
compared to $6,580,000 at December 31, 2003. The allowance represented 1.00% of
total loans (net of deferred fees) outstanding at March 31, 2004 and 0.98% at
December 31, 2003. The increase in the allowance was due to provisions
aggregating $1,077,000 during the period resulting from loan growth. For a
further discussion of the criteria the Company uses to determine the adequacy of
the allowance, see pages 21 and 22 in the Company's Annual Report on Form 10-K
for the year ended December 31, 2003.
ALL OTHER ASSETS
- ----------------
All other assets in the table on page 17 amounted to $26,812,000 at March 31,
2004, relatively unchanged from $26,952,000 at December 31, 2003.
DEPOSITS
- --------
Deposits increased to $737,150,000 at March 31, 2004, from $675,513,000 at
December 31, 2003, primarily reflecting increases in money market and
certificate of deposit accounts of $15,608,000 and $44,826,000, respectively. At
March 31, 2004, certificate of deposit accounts totaled $511,985,000 and
checking, savings and money market accounts aggregated $225,165,000. The same
categories of deposit accounts totaled $467,159,000 and $208,354,000,
respectively, at December 31, 2003. Certificate of deposit accounts represented
69% of total deposits at March 31, 2004 and December 31, 2003.
BORROWED FUNDS AND RELATED INTEREST PAYABLE
- -------------------------------------------
At March 31, 2004, borrowed funds and related interest payable increased to
$155,034,000, from $140,383,000 at year-end 2003. The increase was primarily due
to the issuance of Series 11/28/03 debentures by Intervest Mortgage Corporation
totaling $10,000,000 and the issuance of $15,464,000 of debentures by the
Holding company to its wholly owned unconsolidated subsidiary, Intervest
Statutory Trust III. These increases were partially offset by the repayment
($9,000,000 of principal and $2,749,000 of accrued interest) on March 1, 2004 of
Intervest Mortgage Corporation's Series 5/12/95 debentures due April 1, 2004.
For further information on borrowed funds and related interest payable, see
notes 6 and 7 to the condensed consolidated financial statements included in
this report.
ALL OTHER LIABILITIES
- ---------------------
All other liabilities in the table on page 17 increased to $22,075,000 at March
31, 2004, from $20,242,000 at December 31, 2003, primarily due to increases in
mortgage escrow funds payable ($4,157,000) and income taxes payable
($1,083,000), partially offset by a decease in official checks outstanding
($4,222,000).
STOCKHOLDERS' EQUITY
- --------------------
Stockholders' equity increased to $78,751,000 at March 31, 2004, from
$75,385,000 at year-end 2003 as follows:
($ in thousands) Amount Shares
--------------------------------------------------------------------------------------
Stockholders' equity at December 31, 2003 $75,385 5,988,377
Net earnings for the period 2,735 -
Class A common stock warrants exercised 426 42,510
Convertible debentures converted at election of debenture holders 198 17,188
Compensation expense on warrants held by employee and directors 7 -
--------------------------------------------------------------------------------------
Stockholders' equity at March 31, 2004 $78,751 6,048,075
--------------------------------------------------------------------------------------
ASSET AND LIABILITY MANAGEMENT
------------------------------
Interest rate risk arises from differences in the repricing of assets and
liabilities within a given time period. The primary objective of the Company's
asset/liability management strategy is to limit, within established guidelines,
the adverse impact of changes in interest rates on the Company's net interest
income and capital.
18
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. For a
further discussion of the assumptions used in preparing the gap analysis, see
pages 27 and 28 of the Company's Annual Report on Form 10-K for the year ended
December 31, 2003.
The Company's one-year positive interest rate sensitivity gap remained
relatively unchanged at $116,233,000, or 11.7% of total assets, at March 31,
2004, compared to $118,124,000, or 13.0% at December 31, 2003. For purposes of
computing the gap, all deposits with no stated maturities are treated as readily
accessible accounts. However, if such deposits were treated differently, then
the gap would change. The behavior of core depositors may not necessarily result
in the immediate withdrawal of funds in the event deposit rates offered by the
Bank did not change as quickly and uniformly as changes in general market rates.
For example, if only 25% of deposits with no stated maturity were assumed to be
readily accessible, the one-year gap would have been a positive 28.3% at March
31, 2004, compared to a positive 29.6% at year-end 2003.
The table below summarizes interest-earning assets and interest-bearing
liabilities as of March 31, 2004, that are scheduled to mature or reprice within
the periods shown.
0-3 4-12 Over 1-4 Over 4
--------- --------- ---------- ---------
($ in thousands) Months Months Years Years Total
- ---------------------------------------------------------------------------------------------------
Loans (1) $233,167 $220,346 $ 211,655 $106,577 $771,745
Securities held to maturity (2) 17,387 61,661 63,068 - 142,116
Short-term investments 54,301 - - - 54,301
FRB and FHLB stock 1,691 - - 1,564 3,255
- ---------------------------------------------------------------------------------------------------
Total rate-sensitive assets $306,546 $282,007 $ 274,723 $108,141 $971,417
- ---------------------------------------------------------------------------------------------------
Deposit accounts (3):
Interest checking deposits $ 9,947 $ - $ - $ - $ 9,947
Savings deposits 31,234 - - - 31,234
Money market deposits 177,822 - - - 177,822
Certificates of deposit 33,428 174,634 224,209 79,714 511,985
------------------------------------------------------
Total deposits 252,431 174,634 224,209 79,714 730,988
Debentures and mortgage note payable (1) 34,500 2,600 24,500 34,212 95,812
Debentures payable - capital securities (1) - - - 46,392 46,392
Accrued interest on all debentures (1) 6,584 1,571 2,129 2,546 12,830
- ---------------------------------------------------------------------------------------------------
Total rate-sensitive liabilities $293,515 $178,805 $ 250,838 $162,864 $886,022
- ---------------------------------------------------------------------------------------------------
GAP (repricing differences) $ 13,031 $103,202 $ 23,885 $(54,723) $ 85,395
- ---------------------------------------------------------------------------------------------------
Cumulative GAP $ 13,031 $116,233 $ 140,118 $ 85,395 $ 85,395
- ---------------------------------------------------------------------------------------------------
Cumulative GAP to total assets 1.3% 11.7% 14.1% 8.6% 8.6%
- ---------------------------------------------------------------------------------------------------
Significant assumptions used in preparing the preceding gap table follow:
(1) Floating-rate loans and debentures payable are included in the period in
which their interest rates are next scheduled to adjust rather than in the
period in which they mature. Fixed-rate loans and debentures payable are
scheduled, including repayments, according to their contractual maturities.
Deferred loan fees are excluded from this analysis; (2) securities are scheduled
according to the earlier of their contractual maturity or the date in which the
interest rate is scheduled to increase. The effects of possible prepayments that
may result from the issuer's right to call a security before its contractual
maturity date are not considered; (3) interest checking, savings and money
market deposits are regarded as ready accessible withdrawable accounts; and
certificates of deposit are scheduled through their maturity dates.
LIQUIDITY
---------
The Company manages its liquidity position on a daily basis to assure that funds
are available to meet operations, loan and investment commitments, deposit
withdrawals and the repayment of borrowed funds. The Company's primary sources
of funds consist of: retail deposits obtained through the Bank's branch offices
and through the mail; amortization, satisfactions and repayments of loans; the
maturities and calls of securities; issuance of debentures; borrowings in the
federal funds market and cash provided by operating activities. For additional
information concerning the Company's cash flows, see the consolidated statements
of cash flows included in this report. The Company believes that it can fund its
contractual obligations from the aforementioned sources of funds. As a member
of the FHLB and the FRB, the Bank can borrow from these institutions on a
19
secured basis of up to $135,000,000 in aggregate at March 31 2004 based on
available collateral. The Bank also has agreements with correspondent banks
whereby it can borrow on an overnight, unsecured basis of up to $16,000,000.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
---------------------------------------
The Company is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
instruments are in the form of commitments to extend credit, unused lines of
credit and standby letters of credit, and may involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the condensed consolidated balance sheets. The Company's maximum exposure to
credit risk is represented by the contractual amount of those instruments. The
Company uses the same credit policies in making commitments as it does for
on-balance sheet instruments. Commitments to extend credit are agreements to
lend funds to a customer as long as there is no violation of any condition
established in the contract. Such commitments generally have fixed expiration
dates or other termination clauses and may require payment of fees.
Since some of the commitments are expected to expire without being drawn upon,
the total commitment amount does not necessarily represent future cash
requirements. The Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Company upon extension of credit, is based on management's credit evaluation
of the counterparty.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
The contractual amounts of the Company's off-balance sheet financial instruments
is as follows:
At At
---------- -------------
March 31, December 31,
---------- -------------
($ in thousands) 2004 2003
-----------------------------------------------------
Unfunded loan commitments $ 235,163 $ 123,791
Available lines of credit 892 825
Standby letters of credit 100 100
-----------------------------------------------------
$ 236,155 $ 124,716
-----------------------------------------------------
Management is not aware of any trends, known demand, commitments or
uncertainties which are expected to have a material impact on future operating
results, liquidity or capital resources.
20
COMPARISON OF RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 2004 AND
-----------------------------------------------------------------------------
2003
----
OVERVIEW
- --------
Consolidated net earnings for the first quarter of 2004 increased 52% to
$2,735,000, from $1,801,000 for the same quarter of 2003. Diluted earnings per
share increased to $0.41 in the first quarter of 2004, from $0.32 in the 2003
first quarter. The diluted per share computation for 2004 included a higher
number of common shares outstanding resulting from the exercise of common stock
warrants and conversion of debentures that occurred in the later part of 2003.
The $934,000 improvement in quarterly earnings was attributable to increases in
both net interest and dividend income and noninterest income. Net interest and
dividend income was higher by $1,541,000 while noninterest income increased by
$1,127,000. The increase in income was partially offset primarily by a $733,000
increase in the provision for loan losses and a $867,000 increase in the
provision for income taxes.
Selected information regarding results of operations for the first quarter of
2004 follows:
Intervest Intervest Intervest Inter-
National Mortgage Securities Company
($in thousands) Holding Company Bank Corp. Corp. Amounts (1) Consolidated
- --------------------------------------------------------------------------------------------------------------------------------
Interest and dividend income $ 295 $ 12,019 $ 2,336 $ 1 $ (58) $ 14,593
Interest expense 879 5,374 2,020 - (58) 8,215
------------------------------------------------------------------------------------
Net interest and dividend income (584) 6,645 316 1 - 6,378
Provision for loan losses 7 1,030 40 - - 1,077
Noninterest income 75 1,102 1,140 56 (917) 1,456
Noninterest expenses 88 2,248 461 38 (917) 1,918
------------------------------------------------------------------------------------
Earnings before income taxes (604) 4,469 955 19 - 4,839
Provision for income taxes (279) 1,932 442 9 - 2,104
- --------------------------------------------------------------------------------------------------------------------------------
Net earnings $ (325) $ 2,537 $ 513 $ 10 $ - $ 2,735
- --------------------------------------------------------------------------------------------------------------------------------
Intercompany dividends (2) 630 (630) - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Net earnings after intercompany dividends $ 305 $ 1,907 $ 513 $ 10 $ - $ 2,735
- --------------------------------------------------------------------------------------------------------------------------------
Net earnings after intercompany dividends
for the same period of 2003 $ 78 $ 1,438 $ 285 $ - $ - $ 1,801
- --------------------------------------------------------------------------------------------------------------------------------
(1) All significant intercompany balances and transactions are eliminated in consolidation. Such amounts arise from
intercompany deposit accounts and management and service agreements.
(2) Dividends to the Holding Company from the Bank provide funds for the debt service on $45,000,000 of Capital Securities.
The debt service is included in the Holding Company's interest expense. The proceeds from the Capital Securities are
invested in the capital of the Bank.
NET INTEREST AND DIVIDEND INCOME
- ------------------------------------
Net interest and dividend income is the Company's primary source of earnings and
is influenced primarily by the amount, distribution and repricing
characteristics of its interest-earning assets and interest-bearing liabilities
as well as by the relative levels and movements of interest rates.
Net interest and dividend income increased to $6,378,000 in the first quarter of
2004, from $4,837,000 in the same period of 2003. The increase was attributable
to a $244,466,000 increase in average interest-earning assets. The increase in
average interest-earning assets was due to continued growth in loans of
$216,596,000 and a higher level of security and short-term investments
aggregating $27,870,000. The growth in average assets was funded primarily by
$183,355,000 of new deposits, $32,983,000 of additional borrowed funds and a
$22,673,000 increase in stockholders' equity (resulting from earnings and
issuance of shares upon the exercise of common stock warrants and conversion of
convertible debentures).
The Company's net interest margin decreased to 2.75% in the first quarter of
2004, from 2.85% in the same period of 2003. The decrease was due to the
Company's yield on interest-earning assets decreasing at a faster pace than its
cost of funds.
In a low interest rate environment, the yield on interest-earning assets
decreased 56 basis points (bp) to 6.30% in the 2004 quarter, primarily due to
lower rates on new mortgage loans originated, prepayments of higher-yielding
loans and lower yields earned on security and other short-term investments. The
cost of funds decreased 46 bp to 3.91% in the 2004 quarter due to lower rates
paid on deposit accounts and floating-rate debentures as well as the addition of
new debentures with lower rates than existing ones. The floating-rate debentures
21
are indexed to the JPMorgan Chase Bank prime rate, which decreased by a total of
25 bp from April 1, 2003 to March 31, 2004.
The following table provides information on average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for the periods indicated. The yields and rates
shown are based on a computation of income/expense (including any related fee
income or expense) for each period divided by average interest-earning
assets/interest-bearing liabilities during each period. Average balances are
derived from daily balances. Net interest margin is computed by dividing net
interest and dividend income by the average of total interest-earning assets
during each period.
-------------------------------------------------------------
Quarter Ended
-------------------------------------------------------------
March 31, 2004 March 31, 2003
------------------------------ -----------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Loans (1) $725,785 $ 13,792 7.64% $509,189 $ 10,670 8.50%
Securities 165,475 705 1.71 158,120 887 2.28
Other interest-earning assets 40,555 96 0.95 20,040 68 1.38
- ----------------------------------------------------------------------------------------------------------------
Total interest-earning assets 931,815 $ 14,593 6.30% 687,349 $ 11,625 6.86%
- ----------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 16,436 15,084
- ----------------------------------------------------------------------------------------------------------------
Total assets $948,251 $702,433
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest checking deposits $ 10,366 $ 40 1.55% $ 11,831 $ 56 1.92%
Savings deposits 30,993 137 1.78 31,174 162 2.11
Money market deposits 167,766 742 1.78 138,880 722 2.11
Certificates of deposit 488,813 4,393 3.61 333,768 3,513 4.27
- ----------------------------------------------------------------------------------------------------------------
Total deposit accounts 697,938 5,312 3.06 515,653 4,453 3.50
- ----------------------------------------------------------------------------------------------------------------
Debentures and related interest payable 113,159 2,233 7.94 98,641 1,957 8.05
Debentures - capital securities 33,477 666 8.00 15,000 374 10.10
Mortgage note payable 253 4 7.04 265 4 6.87
- ----------------------------------------------------------------------------------------------------------------
Total borrowed funds 146,889 2,903 7.95 113,906 2,335 8.31
- ----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 844,827 $ 8,215 3.91% 629,559 $ 6,788 4.37%
- ----------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 6,179 5,109
Noninterest-bearing liabilities 20,822 14,015
Stockholders' equity 76,423 53,750
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $948,251 $702,433
- ----------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $ 6,378 2.39% $ 4,837 2.49%
- ----------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 86,988 2.75% $ 57,790 2.85%
- ----------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.10 1.09
- ----------------------------------------------------------------------------------------------------------------
OTHER RATIOS:
Return on average assets (2) 1.15% 1.03%
Return on average equity (2) 14.32% 13.40%
Noninterest expense to average assets (2) 0.81% 1.02%
Efficiency ratio (3) 24% 35%
Average stockholders' equity to average assets 8.06% 7.65%
- ----------------------------------------------------------------------------------------------------------------
(1) Includes nonaccrual loans.
(2) Annualized.
(3) Defined as noninterest expenses as a percentage of net interest income before the provision for loan losses
plus noninterest income.
PROVISION FOR LOAN LOSSES
- ----------------------------
The provision for loan losses increased to $1,077,000 in the first quarter of
2004, from $344,000 in the same quarter of 2003. The provision is based on
management's ongoing assessment of the adequacy of the allowance for loan losses
that takes into consideration a number of factors as discussed on pages 21 and
22 in the Company's Annual Report on Form 10-K for the year ended December 31,
2003. The higher provision for the 2004 quarter was a function of loan growth,
22
which amounted to $92,889,000 in the 2004 quarter, versus $43,112,000 in the
2003 quarter.
NONINTEREST INCOME
- -------------------
Noninterest income increased $1,127,000 to $1,456,000 in the first quarter of
2004, from $329,000 in the first quarter of 2003. The increase was nearly all
due to higher income from the prepayment of mortgage loans. The amount and
timing of, as well as income from, loan prepayments, if any, cannot be predicted
and can fluctuate significantly. Normally, the number of instances of prepayment
of mortgage loans tends to increase during periods of declining interest rates
and tends to decrease during periods of increasing interest rates. Many of the
Company's mortgage loans include prepayment provisions, and others prohibit
prepayment of indebtedness entirely.
NONINTEREST EXPENSES
- ---------------------
Noninterest expenses increased $134,000 to $1,918,000 in the first quarter 2004,
from $1,784,000 in the first quarter of 2003. The increase was primarily due to
an increase in salary and employee benefits expense of $94,000 and an increase
in director expense of $63,000.
Salaries and employee benefits expense increased primarily due to the following:
$64,000 from normal salary increases, a higher cost of employee benefits and
additional staff (62 employees at March 31, 2004 versus 60 at March 31, 2003);
and bonus payments aggregating $55,000 to certain executives of the Company in
connection with the sale of capital securities and leasing of new space in 2004.
Director expense increased due to higher fees paid to directors for each board
and committee meeting attended beginning in June 2003.
PROVISION FOR INCOME TAXES
- -----------------------------
The provision for income taxes increased $867,000 to $2,104,000 in the first
quarter of 2004, from $1,237,000 in the first quarter of 2003, due to higher
pre-tax income and a higher effective income tax rate. The Company's effective
tax rate (inclusive of state and local taxes) amounted to 43.5% in the 2004
period, compared to 40.7% in the 2003 period. The higher rate is due to a larger
portion of consolidated taxable income being generated from New York operations,
which is taxed at higher income tax rate than Florida.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Company's market risk arises primarily from interest rate
risk inherent in its lending and deposit-taking activities, and the issuance of
its debentures. The Company has not engaged in and accordingly has no risk
related to trading accounts, commodities or foreign exchange. The measurement of
market risk associated with financial instruments is meaningful only when all
related and offsetting on-and off-balance sheet transactions are aggregated, and
the resulting net positions are identified. Disclosures about the fair value of
financial instruments as of December 31, 2003, which reflect changes in market
prices and rates, can be found in note 20 to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2003.
Management actively monitors and manages the Company's interest rate risk
exposure. The primary objective in managing interest rate risk is to limit,
within its established guidelines, the adverse impact of changes in interest
rates on the Company's net interest income and capital, while adjusting the
Company's asset-liability structure to obtain the maximum yield versus cost
spread on that structure. Management relies primarily on its asset-liability
structure to control interest rate risk. However, a sudden and substantial
increase in interest rates could adversely impact the Company's earnings, to the
extent that the interest rates borne by assets and liabilities do not change at
the same speed, to the same extent, or on the same basis. Management believes
that there have been no significant changes in the Company's market risk
exposure since December 31, 2003.
ITEM 4. 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.
23
(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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
(e) Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not Applicable
(b) Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
ITEM 5. OTHER INFORMATION
(a) Not Applicable
(c) Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report.
31 - Certification of the principal executive and financial officer
pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
32 - Certification of the principal executive and financial officer
pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
(b) A current report on Form 8-K dated March 17, 2004 was filed by the
registrant to report, under Item 9, the completion of the sale of Trust
Preferred Securities.
A current report on Form 8-K dated April 13, 2004 was filed by the
registrant to furnish, under Item 12, its quarterly earnings release for
the period ended March 31, 2004.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
Date: May 12, 2004 By: /s/ Lowell S. Dansker
-------------------------------
Lowell S. Dansker, Vice Chairman, President
and Treasurer
(Principal Executive and Financial Officer)
Date: May 12, 2004 By: /s/ Lawrence G. Bergman
------------------------------
Lawrence G. Bergman, Vice President and
Secretary
25