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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, 2005
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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.)
ONE ROCKEFELLER PLAZA, SUITE 400
NEW YORK, NEW YORK 10020-2002
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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 5,890,073 Outstanding at April 30, 2005
--------------------------- ---------------------------------------
par value per share
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Class B Common Stock, $1.00 385,000 Outstanding at April 30, 2005
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par value per share
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INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 2005
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
as of March 31, 2005 (Unaudited) and December 31, 2004 . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Earnings (Unaudited)
for the Quarters Ended March 31, 2005 and 2004 . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
for the Quarters Ended March 31, 2005 and 2004 . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Quarters Ended March 31, 2005 and 2004 . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements (Unaudited) . . . . . . . . . 6
Review by Independent Registered Public Accounting Firm. . . . . . . . . . . . . . 13
Report of Independent Registered Public Accounting Firm. . . . . . . . . . . . . . 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. . . . . . . . . . . . . . . . . . . . . . . . . . 24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 factors below are among those that
could cause actual results to differ materially from the forward-looking
statements.
RISK FACTORS
The Company's business is affected by a number of factors, including but not
limited to the impact of: interest rates; loan demand; loan concentrations; loan
prepayments; ability to raise funds for investment; competition; general or
local economic conditions; credit risk and the related adequacy of the allowance
for loan losses; terrorist acts; natural disasters; armed conflicts; regulatory
supervision and regulation; dependence on key personnel; and voting control.
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) 2005 2004
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
Cash and due from banks $ 21,874 $ 12,026
Federal funds sold 22,372 9,948
Commercial paper and other short-term investments 5,101 2,625
---------------------------
Total cash and cash equivalents 49,347 24,599
Securities held to maturity, net (estimated fair value of $251,777 and $247,211, respectively) 254,754 248,888
Federal Reserve Bank and Federal Home Loan Bank stock, at cost 5,092 5,092
Loans receivable (net of allowance for loan losses of $12,139 and $11,106, respectively) 1,083,022 1,004,290
Accrued interest receivable 7,098 6,699
Loan fees receivable 8,732 8,208
Premises and equipment, net 6,610 6,636
Deferred income tax asset 5,547 5,095
Deferred debenture offering costs, net 4,664 4,929
Other assets 2,573 2,315
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TOTAL ASSETS $ 1,427,439 $ 1,316,751
===========================================================================================================================
LIABILITIES
Deposits:
Noninterest-bearing demand deposit accounts $ 7,919 $ 6,142
Interest-bearing deposit accounts:
Checking (NOW) accounts 10,963 15,051
Savings accounts 23,313 27,359
Money market accounts 193,118 200,549
Certificate of deposit accounts 888,344 744,771
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Total deposit accounts 1,123,657 993,872
Borrowed Funds:
Federal Home Loan Bank advances 15,000 36,000
Subordinated debentures 91,810 94,430
Subordinated debentures - capital securities 61,856 61,856
Accrued interest payable on all borrowed funds 9,090 10,154
Mortgage note payable 239 242
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Total borrowed funds 177,995 202,682
Accrued interest payable on deposits 2,131 1,718
Mortgage escrow funds payable 19,914 14,533
Official checks outstanding 6,578 12,061
Other liabilities 3,788 1,791
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TOTAL LIABILITIES 1,334,063 1,226,657
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STOCKHOLDERS' EQUITY
Preferred stock (300,000 shares authorized, none issued) - -
Class A common stock ($1.00 par value, 9,500,000 shares authorized,
5,888,843 and 5,886,433 shares issued and outstanding, respectively) 5,889 5,886
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 38,992 38,961
Retained earnings 48,110 44,862
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TOTAL STOCKHOLDERS' EQUITY 93,376 90,094
===========================================================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,427,439 $ 1,316,751
===========================================================================================================================
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) 2005 2004
- --------------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Loans receivable $ 18,811 $13,792
Securities 1,563 705
Other interest-earning assets 194 96
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TOTAL INTEREST AND DIVIDEND INCOME 20,568 14,593
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INTEREST EXPENSE
Deposits 9,039 5,312
Subordinated debentures 2,060 2,233
Subordinated debentures - capital securities 1,090 666
Other borrowed funds 94 4
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TOTAL INTEREST EXPENSE 12,283 8,215
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NET INTEREST AND DIVIDEND INCOME 8,285 6,378
Provision for loan losses 1,033 1,077
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NET INTEREST AND DIVIDEND INCOME AFTER PROVISION FOR LOAN LOSSES 7,252 5,301
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NONINTEREST INCOME
Customer service fees 76 59
Income from mortgage lending activities 149 190
Income from the early repayment of mortgage loans 654 1,156
Commissions and fees - 56
Loss from early call of investment securities (1) (5)
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TOTAL NONINTEREST INCOME 878 1,456
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NONINTEREST EXPENSES
Salaries and employee benefits 1,285 961
Occupancy and equipment, net 357 344
Data processing 136 129
Professional fees and services 139 103
Stationery, printing and supplies 54 44
Postage and delivery 33 25
FDIC and general insurance 79 64
Director and committee fees 122 88
Advertising and promotion 47 13
All other 122 147
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TOTAL NONINTEREST EXPENSES 2,374 1,918
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Earnings before income taxes 5,756 4,839
Provision for income taxes 2,508 2,104
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NET EARNINGS $ 3,248 $ 2,735
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BASIC EARNINGS PER SHARE $ 0 .52 $ 0.45
DILUTED EARNINGS PER SHARE $ 0 .48 $ 0.41
DIVIDENDS PER SHARE $ - $ -
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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,
--------------------------------------
2005 2004
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($in thousands) SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
CLASS A COMMON STOCK
Balance at beginning of period 5,886,433 $ 5,886 5,603,377 $ 5,603
Issuance of shares upon the exercise of warrants - - 42,510 43
Issuance of shares upon the conversion of debentures 2,410 3 17,188 17
- ----------------------------------------------------------------------------------------------------------
Balance at end of period 5,888,843 5,889 5,663,075 5,663
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CLASS B COMMON STOCK
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Balance at beginning and end of period 385,000 385 385,000 385
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ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of period 38,961 35,988
Compensation related to vesting of certain Class B stock warrants - 7
Issuance of shares upon the exercise of warrants - 383
Issuance of shares upon the conversion of debentures 31 181
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Balance at end of period 38,992 36,559
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RETAINED EARNINGS
Balance at beginning of period 44,862 33,409
Net earnings for the period 3,248 2,735
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Balance at end of period 48,110 36,144
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==========================================================================================================
TOTAL STOCKHOLDERS' EQUITY AT END OF PERIOD 6,273,843 $93,376 6,048,075 $78,751
==========================================================================================================
See accompanying notes to condensed consolidated financial statements.
4
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
QUARTER ENDED
MARCH 31,
--------------------
($in thousands) 2005 2004
- ----------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 3,248 $ 2,735
Adjustments to reconcile net earnings to net cash (used in) provided
by operating activities:
Depreciation and amortization 129 176
Provision for loan losses 1,033 1,077
Deferred income tax benefit (452) (487)
Amortization of deferred debenture offering costs 296 315
Compensation expense related to common stock warrants - 7
Amortization of premiums (accretion) of discounts and deferred loan fees, net (1,499) (575)
Net decrease in accrued interest payable on debentures (1,032) (1,607)
Net decrease in official checks outstanding (5,483) (4,222)
Net increase in loan fees receivable (524) (428)
Net change in all other assets and liabilities 3,718 3,673
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (566) 664
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INVESTING ACTIVITIES
Maturities and calls of securities held to maturity 19,305 24,315
Purchases of securities held to maturity (25,523) (14,220)
Net increase in loans receivable (79,896) (92,889)
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock - (180)
Purchases of premises and equipment, net (103) (89)
Investment in unconsolidated subsidiaries - (464)
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NET CASH USED IN INVESTING ACTIVITIES (86,217) (83,527)
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FINANCING ACTIVITIES
Net increase in deposits 129,785 61,637
Net increase in mortgage escrow funds payable 5,381 4,157
Net decrease in FHLB advances (21,000) -
Principal repayments of debentures and mortgage note payable (2,603) (9,003)
Gross proceeds from issuance of debentures - 25,464
Debenture issuance costs (32) (1,105)
Proceeds from issuance of common stock - 2,961
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NET CASH PROVIDED BY FINANCING ACTIVITIES 111,531 84,111
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Net increase in cash and cash equivalents 24,748 1,248
Cash and cash equivalents at beginning of period 24,599 64,128
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Cash and cash equivalents at end of period $ 49,347 $ 65,376
====================================================================================================
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 12,606 $ 9,434
Income taxes 871 1,508
Noncash activities:
Conversion of debentures and accrued interest into Class A common stock 34 203
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See accompanying notes to condensed consolidated financial statements.
5
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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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 2004 audited consolidated financial statements and
notes thereto. The condensed consolidated financial statements in this report
should be read in conjunction with the 2004 audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2004.
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, III and IV are wholly owned subsidiaries of the
Holding Company that are unconsolidated entities as required by FASB
Interpretation No. 46-R, "Consolidation of Variable Interest Entities."
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 offices of the Holding Company, Intervest Mortgage Corporation, Intervest
Securities Corporation and the Bank's headquarters and full-service banking
office are located on the entire fourth floor of One Rockefeller Plaza in New
York City, New York, 10020-2002.
The Holding Company's primary business is the operation of its subsidiaries. It
does not engage in any other substantial business activities other than a
limited amount of real estate mortgage lending. From time to time, the Holding
Company also issues debt securities to raise funds for working capital purposes.
The Company's primary business segment is banking and real estate lending.
The Bank is a nationally chartered, full-service commercial bank that has its
headquarters and full-service banking office in 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 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 also provides loan origination services to the
Bank. Intervest Mortgage Corporation has two wholly owned subsidiaries,
Intervest Distribution Corporation and Intervest Realty Servicing Corporation,
which provide administrative services to Intervest Mortgage Corporation.
Intervest Mortgage Corporation issues debentures to provide funding for its
lending business. Intervest Mortgage Corporation's mortgage loans are comprised
of multifamily and commercial real estate loans.
6
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 2 - DESCRIPTION OF BUSINESS - CONTINUED
Intervest Securities Corporation is a broker/dealer and a NASD and SIPC member
firm whose business activities to date have not been material. Its only revenues
have been derived from participating as a selected dealer from time to time in
offerings of debt securities of the Company, primarily those of Intervest
Mortgage Corporation.
Intervest Statutory Trust I, II, III and IV were formed in December 2001,
September 2003, March 2004 and September 2004, respectively. Each was formed for
the sole purpose of issuing and administering $15,000,000 of Trust Preferred
Securities for a total of $60,000,000. The trusts do not conduct any trade or
business.
NOTE 3 - LOANS RECEIVABLE
Loans receivable is summarized as follows:
At March 31, 2005 At December 31, 2004
---------------------- -----------------------
($in thousands) # of Loans Amount # of Loans Amount
- -----------------------------------------------------------------------------------------
Commercial real estate loans 258 $ 641,749 244 $ 601,512
Residential multifamily loans 248 424,837 249 403,613
Land development and other land loans 17 37,787 11 19,198
Residential 1-4 family loans 4 983 4 984
Commercial business loans 22 1,042 23 1,215
Consumer loans 12 241 12 221
- -----------------------------------------------------------------------------------------
Loans receivable 561 1,106,639 543 1,026,743
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Deferred loan fees (11,478) (11,347)
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Loans receivable, net of deferred fees 1,095,161 1,015,396
- -----------------------------------------------------------------------------------------
Allowance for loan losses (12,139) (11,106)
- -----------------------------------------------------------------------------------------
Loans receivable, net $1,083,022 $1,004,290
- -----------------------------------------------------------------------------------------
At March 31, 2005 and December 31, 2004, $4,607,000 of loans were on nonaccrual
status. These loans were considered impaired under the criteria of SFAS No.114,
but no valuation allowance was maintained at any time since the Company believes
that the estimated fair value of the underlying properties exceeded the
Company's recorded investment. At March 31, 2005 and December 31, 2004, there
were no other impaired loans or loans ninety days past due and still accruing
interest. Interest income that was not recorded on nonaccrual loans under their
contractual terms amounted to $104,000 for the quarter ended March 31, 2005,
compared to $28,000 for the same period of 2004. The average balance of
nonaccrual loans for the quarter ended March 31, 2005 and 2004 was $4,607,000
and $5,290,000, respectively. In April 2005, the property collateralizing a
nonaccrual loan with a principal balance of $3,857,000 was sold at foreclosure
to a third party. The loan was paid in full and the Bank recovered all amounts
due thereunder.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
Quarter Ended March 31,
-------------------------
($in thousands) 2005 2004
- -------------------------------------------------------------------------------
Balance at beginning of period $ 11,106 $ 6,580
Provision charged to operations 1,033 1,077
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Balance at end of period $ 12,139 $ 7,657
- -------------------------------------------------------------------------------
NOTE 5 - DEPOSITS
Scheduled maturities of certificates of deposit accounts are as follows:
At March 31, 2005 At December 31, 2004
---------------------- ----------------------
Wtd-Avg Wtd-Avg
($in thousands) Amount Stated Rate Amount Stated Rate
- -------------------------------------------------------------------------
Within one year $311,192 2.98% $269,553 2.84%
Over one to two years 120,298 3.67 119,780 3.43
Over two to three years 171,894 4.34 134,409 4.48
Over three to four years 98,335 4.10 75,317 4.06
Over four years 186,625 4.54 145,712 4.48
- -------------------------------------------------------------------------
$888,344 3.79% $744,771 3.68%
- -------------------------------------------------------------------------
7
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 5 - DEPOSITS, CONTINUED
Certificate of deposit accounts of $100,000 or more totaled $267,262,000 and
$215,876,000 at March 31, 2005 and December 31, 2004, respectively. At March 31,
2005, certificate of deposit accounts of $100,000 or more by remaining maturity
were as follows: due within one year $96,951,000; over one to two years
$27,070,000; over two to three years $51,584,000; over three to four years
$27,941,000; and over four years $63,716,000.
NOTE 6 - SUBORDINATED DEBENTURES AND MORTGAGE NOTE PAYABLE
Subordinated debentures and mortgage note payable are summarized as follows:
At March 31, At December 31,
($in thousands) 2005 2004
- --------------------------------------------------------------------------------------------------------------
INTERVEST MORTGAGE CORPORATION:
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
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 2,000
Series 11/28/03 - interest at 6 1/2% fixed - due April 1, 2009 3,500 3,500
Series 11/28/03 - interest at 6 3/4% fixed - due April 1, 2011 4,500 4,500
Series 06/07/04 - interest at 6 1/4% fixed - due January 1, 2008 2,500 2,500
Series 06/07/04 - interest at 6 1/2% fixed - due January 1, 2010 4,000 4,000
Series 06/07/04 - interest at 6 3/4% fixed - due January 1, 2012 5,000 5,000
------------------------------
86,250 88,850
INTERVEST BANCSHARES CORPORATION:
Series 05/14/98 - interest at 8% fixed - due July 1, 2008 3,060 3,080
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
------------------------------
5,560 5,580
INTERVEST NATIONAL BANK:
Mortgage note payable (2) - interest at 7% fixed - due February 1, 2017 239 242
- -------------------------------------------------------------------------------------------------------------
$ 92,049 $ 94,672
- -------------------------------------------------------------------------------------------------------------
(1) Prime represents prime rate of JPMorganChase Bank, which was 5.75% on March
31, 2005 and 5.25% at December 31, 2004. The floating-rate debentures have a
maximum interest rate of 12%. (2) The note cannot be prepaid except during the
last year of its term.
8
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 6 - SUBORDINATED DEBENTURES AND MORTGAGE NOTE PAYABLE, CONTINUED
On January 1, 2005, Intervest Mortgage Corporation's Series 11/10/98 debentures
matured and were repaid for a total of $4,459,000 ($2,600,000 of principal and
$1,859,000 of accrued interest). On April 1, 2005, Intervest Mortgage
Corporation's Series 5/10/96 and 8/01/01 debentures matured and were repaid for
a total of $14,052,000 ($11,750,000 of principal and $2,302,000 of accrued
interest).
In April 2005, Intervest Mortgage Corporation issued $14,000,000 of its Series
3/21/05 debentures for net proceeds, after offering costs, of approximately
$12,975,000. The terms of the debentures are as follows: $3,000,000 maturing
April 1, 2009 with an annual interest rate of 6.25%; $4,500,000 maturing April
1, 2011 with an annual interest rate of 6.50%; and $6,500,000 maturing April 1,
2013 with an annual interest rate of 7.00%
Interest is paid quarterly on Intervest Mortgage Corporation's debentures except
for: $1,980,000 of Series 5/10/96; all of Series 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;
$1,750,000 of Series 11/28/03; $1,910,000 of Series 6/7/04; and $1,920,000 of
Series 3/21/05, all of which accrue and compound interest quarterly, with such
interest due and payable at maturity.
The holders of Intervest Mortgage Corporation's Series 6/28/99, 9/18/00 and
Series 1/17/02 through 3/21/05 debentures can require Intervest Mortgage
Corporation to repurchase the debentures for face amount plus accrued interest
each year (beginning October 1, 2005 for Series 1/17/02, January 1, 2006 for
Series 8/05/02, July 1, 2006 for Series 1/21/03, October 1, 2006 for Series
7/25/03, January 1, 2007 for Series 11/28/03, January 1, 2008 for Series 6/7/04
and April 1, 2009 for Series 3/21/05). However, in no calendar year can the
required purchases be 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 6/7/04 and 3/21/05,
which would be at a premium of 1% if it were redeemed prior to July 1, 2005 for
Series 6/7/04 and prior to October 1, 2006 for Series 03/21/05. 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
along with accrued interest at the option of the holders at any time prior to
April 1, 2008 into shares of its Class A common stock at the following
conversion prices per share: $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 2005, $34,000 of
debentures ($20,000 of principal and $14,000 of accrued interest) were converted
into shares of Class A common stock at $14.00 per share.
At March 31, 2005, interest accrues and compounds quarterly on $2,460,000 of the
convertible debentures at the rate of 8% per annum, while $600,000 of the
convertible debentures pay interest quarterly at the rate of 8% per annum. All
accrued interest of $1,762,000 is due and payable at maturity whether by
acceleration, redemption or otherwise. Any convertible debenture holder may, on
or before July 1 of each year, elect to be paid all accrued interest and to
thereafter receive regular payments of interest quarterly. The Holding Company
may redeem any of its debentures, in whole or in part, at any time for face
value.
Scheduled contractual maturities as of March 31, 2005 are as follows:
($in thousands) Principal Accrued Interest
- --------------------------------------------------------------------------
For the nine-months ended December 31, 2005 $ 26,510 $ 3,492
For the year ended December 31, 2006 10,264 1,952
For the year ended December 31, 2007 7,015 143
For the year ended December 31, 2008 17,076 2,492
For the year ended December 31, 2009 8,517 198
Thereafter 22,667 264
- --------------------------------------------------------------------------
$ 92,049 $ 8,541
- --------------------------------------------------------------------------
9
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 7 - FEDERAL FUNDS PURCHASED, FEDERAL HOME LOAN BANK ADVANCES AND LINES OF
CREDIT
From time to time, the Bank may borrow funds on an overnight or short-term basis
to manage its liquidity needs. At March 31, 2005, the Bank has agreements with
correspondent banks whereby it may borrow up to $16,000,000 of federal funds on
an unsecured basis. In addition, as a member of the Federal Home Loan Bank of
New York (FHLB) and the Federal Reserve Bank of New York (FRB), the Bank can
also borrow from these institutions on a secured basis up to an aggregate of
approximately $230,000,000 based on available collateral at March 31, 2005.
The following is a summary of certain information regarding short-term
borrowings in the aggregate:
Quarter Ended Quarter Ended
($in thousands) March 31, 2005 March 31, 2004
- -------------------------------------------------------------------------------------
Balance at period end (1) $ 15,000 $ -
Maximum amount outstanding at any month end $ 17,000 $ -
Average outstanding balance for the period $ 13,911 $ -
Weighted-average interest rate paid for the period 2.62% -%
Weighted-average interest rate at period end 2.96% -%
- -------------------------------------------------------------------------------------
(1) The balance at March 31, 2005 represents FHLB advances of $15,000,000 due in
April 2005. The amounts were repaid. The balance at year-end 2004 represents
FHLB advances of $19,000,000 due in January 2005 and $17,000,000 in February
2005. The amounts were repaid.
NOTE 8 - COMMON STOCK WARRANTS
The Holding Company has 696,465 common stock warrants outstanding that entitle
its holder, the Chairman of the Board of the Holding Company, to purchase one
share of common stock for each warrant. All warrants are currently exercisable.
Data concerning common stock warrants is as follows:
Exercise Price Per Warrant
-------------------------- Wtd-Avg
Class A Common Stock Warrants: $6.67 Exercise Price
- --------------------------------------------------------------------------------------------------
Outstanding at December 31, 2004 and March 31, 2005 501,465 $6.67
- ----------------------------------------------------------------------------------
Remaining contractual life in years at March 31, 2005 1.8
- --------------------------------------------------------------------------------------------------
Exercise Price Per Warrant
-------------------------- Total Wtd-Avg
Class B Common Stock Warrants: $6.67 $10.00 Warrants Exercise Price
- --------------------------------------------------------------------------------------------------
Outstanding at December 31, 2004 and March 31, 2005 145,000 50,000 195,000 $7.52
- ---------------------------------------------------------------------------------
Remaining contractual life in years at March 31, 2005 2.8 2.8 2.8
- --------------------------------------------------------------------------------------------------
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 common stock warrants
amounted to $7,000 for the quarter ended March 31, 2004. There was no such
compensation for the quarter ended March 31, 2005.
NOTE 9 - EARNINGS PER SHARE (EPS)
Basic EPS is calculated by dividing net earnings the weighted-average number of
shares of common stock outstanding. Diluted EPS is calculated by dividing
adjusted net earnings by the weighted-average number of shares of common stock
and dilutive potential common stock shares that may be outstanding in the
future.
Potential common stock shares consist of shares that may arise from outstanding
dilutive common stock warrants (the number of which is computed using the
"treasury stock method") and from outstanding convertible debentures (the number
of which is computed using the "if converted method"). Diluted EPS considers the
potential dilution that could occur if the Company's outstanding common stock
warrants and convertible debentures were converted into common stock that then
shared in the Company's earnings (as adjusted for interest expense, net of
taxes, that would no longer occur if the debentures were converted).
10
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 9 - EARNINGS PER SHARE (EPS), CONTINUED
Net earnings applicable to common stock and the weighted-average number of
shares used for basic and diluted earnings per share computations are summarized
in the table that follows:
Quarter Ended
March 31,
----------------------
($in thousands, except share and per share amounts) 2005 2004
- -----------------------------------------------------------------------------------------------
Basic earnings per share:
Net earnings applicable to common stockholders $ 3,248 $ 2,735
Average number of common shares outstanding 6,273,843 6,042,847
- -----------------------------------------------------------------------------------------------
Basic net earnings per share amount $ 0.52 $ 0.45
- -----------------------------------------------------------------------------------------------
Diluted earnings per share:
Net earnings applicable to common stockholders $ 3,248 $ 2,735
Adjustment to net earnings from assumed conversion of debentures (1) 55 82
----------------------
Adjusted net earnings for diluted earnings per share computation $ 3,303 $ 2,817
----------------------
Average number of common shares outstanding:
Common shares outstanding 6,273,843 6,042,847
Potential dilutive shares resulting from exercise of warrants (2) 255,207 253,362
Potential dilutive shares resulting from conversion of debentures (3) 342,719 592,279
----------------------
Total average number of common shares outstanding used for dilution 6,871,769 6,888,488
- -----------------------------------------------------------------------------------------------
Diluted net earnings per share amount $ 0.48 $ 0.41
- -----------------------------------------------------------------------------------------------
(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, 2005 and 2004 totaling $4,798,000 and $7,069,000, respectively,
were convertible into common stock at a price of $14.00 per share in 2005
and $12.00 per share in 2004 and resulted in additional common shares
(based on average balances outstanding).
NOTE 10 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company is a 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 consolidated financial statements. 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 credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary 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. 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.
The contractual amounts of the Company's off-balance sheet financial instruments
is as follows:
At March 31, At December 31,
------------- ----------------
($in thousands) 2005 2004
- ---------------------------------------------------------------------
Unfunded loan commitments $ 136,956 $ 159,697
Available lines of credit 937 789
Standby letters of credit 750 750
- ---------------------------------------------------------------------
$ 138,643 $ 161,236
- ---------------------------------------------------------------------
11
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 11 - 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, 2005, 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 11.23% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 10.13% 4.00% 6.00%
Tier 1 capital to total average assets - leverage ratio 8.66% 4.00% 5.00%
At March 31, 2005, the actual capital of the Company (consolidated) on a
percentage basis was as follows:
Actual Minimum To Be Considered
Ratios Requirement Well Capitalized
------- ----------- ----------------
Total capital to risk-weighted assets 13.51% 8.00% NA
Tier 1 capital to risk-weighted assets 10.05% 4.00% NA
Tier 1 capital to total average assets - leverage ratiO 8.67% 4.00% NA
The Federal Reserve on March 1, 2005 issued a final rule that allows trust
preferred securities to continue to be included in the Tier 1 capital of bank
holding companies (BHC), but with stricter quantitative limits and clearer
qualitative standards. The new rule provides a transition period for BHCs to
meet the new, stricter limitations within regulatory capital by allowing the
limits on restricted core capital elements to become fully effective as of March
31, 2009. For a further discussion of these regulatory implications, see the
section entitled "Recent Accounting and Regulatory Developments" in note 1 to
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2004.
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, 2005, Intervest Securities Corporation's net
capital was $479,000.
NOTE 12 - RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment," SFAS No. 123-R). SFAS No. 123-R requires companies to recognize in the
income statement the grant-date fair value of stock options and other
equity-based compensation issued to employees and directors, but expresses no
preference for a type of valuation model. SFAS No. 123-R eliminates the
intrinsic value-based method that the Company currently uses.
On April 14, 2005 the U.S. Securities and Exchange Commission announced a
deferral of the effective date of SFAS No. 123-R for calendar year companies
until the beginning of 2006. The Company's financial statements will be prepared
in accordance with this new standard if and when the Company issues any new
stock warrants and/or options to employees or directors in the future. The
amount of any impact cannot be determined at this juncture.
12
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARIES
REVIEW BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Hacker, Johnson & Smith, P.A., P.C., the Company's independent registered
public accounting firm, has made a limited review of the financial data as of
March 31, 2005 and for the three-month periods ended March 31, 2005 and 2004
presented in this document, in accordance with the standards established by the
Public Company Accounting Oversight Board. 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.
The reports of Hacker, Johnson & Smith, P.A., P.C. and Eisner, LLP
furnished pursuant to Article 10 of Regulation S-X are included herein.
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
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, 2005 and the related condensed consolidated statements of earnings, changes
in stockholders' equity and cash flows for the three-month periods ended March
31, 2005 and 2004. These interim financial statements are the responsibility of
the Company's management.
We were furnished the reports of the other independent registered public
accounting firm on their reviews of the interim financial information of
Intervest Mortgage Corporation, whose total assets as of March 31, 2005
constituted 7.9% of the related consolidated total, and whose net interest
income, noninterest income and net earnings for the three-month period then
ended, constituted 6.0%, 12.4%, and 19.2%; and whose net interest income,
noninterest income and net earnings for the three-month period ended March 31,
2004, constituted 5.0%, 20.5%, and 18.8%, respectively, of the related
consolidated totals.
We conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 the standards of the Public Company Accounting Oversight Board,
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 the other independent registered public
accounting firm, 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 U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board, the consolidated balance sheet of the
Company as of December 31, 2004, 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 March
11, 2005, we, based on our audit and the report of the other independent
registered public accounting firm, 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, 2004 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
April 29, 2005
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2005 and the
related condensed consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three-month periods ended
March 31, 2005 and 2004 (all of which are not presented separately herein).
These interim financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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 the standards of the Public Company Accounting Oversight Board,
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 U.S. generally accepted accounting principles.
We previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
the Company as of December 31, 2004 and the related consolidated statements of
operations, changes in stockholder's equity and cash flows for the year then
ended (not presented herein), and in our report dated February 10, 2005, 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, 2004 (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 22, 2005
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
-------
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 four
wholly owned unconsolidated subsidiaries, Intervest Statutory Trust I, II, III
and IV. 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 income tax expense.
Noninterest income consists mostly of loan and other banking fees as well as
income from loan prepayments. When a mortgage loan is repaid prior to maturity,
the Company may recognize prepayment income, which consists largely of the
recognition of unearned fees associated with such loans at the time of payoff
and the receipt of additional prepayment fees and interest in certain cases. The
amount of income from loan prepayments can fluctuate significantly and cannot be
predicted. 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 provisions relating to prepayment 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 and continues to be
concentrated in commercial real estate and multifamily mortgage loans (including
land loans), which represented nearly all of the Company's loan portfolio. 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.
All loans are subject to the risk of default, otherwise known as credit risk,
which represents the possibility of the Company not recovering amounts due from
its borrowers. A borrower's ability to make payments due under a mortgage loan
is related to the Company's underwriting standards and is dependent upon the
risks associated with real estate investments in general, including: general or
local economic conditions in the areas the properties are located, neighborhood
values, interest rates, real estate tax rates, operating expenses of the
mortgaged properties, supply of and demand for rental units, supply of and
demand for properties, ability to obtain and maintain adequate occupancy of the
properties, zoning laws, governmental rules, regulations and fiscal policies.
Additionally, terrorist acts, such as those that occurred on September 11, 2001,
armed conflicts, such as the war on terrorism, and natural disasters, such as
hurricanes, may have an adverse impact on economic conditions. Economic
conditions affect the market value of the underlying collateral as well as the
levels of occupancy of income-producing properties.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2005 AND DECEMBER 31, 2004
-------------------------------------------------------------------------
OVERVIEW
- --------
Total assets at March 31, 2005 increased to $1,427,439,000, from $1,316,751,000
at December 31, 2004. Total liabilities at March 31, 2005 increased to
$1,334,063,000, from $1,226,657,000 at December 31, 2004, and stockholders'
equity increased to $93,376,000 at March 31, 2005, from $90,094,000 at year-end
2004. Book value per common share increased to $14.88 per share at March 31,
2005, from $14.37 at December 31, 2004.
16
Selected balance sheet information as of March 31, 2005 follows:
Holding Intervest Intervest Intervest Inter-
Company National Mortgage Securities Company
($in thousands) Bank Corp. Corp. Amounts (1) Combined
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 5,657 $ 28,804 $ 26,500 $ 468 $ (12,082) $ 49,347
Security investments - 259,846 - - - 259,846
Loans receivable, net of deferred fees 13,975 992,770 88,416 - - 1,095,161
Allowance for loan losses (85) (11,722) (332) - - (12,139)
Investment in consolidated subsidiaries 138,067 - - - (138,067) -
All other assets 5,601 25,205 4,871 14 (467) 35,224
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 163,215 $1,294,903 $ 119,455 $ 482 $ (150,616) $1,427,439
- ---------------------------------------------------------------------------------------------------------------------------
Deposits $ - $1,135,770 $ - $ - $ (12,113) $1,123,657
Borrowed funds and related interest payable 69,779 15,242 92,974 - - 177,995
All other liabilities 60 30,456 2,328 3 (436) 32,411
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 69,839 1,181,468 95,302 3 (12,549) 1,334,063
- ---------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 93,376 113,435 24,153 479 (138,067) 93,376
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 163,215 $1,294,903 $ 119,455 $ 482 $ (150,616) $1,427,439
- ---------------------------------------------------------------------------------------------------------------------------
(1) All significant intercompany balances and transactions are eliminated in
consolidation. Such amounts arise largely from intercompany deposit
accounts and investments.
A comparison of selected balance sheet information as of March 31, 2005 and
December 31, 2004 follows:
At March 31, 2005 At December 31, 2004
------------------------ --------------------------
Carrying % of Carrying % of
($in thousands) Value Total Assets Value Total Assets
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 49,347 3.4% $ 24,599 1.9%
Security investments 259,846 18.2 253,980 19.3
Loans receivable, net of deferred fees and loan loss allowance 1,083,022 75.9 1,004,290 76.3
All other assets 35,224 2.5 33,882 2.5
- ---------------------------------------------------------------------------------------------------------------------
Total assets $1,427,439 100.0% $1,316,751 100.0%
- ---------------------------------------------------------------------------------------------------------------------
Deposits $1,123,657 78.7% $ 993,872 75.5%
Borrowed funds and related interest payable 177,995 12.5 202,682 15.4
All other liabilities 32,411 2.3 30,103 2.2
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 1,334,063 93.5 1,226,657 93.1
- ---------------------------------------------------------------------------------------------------------------------
Stockholders' equity 93,376 6.5 90,094 6.9
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,427,439 100.0% $1,316,751 100.0%
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
- ----------------------------
Cash and cash equivalents increased to $49,347,000 at March 31, 2005, from
$24,599,000 at December 31, 2004. The level of cash and cash equivalents
fluctuates based on various factors, including liquidity needs, loan demand,
deposit flows, calls of securities, repayments of borrowed funds and alternative
investment opportunities. On April 1, 2005, $14,052,000 was used for the payment
of principal and interest due on Intervest Mortgage Corporation's debentures
that matured on April 1, 2005 and $1,100,000 was used for normal quarterly
interest payments due on Intervest Mortgage Corporation's remaining outstanding
debentures.
SECURITY INVESTMENTS
- ---------------------
Securities for which the Company has the intent and ability to hold to maturity
are classified as held to maturity and carried at amortized cost. Such
securities increased to $254,754,000 at March 31, 2005, from $248,888,000 at
December 31, 2004. The increase was due to new purchases exceeding maturities
and early calls during the period. The Company continues to invest in short-term
(up to 5 years) U.S. government agency debt obligations to emphasize liquidity
and to target Intervest National Bank's loan-to-deposit ratio at approximately
80%. The investment portfolio at March 31, 2005 had a weighted-average remaining
maturity of 1.3 years and a weighted-average yield of 2.53%, compared to 1.4
years and 2.33%, respectively, at December 31, 2004. At March 31, 2005 and
December 31 2004, the portfolio's estimated fair value was $251,777,000 and
$247,211,000, respectively.
The Bank's total investment in the Federal Reserve Bank and the Federal Home
Loan Bank of New York stock was unchanged and amounted to $5,092,000 at March
31, 2005 and December 31, 2004.
17
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 $1,083,022,000 at March 31, 2005 from $1,004,290,000 at December
31, 2004. The growth reflected new originations of commercial real estate
mortgage loans, multifamily mortgage loans and land loans, partially offset by
principal repayments. New loan originations totaled $151,447,000 in the first
quarter of 2005 compared to $162,690,000 in the first quarter of 2004.
At March 31, 2005 and December 31, 2004, $4,607,000 of loans were on a
nonaccrual status. These loans were considered impaired under the criteria of
SFAS No.114, but no valuation allowance was maintained at any time since the
Company believes that the estimated fair value of the underlying properties
exceeded the Company's recorded investment. At March 31, 2005 and December 31,
2004, there were no other impaired loans or loans ninety days past due and still
accruing interest. In April 2005, a nonaccrual loan with a principal balance of
$3,857,000 was paid in full and the Bank recovered all amounts due thereunder.
At March 31, 2005, the allowance for loan losses amounted to $12,139,000,
compared to $11,106,000 at December 31, 2004. The allowance represented 1.11% of
total loans (net of deferred fees) outstanding at March 31, 2005 and 1.09% at
December 31, 2004. The increase in the allowance was due to provisions
aggregating $1,033,000 during the period resulting largely from loan growth,
which amounted to $79,896,000 during the period. For a further discussion of all
the criteria the Company uses to determine the adequacy of the allowance, see
pages 22 and 23 in the Company's Annual Report on Form 10-K for the year ended
December 31, 2004.
ALL OTHER ASSETS
- ------------------
The following table sets forth the composition of the caption "All other assets"
in the table on page 17:
At March 31, At December 31,
------------- ----------------
($in thousands) 2005 2004
- ---------------------------------------------------------------------------
Accrued interest receivable $ 7,098 $ 6,699
Loans fee receivable 8,732 8,208
Premises and equipment, net 6,610 6,636
Deferred income tax asset 5,547 5,095
Deferred debenture offering costs, net 4,664 4,929
Investment in unconsolidated subsidiaries 1,856 1,856
All other 717 459
- ---------------------------------------------------------------------------
$ 35,224 $ 33,882
- ---------------------------------------------------------------------------
Accrued interest receivable fluctuates based on the amount of loans, investments
and other interest-earning assets outstanding and the timing of interest
payments received. The increase was due to the growth in all of these assets.
Loan fees receivable are fees due to the Company in accordance with the terms of
mortgage loans. Such amounts are generally due upon the full repayment of the
loan. This fee is recorded as deferred income at the time a loan is originated
and is then amortized to interest income over the life of the loan as a yield
adjustment. The increase was due to an increase in mortgage loan originations.
Premises and equipment remained relatively unchanged as net additions of
$103,000 during the quarter were offset by normal depreciation and amortization.
The deferred income tax asset relates primarily to the unrealized tax benefit on
the Company's allowance for loan losses. The allowance has been expensed for
financial statement purposes but it is currently not deductible for income tax
purposes until actual losses are incurred. The increase in the deferred tax
asset is a function of the increase in the allowance for loan losses during the
period.
Deferred debenture offering costs consist primarily of underwriters' commissions
and are amortized over the terms of the debentures. The decrease was due to
normal amortization during the period.
The investment in unconsolidated subsidiaries consists of the Holding Company's
$464,000 common stock investment in each of its unconsolidated subsidiaries,
Intervest Statutory Trust I, II, II and IV.
18
DEPOSITS
- --------
Deposits increased to $1,123,657,000 at March 31, 2005, from $993,872,000 at
December 31, 2004. The increase reflected an increase in certificate of deposit
accounts of $143,573,000, partially offset by a decrease in checking, savings
and money market accounts aggregating $13,788,000. At March 31, 2005,
certificate of deposit accounts totaled $888,344,000 and checking, savings and
money market accounts aggregated $235,313,000. The same categories of deposit
accounts totaled $744,771,000 and $249,101,000, respectively, at December 31,
2004. Certificate of deposit accounts represented 79% of total deposits at March
31, 2005 and 75% at December 31, 2004.
BORROWED FUNDS AND RELATED INTEREST PAYABLE
- ------------------------------------------------
At March 31, 2005, borrowed funds and related interest payable decreased to
$177,995,000, from $202,682,000 at year-end 2004. The decrease primarily
reflected a $21,000,000 reduction in short-term FHLBNY borrowings by Intervest
National Bank and the payment of principal and interest totaling $4,500,000 of
Intervest Mortgage Corporation's debentures that matured on January 1, 2005.
ALL OTHER LIABILITIES
- -----------------------
The table below sets forth the composition of the caption "All other
liabilities" in the table on page 17 as follows:
At March 31, At December 31,
------------- ----------------
($in thousands) 2005 2004
- ----------------------------------------------------------------------
Mortgage escrow funds payable $ 19,914 $ 14,533
Official checks outstanding 6,578 12,061
Accrued interest payable on deposits 2,131 1,718
All other 3,788 1,791
- ----------------------------------------------------------------------
$ 32,411 $ 30,103
- ----------------------------------------------------------------------
Mortgage escrow funds payable represent advance payments made by borrowers for
taxes and insurance that are remitted to third parties. The increase reflected
the growth in the loan portfolio. Official checks outstanding varies and
fluctuates based on banking activity. Accrued interest payable on deposits
fluctuates based on total deposits and timing of interest payments. The increase
reflected the growth in deposits. All other is comprised mainly of accrued
expenses, income taxes payable (which fluctuates based on the Company's
earnings, effective tax rate and timing of tax payments) and fees received on
loan commitments that have not yet been funded. The increase reflected a higher
level of income taxes payable.
STOCKHOLDERS' EQUITY
- ---------------------
Stockholders' equity increased to $93,376,000 at March 31, 2005 from $90,094,000
at year-end 2004 as follows:
($in thousands) Amount Shares
- --------------------------------------------------------------------------------------
Stockholders' equity at December 31, 2004 $90,094 6,271,433
Net earnings for the period 3,248 -
Convertible debentures converted at election of debenture holders 34 2,410
- --------------------------------------------------------------------------------------
Stockholders' equity at March 31, 2005 $93,376 6,273,843
- --------------------------------------------------------------------------------------
ASSET AND LIABILITY MANAGEMENT
------------------------------
Interest rate risk arises from differences in the repricing of assets and
liabilities within a given time period. The Company does not engage in trading
or hedging activities, nor does it invest in interest rate derivatives or enter
into interest rate swaps. 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 its net interest income and capital. 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 "gap analysis" and the assumptions used in preparing the
gap analysis that follows, see pages 28 and 29 of the Company's Annual Report on
Form 10-K for the year ended December 31, 2004.
The Company's one-year positive interest rate sensitivity gap amounted to
$242,363,000, or 17.0% of total assets, at March 31, 2005, compared to
$114,022,000, or 8.7% at December 31, 2004. The increase in the positive gap
primarily reflects an increase in loans that reprice or mature within one year
funded by time deposits with terms of more than 1 year. For purposes of
computing the gap, all deposits with no stated maturities are treated as readily
accessible accounts. However, if such deposits were treated differently, the
one-year gap would then change. The
19
behavior of core depositors may not necessarily result in the immediate
withdrawal of funds in the event deposit rates offered by the Bank did not
change as quickly and uniformly as changes in general market rates. For example,
if only 25% of deposits with no stated maturity were assumed to be readily
accessible, the one-year gap would have been a positive 28.9% at March 31, 2005,
compared to a positive 22.5% at year-end 2004.
The table below summarizes interest-earning assets and interest-bearing
liabilities as of March 31, 2005, that are scheduled to mature or reprice within
the periods shown.
0-3 4-12 Over 1-4 Over 4
--------- --------- ---------- ---------
($in thousands) Months Months Years Years Total
- ----------------------------------------------------------------------------------------------------
Loans (1) $331,027 $335,238 $ 291,007 $149,367 $1,106,639
Securities held to maturity (2) 39,620 94,147 119,876 1,111 254,754
Short-term investments 27,473 - - - 27,473
FRB and FHLB stock 2,628 - - 2,464 5,092
- ----------------------------------------------------------------------------------------------------
Total rate-sensitive assets $400,748 $429,385 $ 410,883 $152,942 $1,393,958
- ----------------------------------------------------------------------------------------------------
Deposit accounts (3):
Interest checking deposits $ 10,963 $ - $ - $ - $ 10,963
Savings deposits 23,313 - - - 23,313
Money market deposits 193,118 - - - 193,118
Certificates of deposit 77,391 233,801 390,526 186,626 888,344
- ----------------------------------------------------------------------------------------------------
Total deposits 304,785 233,801 390,526 186,626 1,115,738
- ----------------------------------------------------------------------------------------------------
FHLB advances 15,000 - - - 15,000
Debentures and mortgage note payable (1) 25,250 4,250 62,238 62,167 153,905
Accrued interest on all borrowed funds (1) 4,034 650 3,944 462 9,090
- ----------------------------------------------------------------------------------------------------
Total borrowed funds 44,284 4,900 66,182 62,629 177,995
- ----------------------------------------------------------------------------------------------------
Total rate-sensitive liabilities $349,069 $238,701 $ 456,708 $249,255 $1,293,733
- ----------------------------------------------------------------------------------------------------
GAP (repricing differences) $ 51,679 $190,684 $ (45,825) $(96,313) $ 100,225
- ----------------------------------------------------------------------------------------------------
Cumulative GAP $ 51,679 $242,363 $ 196,538 $100,225 $ 100,225
- ----------------------------------------------------------------------------------------------------
Cumulative GAP to total assets 3.6% 17.0% 13.8% 7.0% 7.0%
- ----------------------------------------------------------------------------------------------------
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 readily 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 from the
federal funds market, FHLB advances and cash provided by operating activities.
For additional information concerning the Company's cash flows, see the
condensed 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 also borrow from these
institutions on a secured basis up to an aggregate of approximately $230,000,000
based on available collateral at March 31, 2005. The Bank also has federal funds
line of credit agreements with correspondent banks whereby it can borrow on an
overnight, unsecured basis of up to $16,000,000 at March 31, 2005.
OFF-BALANCE SHEET AND OTHER FINANCING ARRANGEMENTS
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. For a
further discussion of these financial instruments, see note 10 to the condensed
consolidated financial statements in this report.
20
COMPARISON OF RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 2005 AND
-----------------------------------------------------------------------------
2004
----
OVERVIEW
- --------
Consolidated net earnings for the first quarter of 2005 increased by 19% to
$3,248,000 or $0.48 per diluted share, from $2,735,000 or $0.41 per diluted
share reported in the first quarter of 2004. The 2005 first quarter results
represent the highest quarterly earnings ever reported by the Company. The
improvement in quarterly earnings was due to the continued growth in the
Company's lending activities.
The increase in consolidated earnings of $513,000 was due a $1,907,000 increase
in net interest and dividend income and a $44,000 decrease in the provision for
loan losses, partially offset by a $578,000 decrease in noninterest income, a
$456,000 increase in noninterest expenses and a $404,000 increase in income tax
expense.
The Company's efficiency ratio, which is a measure of its ability to control
expenses as a percentage of its revenues, continues to be favorable at 26% for
the first quarter of 2005. The Company's return on average assets and equity was
0.94% and 14.25%, respectively, in the 2005 quarter, compared to 1.15% and
14.32% in the 2004 quarter.
Selected information regarding results of operations for the first quarter of
2005 follows:
Intervest Intervest Intervest Inter-
National Mortgage Securities Holding Company
($in thousands) Bank Corp. Corp. Company Amounts (2) Combined
- ---------------------------------------------------------------------------------------------------------------------
Interest and dividend income $ 18,048 $ 2,392 $ 2 $ 229 $ (103) $ 20,568
Interest expense 9,236 1,897 - 1,253 (103) 12,283
-------------------------------------------------------------------------
Net interest and dividend income 8,812 495 2 (1,024) - 8,285
Provision for loan losses 1,033 - - - - 1,033
Noninterest income 769 1,402 - 113 (1,406) 878
Noninterest expenses 2,920 732 6 122 (1,406) 2,374
-------------------------------------------------------------------------
Earnings before taxes 5,628 1,165 (4) (1,033) - 5,756
Provision for income taxes 2,447 540 (2) (477) - 2,508
- ---------------------------------------------------------------------------------------------------------------------
Net earnings $ 3,181 $ 625 $ (2) $ (556) $ - $ 3,248
- ---------------------------------------------------------------------------------------------------------------------
Intercompany dividends (1) (1,089) - - 1,089 - -
- ---------------------------------------------------------------------------------------------------------------------
Net earnings after intercompany dividends $ 2,092 $ 625 $ (2) $ 533 $ - $ 3,248
- ---------------------------------------------------------------------------------------------------------------------
Net earnings after intercompany dividends
for the same period of 2004 $ 1,907 $ 513 $ 10 $ 305 $ - $ 2,735
- ---------------------------------------------------------------------------------------------------------------------
(1) Dividends to the Holding Company from the Bank provide funds for the debt
service on the subordinated debentures-capital securities, which is
included in the Holding Company's interest expense.
(2) All significant intercompany balances and transactions are eliminated in
consolidation. Such amounts arise from intercompany deposit accounts and
management and service agreements.
NET INTEREST AND DIVIDEND INCOME
- ------------------------------------
Net interest and dividend income is the Company's primary source of earnings and
is influenced primarily by the amount, distribution and repricing
characteristics of its interest-earning assets and interest-bearing liabilities
as well as by the relative levels and movements of interest rates.
Net interest and dividend income increased to $8,285,000 in the first quarter of
2005, from $6,378,000 in the first quarter of 2004. The improvement was
attributable to a $430,517,000 increase in average interest-earning assets
resulting from continued growth in loans of $346,077,000 and a higher level of
security and short-term investments aggregating $84,440,000. The growth in
average assets was funded by $379,177,000 of additional interest-bearing
deposits, $28,316,000 of additional borrowed funds and a $14,736,000 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 2.47% in the first quarter of
2005, from 2.75% in the first quarter of 2004. The lower margin was due to a
decrease in the Company's yield on interest-earning assets and a slight increase
in its cost of funds.
The yield on interest-earning assets decreased 18 basis points to 6.12% in the
2005 quarter due to lower rates on new mortgage loans originated and the effect
of loan prepayments during 2004, partially offset by higher yields
21
earned on security and other short-term investments. The cost of funds increased
by 7 basis points to 3.98% in the 2005 quarter due to higher rates paid on
deposit accounts, largely offset by a decrease in the cost of borrowed funds
resulting primarily from the addition of debentures with lower rates than
existing ones.
Interest income that was not recorded on nonaccrual loans under their
contractual terms amounted to $104,000 for the quarter ended March 31, 2005,
compared to $28,000 for the same period of 2004. The average balance of
nonaccrual loans for the quarter ended March 31, 2005 and 2004 was $4,607,000
and $5,290,000, respectively.
The following table provides information on: average assets, liabilities and
stockholders' equity; yields earned on interest-earning assets; and rates paid
on interest-bearing liabilities for the periods indicated. The yields and rates
shown are based on a computation of income/expense (including any related fee
income or expense) for each period divided by average interest-earning
assets/interest-bearing liabilities during each period. Average balances are
derived from daily balances. Net interest margin is computed by dividing net
interest and dividend income by the average of total interest-earning assets
during each period.
------------------------------------------------------------------
Quarter Ended
------------------------------------------------------------------
March 31, 2005 March 31, 2004
--------------------------------- -------------------------------
Average Interest Yield/ Average Interest Yield/
($in thousands) Balance Inc./Exp. Rate (2) Balance Inc./Exp. Rate (2)
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Loans (1) $1,071,862 $ 18,811 7.12% $725,785 $ 13,792 7.64%
Securities 258,037 1,563 2.46 165,475 705 1.71
Other interest-earning assets 32,433 194 2.43 40,555 96 0.95
- ---------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,362,332 $ 20,568 6.12% 931,815 $ 14,593 6.30%
- ---------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 15,153 16,436
- ---------------------------------------------------------------------------------------------------------------------
Total assets $1,377,485 $948,251
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest checking deposits $ 13,441 $ 52 1.57% $ 10,366 $ 40 1.55%
Savings deposits 25,268 113 1.81 30,993 137 1.78
Money market deposits 194,375 1,059 2.21 167,766 742 1.78
Certificates of deposit 844,031 7,815 3.76 488,813 4,393 3.61
- ---------------------------------------------------------------------------------------------------------------------
Total deposit accounts 1,077,115 9,039 3.40 697,938 5,312 3.06
- ---------------------------------------------------------------------------------------------------------------------
Fed funds purchased and FHLB Advances 13,911 90 2.62 - - -
Debentures and related interest payable 99,197 2,060 8.42 113,159 2,233 7.94
Debentures - capital securities 61,856 1,090 7.15 33,477 666 8.00
Mortgage note payable 241 4 7.00 253 4 7.04
- ---------------------------------------------------------------------------------------------------------------------
Total borrowed funds 175,205 3,244 7.51 146,889 2,903 7.95
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,252,320 $ 12,283 3.98% 844,827 $ 8,215 3.91%
- ---------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 6,186 6,179
Noninterest-bearing liabilities 27,820 20,822
Stockholders' equity 91,159 76,423
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,377,485 $948,251
- ---------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $ 8,285 2.14% $ 6,378 2.39%
- ---------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 110,012 2.47% $ 86,988 2.75%
- ---------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.09 1.10
- ---------------------------------------------------------------------------------------------------------------------
OTHER RATIOS:
Return on average assets (2) 0.94% 1.15%
Return on average equity (2) 14.25% 14.32%
Noninterest expense to average assets (2) 0.69% 0.81%
Efficiency ratio (3) 26% 24%
Average stockholders' equity to average assets 6.62% 8.06%
- ---------------------------------------------------------------------------------------------------------------------
(1) Includes nonaccrual loans.
(2) Annualized.
(3) Defined as noninterest expenses (excluding the provision for loan losses)
as a percentage of net interest and dividend income plus noninterest
income.
22
PROVISION FOR LOAN LOSSES
- ----------------------------
The provision for loan losses decreased by $44,000 to $1,033,000 in the first
quarter of 2005, from $1,077,000 in the first quarter of 2004. The lower
provision was a function of a decrease in the amount of loan growth, which
amounted to $79,896,000 in the 2005 quarter versus $92,889,000 in the 2004
quarter.
NONINTEREST INCOME
- -------------------
Noninterest income decreased by $578,000 to $878,000 in the first quarter of
2005, from $1,456,000 in the first quarter of 2004. The lower income was
primarily due to a $502,000 decrease in income from the prepayment of mortgage
loans. Income from the prepayment of mortgage loans consists largely of the
recognition of unearned fees associated with such loans at the time of payoff
and the receipt of prepayment penalties and interest in certain cases. The
Company's income from loan prepayments, which fluctuates and cannot be
predicted, tends to increase during periods of declining interest rates and
tends to decrease during periods of increasing interest rates.
NONINTEREST EXPENSES
- ---------------------
Noninterest expenses increased by $456,000 to $2,374,000 in the first quarter of
2005, from $1,918,000 in the first quarter of 2004. The increase was primarily
due to increases in the following: salary and employee benefits expense of
$324,000; professional fees expense of $36,000; advertising expense of $34,000;
and director and committee fees expense of $34,000.
Salaries and employee benefits expense increased primarily due to $210,000 from
salary increases, a higher cost of employee benefits and additional staff, and a
$136,000 increase in bonus payments to certain executives of the Company. These
items were partially offset by a $28,000 decrease in commission expense. The
Company had 67 fulltime employees at March 31, 2005 versus 62 at March 31, 2004.
Professional fees expense increased $18,000 due to the growth in assets as well
as additional accruals of $18,000 for consulting expense associated with the
ongoing compliance efforts associated with the Sarbanes-Oxley Act of 2002.
Advertising expense increased due to additional advertising to support loan
growth.
Director and committee fees increased due to higher fees paid to directors for
each board and committee meeting attended. The fees were increased in October
2004.
PROVISION FOR INCOME TAXES
- -----------------------------
The provision for income taxes increased by $404,000 to $2,508,000 in the first
quarter of 2005, from $2,104,000 in the first quarter of 2004, due to an
increase in pre-tax income. The Company's effective tax rate (inclusive of
state and local taxes) amounted to 43.6% in the 2005 period, compared to 43.5%
in the 2004 period.
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 has not engaged in and accordingly has no risk
related to trading accounts, commodities, foreign exchange, hedging activities,
interest rate derivatives or interest rate swaps. 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 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, 2004, 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, 2004. Management believes that there have been no significant
changes in the Company's market risk exposure since December 31, 2004.
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. For a further
discussion, see the section "Asset and Liability Management" under Item 2 of
this report.
23
ITEM 4. CONTROLS AND PROCEDURES
The Company's management evaluated, with the participation of its Principal
Executive and Financial Officers, the effectiveness of the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934) as of the end of the period covered by this
report. Based on such evaluation, the Principal Executive and Financial Officers
have concluded that the Company's disclosure controls and procedures are
designed to ensure that information required to be disclosed in the reports the
Company files or furnishes under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and regulations, and are operating in an effective manner.
The Company made no significant changes in its internal control over financial
reporting or in other factors that could significantly affect these controls
subsequent to March 31, 2005.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Not Applicable
(b) Not Applicable
(c) 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
(b) Not Applicable
ITEM 6. EXHIBITS
The following exhibits are filed as part of this report.
4.0 Form of Indenture between the Company's subsidiary, Intervest Mortgage
Corporation, and The Bank of New York dated as of April 1, 2005,
incorporated by reference to Intervest Mortgage Corporation's quarterly
report on Form 10-Q filed for the quarter ended March 31, 2005, wherein
such document is identified as Exhibit 4.0.
31.0 Certification of the principal executive officer pursuant to Section 302 of
The Sarbanes-Oxley Act of 2002.
31.1 Certification of the principal financial officer pursuant to Section 302 of
The Sarbanes-Oxley Act of 2002.
32.0 Certification of the principal executive and financial officers pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002.
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
Date: May 2, 2005 By: /s/ Jerome Dansker
---------------------------------
Jerome Dansker, Chairman and
Executive Vice President
(Principal Executive Officer)
Date: May 2, 2005 By: /s/ Lowell S. Dansker
---------------------------------
Lowell S. Dansker, Vice Chairman,
President and Treasurer
(Principal Financial Officer)
25